A recent Law 360 story by Ryan Boysen, “AIG Units Owe Sabre Monopoly Defense, NY Panel Says,” reports that Sabre Inc.’s roughly $300 million coverage dispute with two AIG units is headed to trial in October, after a New York appeals court affirmed a lower court ruling that the units could be responsible for most of the costs of American Airlines’ antitrust litigation against Sabre.
 
In a one-page ruling, a five-judge panel said efforts by the Insurance Co. of the State of Pennsylvania and Chartis Specialty Insurance Co. to dodge coverage outright were unconvincing, but sided with the lower court in ruling that a jury would need to make the final call as to how much the insurers owe. The trial has been set to begin Oct. 2.

“The pleadings in the underlying actions allege facts within the scope of coverage under the subject insurance policies, giving rise ... to the duty to defend,” the panel said.

Travel technology company Sabre is seeking roughly $70 million in defense costs and indemnification for a $200 million settlement with American, as well as damages for slow-payment and bad-faith-denial claims.  Under Texas law, which would govern because that is where the American litigation played out, bad faith insurance claims can lead to treble damages.

New York Supreme Court Justice Peter O. Sherwood had ruled in December that ICSOP and Chartis did have a duty to defend Sabre, a ruling that will likely put them on the hook for the $70 million in defense costs the company racked up during the American litigation.  But Justice Sherwood said the slow-payment and bad-faith claims, as well as the question of indemnification for the settlement, would fall to a jury to decide.

Sabre operates the world’s largest global distribution system, essentially an airline booking service that serves as the travel industry's “electronic plumbing,” connecting travel agents and bookers with airlines, according to court documents.

Sabre had brought the current suit in June 2012, just as it appeared that American’s antitrust litigation was headed for a two-month trial in a dispute where the airline claimed it was owed nearly $1 billion for Sabre’s anti-competitive attempts to shut down an American-offered competing service called AA Direct Connect.

A week into that trial, Sabre settled with American to the tune of $200 million, having spent more than $70 million in attorneys’ fees and costs in the course of its defense, according to court documents.  American had brought one suit in Texas state court and another in Texas federal court, and the settlement ended both.

US Airways subsequently pursued a similar suit against Sabre that recently ended in a $15 million jury award for the airline, but that suit is not related to the current coverage dispute.

Sabre held a commercial general liability policy with ICSOP and a specialty risk protector policy with Chartis when American brought that suit in 2011.  Neither paid Sabre’s claims asking the insurers to foot the bill on Sabre's defense costs for the American suit, the complaint said.

ICSOP said the claims were excluded under its policy because American alleged Sabre had made false accusations and disparaging remarks against American.  ICSOP’s policy excludes the “knowing violation of rights of another.”

Justice Sherwood said ICSOP’s argument was flawed, however.  Even if Sabre’s accusations against American were false, he said, there was nothing in American’s complaint to suggest Sabre knew they were false.  “Someone can, unknowingly, make a false statement,” Justice Sherwood wrote.

Chartis had initially agreed to pay for Sabre’s defense, but on the strict condition that it would pick the lawyers and control the legal strategy.  Sabre refused, saying Chartis would be tempted to guide its defense in a such way that the suit would ultimately fall into a coverage exclusion in one or both of the policies — Chartis had reserved the right to bar coverage for a loss stemming from “any intentional or knowing violation of law,” for example.

Justice Sherwood said, again, that Sabre had a point.  “If the jury found Sabre acted with malice [for example] there would be no coverage due to a policy exception,” he wrote.  “Thus, the same facts to be decided by the jury were at the heart of the coverage issue, creating a disqualifying conflict of interest.”

Chartis had also sought to duck coverage outright on a separate exclusion, but Justice Sherwood shot down that defense as well.  He said the evidence was equally weighted on whether Sabre was entitled to slow-payment and bad-faith claims, however, and left those questions to a jury.  The issue of indemnification is also up in the air, he said, since Chartis and ICSOP say they never agreed to the terms of the settlement.

The case is Sabre Inc. et al. v. The Insurance Co. of the State of Pennsylvania et al., case number 3778 652241/2012, in the Supreme Court of the State of New York, Appellate Division, First Judicial Department.