A New Year's Look Back at 2008 and Forward to 2009

Policyholder Advisor & Alert

PUBLISHED ON: February 11, 2009

We at Anderson Kill would like to share with you some important developments in insurance recovery from the past 12 months. Courts in 2008 cast a cold eye on many attempts to avoid coverage advanced by insurance companies. Here are some of the year’s developments in insurance recovery at Anderson Kill:

Directors and Officers Liability Insurance

Advancement of Full Defense Costs (Criminal). The Delaware Superior Court rejected an attempt by D&O insurance companies to allocate defense costs, instead required full advancement of defense costs, and found that excess polices can be triggered when the policyholder has spent the limit of underlying insurance. HLTH Corporation and Emdeon Practice Services, Inc. v. Federal Insurance Co., et al.;

Advancement of Full Defense Costs (Civil). The New York State Supreme Court, the Appellate Division and the Court of Appeals, upheld the broad obligation of a D&O insurance company to pay defense costs when incurred. The court entered judgment on the full amount of the policy limits plus pre- and post- judgment interest. The Trustees of Princeton University vs. Nation Union and AIG, No. 650 202/06;

Insurance for Environmental Liabilities. A California Appellate Court ruled that when a policyholder cannot distinguish between the covered and non-covered portions of a loss, then insurance providers must cover a loss unless they meet the burden of demarcating the non-covered part of the loss. If upheld by the California Supreme Court, the decision in favor of the State of California will provide policyholders with an important bulwark against anti-concurrent causation clauses; Anderson Kill earlier won a jury verdict in favor of the State which has recovered gross settlements of over $121 million for the Stringfellow cleanup. State of California v. Underwriters et al., Riverside County Superior Court No. 239784;

Insurance for Income Tax Liability. Anderson Kill secured a multi-million dollar recovery in a confidential arbitration under a tax liability insurance policy which insured against the risk of IRS liability relating to a tax reduction strategy developed by a major accounting firm. The insurance company paid out its policy limit in full, but sought reimbursement in arbitration, alleging breach of warranty, non-cooperation, and policy exclusions.The arbitration panel rejected those claims in their entirety;

Insurance for Asbestos in Bankruptcy. The assignment of liability insurance policies to a Trust formed under Bankruptcy Code section 524(g) was allowed in In re: Federal-Mogul Global Inc., T & N Limited, et al., No. 01-10578 (D. Del. Bankr.). Judge Judith K. Fitzgerald held that “once an event occurs that gives rise to the insurer’s liability under the policy, the policy itself can be assigned.”

Disability Insurance. The U.S. Second Circuit ruled against First Unum in a disability coverage dispute. Citing "First Unum's well-documented history of abusive [claims handling] tactics," the Second Circuit reversed a District Court decision in favor of First Unum finding "powerful evidence that First Unum's denial of McCauley's appeal [for disability benefits] was arbitrary and capricious." John E. McCauley v. First Unum Life Ins. Co., (2d Cir December 24, 2008);

Insurance Coverage for Alleged Bodily Injury from Cell Phones. Policyholders obtained insurance coverage for several class action lawsuits based upon alleged exposure to cell phone radio frequency radiation (“RFR”). The underlying cases were brought on behalf of consumers allegedly exposed to RFR, on the premise that such exposures cause biological injury, even though none of the putative claim members has a diagnosed injury. The Texas Supreme Court rejected the insurance company argument that the duty to defend should be denied based upon underlying pleadings in which the plaintiffs purportedly concede that there are no issues of individualized injury. Federal Insurance Company V. Samsung Electronics America, et al., No. 06-1040 (Texas);

Consequential Damages for Insurance Policyholders. The New York Court of Appeals held that policyholders can seek consequential damages when their businesses collapse as a result of the insurance company’s failure to fulfill its contractual obligations. Anderson Kill filed a “friend of the court” brief in the case. Bi-Economy Market, Inc. v. Harleysville Insurance Company, et al.; and

Anderson Kill Awards. Anderson Kill was recognized during 2008 by a number of organizations. Benchmark: Litigation (2009) identified the firm as a leading national litigation firm; Chambers USA (2008) noted the firm as #1 in Insurance Dispute Resolution in New York; Best Lawyers in America (2009) recognized AKO lawyers; Legal 500 recognized the firm’s practice in policyholder insurance litigation.

The results mentioned above are reflections of efforts by Anderson Kill attorneys and staff on behalf of our clients. As we are celebrating our 40th anniversary we are glad to have been of service to you during these years and look forward to continuing our relationship in 2009 and the future.