A recent Law 360 story by Jennifer Mandato, “Insurer Must Pay Defense Costs In Newspaper Shooting Row”, reports that an insurer owed coverage to the parent companies of a Maryland newspaper for the legal fees resulting from two underlying lawsuits brought by the victims and their families after a 2018 mass shooting, an Illinois federal judge ruled. 

In his order, U.S. District Judge Matthew F. Kennelly ruled that ACE American Insurance Co. breached its duty to defend Tribune Publishing Co. and The Baltimore Sun Co. by refusing to pay for or reimburse any portion of the defense expenses incurred from the underlying litigation.  How much coverage is afforded is still undetermined.

Judge Kennelly determined that Tribune and the Sun were entitled to retain independent counsel, and therefore ACE can't "viably argue" that the publishers' $4 million in defense fees and expenses were considered voluntary, relieving it of the duty to reimburse them.

Tribune and the Sun filed suit in December 2022, accusing the Chubb unit of impermissibly trying to "allocate" some of the company's defense costs to its commercial general liability policy, which has a $1 million deductible that effectively cancels out a corresponding $1 million coverage limit.  Allocating defense costs to the CGL policy would improperly reduce the amount of defense costs covered under the Tribune's worker's compensation policy, which also has a $1 million deductible and $1 million policy limit, but the deductible doesn't erode the policy limit, filings show.

The coverage dispute stems from a June 2018 shooting at the Capital Gazette's offices in Annapolis, Maryland.  The gunman, Jarrod Ramos, broke into the office space and opened fire, killing five employees and injuring others, according to Tribune's complaint.  Ramos was sentenced to multiple life sentences in September 2021.  Tribune was later named in a pair of lawsuits filed by 10 plaintiffs seeking damages for the shooting, the publishing company said.  The underlying suits asserted claims for wrongful death, survival and negligence based on premises liability.

According to court records, it's undisputed that Tribune paid over $900,000 in workers' compensation claims filed on behalf of the victims and their families and that ACE was aware that the publisher did so.  In September, Tribune sought a determination that ACE breached its duty to defend and had no valid reason to deny coverage of the underlying suits under their employers' liability policy.

Judge Kennelly granted the publisher's request, finding that because ACE agreed to defend Tribune and the Sun — even under a reservation of rights — it was obligated to continue to defend the insureds until it subsequently sought and obtained a judgment relieving it of any obligation.  While ACE argued that Tribune wrongfully appointed independent counsel, Judge Kennelly disagreed.

Instead, he found that the insurer knew Tribune and the Sun were represented by outside counsel in the underlying suits, but failed to put forth any evidence showing that it expressed disapproval of the publishers' choice.  Judge Kennelly also supported Tribune's notion that a conflict of interest entitled it to retain independent counsel.

According to the order, Tribune and the Sun had a "strong interest" in proving that they were excluded from the underlying suits because of workers' compensation exclusivity laws, and thus would be entitled to coverage under the workers' compensation policy rather than the CGL policy, to the detriment of ACE.

Although the court concluded that ACE owed the publishers' reimbursement for any portion of their defense expenses, Judge Kennelly held that the finding didn't necessarily entitle them to coverage of the entirety of their claimed defense expenses.   An insurer may only be required to cover reasonable defense expenses, an amount which remains unsolved at present, according to the order.

A recent Law 360 story by Jeff Montgomery, “Joonko Ex-CEO Sues in Del. for Legal Fees Related to Probe”, reports that the former CEO of AI-powered employee recruitment venture Joonko Diversity Inc. has sued the company for legal fee advancement in Delaware's Court of Chancery, alleging corporate failure to cover attorney expenses that total more than $300,000 and are still rising, related to still-under-wraps investigations.  The suit from former CEO and company founder Ilit Raz accuses the company of refusing to advance the money despite obligations established in its bylaws, an indemnification agreement and Delaware law.

Joonko has been in the news amid reports of alleged misconduct by Raz. A June statement by Joonko's board reported the discovery of "misstatements in financial reporting" and asserted that Raz was "was found to have engaged in egregious, unethical and fraudulent conduct, which caused harm to the company and its shareholders," according to media reports in 2023.

Government documents on the existence, targets or purpose of any investigations are not currently available, and parts of the suit are redacted. But an attorney letter sent Jan. 12 to Chancellor Kathaleen St. J. McCormick, seeking expedited handling of the advancement suit, said Raz continues "to incur attorneys' fees and costs by reason of her position as former chief executive officer of the company in connection with ongoing and active government investigations and proceedings."

An Aug. 31 email from Ilon Band, Joonko's chief operating officer, to Raz's counsel with Norton Rose Fulbright said, "Given the circumstances, we do not believe that under the terms of the indemnification agreement the company is obligated to pay the invoices you forwarded.  Attached for your reference is the company's D&O Insurance (recently expired)."  The email was addressed to Kevin J. Harnisch, head of Norton Rose white-collar practice and co-head of its regulation, investigations, securities and compliance practice.

"You explained that the company is (refusing to pay) because of Ms. Raz's alleged misconduct despite the fact that you are unaware of any precedent supporting the company's position," Harnisch wrote in reply Oct. 20.  "The company's posture leaves us little choice but to file suit to vindicate Ms. Raz's right to advancement."

Joonko, with offices in New York and Tel Aviv, markets itself as the developer of a "transparent diversity recruiting layer" used on top of cloud-based human resources and recruiting software.  The company's website said its system and services enabled recruiters "to passively source top diversity candidates who've been qualified by a two-steps validation process to make sure you receive the best fits for the roles you are looking for."

The company incorporated in Delaware in July 2016 and completed a $17 million equity offering in early 2022, according to SEC records.  A $25 million series B issue was reported the same year, led by Insight Partners.  Target Global, Kapor Capital and Vertex Ventures Israel also were described as supporting.

In the Jan. 12 letter to Chancellor McCormick, M. Paige Valeski of Young Conaway Stargatt & Taylor LLP wrote, "As a result of the company's unjustified delay" on the advancement demand, "Ms. Raz faces imminent, irreparable, and non-monetary injury. In her motion to expedite, Ms. Raz is seeking a final hearing on the merits in February 2024, subject to the court's availability."

A recent Law 360 story by Emily Enfinger, “Md. Atty Not Owed Defense Coverage, 4^th Circ. Finds”, reports that a Maryland attorney is not entitled to defense costs under his law firm's insurance policy after he was indicted on allegations that he fraudulently seized control of $13 million in Somalian government funds, the Fourth Circuit has ruled, affirming in full a district court's summary judgment.

In a published opinion, the panel agreed that Axis Surplus Insurance Co., Endurance American Specialty Insurance Co. and Prosight Syndicate 1110 at Lloyds do not owe coverage to Jeremy Schulman in connection with the underlying fraud and money laundering charges.  Schulman, who is based in Bethesda, Maryland, has asserted that a part of the policy saying it covers "demands" should give him coverage after prosecutors said they were coming for his property.

But the indictment does not fall within several definitions of the word "demand," the panel said, noting that the forfeiture allegation in the indictment did not require the attorney to turn over any money or property to the government.  Instead, at most, the forfeiture allegation is "a notice that there will be a demand in the future," the panel said.  "The ordinary meaning of 'demand' does not encompass a notice that, on the condition a triggering event occurs, something will be demanded in the future," the panel continued.

Schulman has also argued that a letter the insurers sent him in June 2017 was a binding contract in which the insurers promised to cover fees and costs related to the indictment, and that he relied on that promise "to his detriment," the panel's opinion read.  The panel was unconvinced that the letter triggered coverage, saying that "the insurers never made a clear and definite promise to cover the expenses over which Schulman has sued."  Rather, the letter limits coverage for a subpoena, the panel said, not the indictment.

Federal prosecutors said Schulman assisted the Somali government in unfreezing nearly $13 million in assets through fraud and money laundering, taking $3.3 million for his law firm and hundreds of thousands of dollars for himself in the process.  Schulman is accused of forging documents and lying to banks about his authority to obtain the Somali government's money.

Prosecutors charged Schulman in December 2020 with 11 criminal counts, including conspiracy to commit mail fraud and money laundering, wire and bank fraud, and money laundering.  After being indicted, Schulman said he racked up about $2 million in criminal defense costs.

A recent Law.com story by Emily Saul, “’Policyholders May Recoup Attorney Fees If Insurer Fails in Contesting Duty to Indemnify”, reports that an insurer defending a policyholder in litigation must also reimburse the insured party’s coverage action costs if the insurer loses a legal challenge to its indemnity obligation, a judge has ruled.  Manhattan Supreme Court Justice Gerald Lebovits, in a case without a definitive decision from the state’s highest court, affirmed that when an insured “is cast in a defensive posture by the legal steps an insurer takes in an effort to free itself from its policy obligations,” and the insured party then prevails, the policyholder may recover attorney fees “incurred in defending against the insurer’s action.”  Little New York appellate precedent exists on this specific fee issue, Lebovits noted in his 10-page order, issued.  The decision increases insurance companies’ risk, should companies seek to deny coverage.

The underlying litigation—which continues—involves construction in two mixed-use commercial and residential buildings in Manhattan.  Plaintiffs sued defendants Crystal Curtain Wall System Corp. and other affiliated entities in 2011 over water damage caused by alleged construction defects.  Utica Mutual Insurance Company and Utica National Assurance Company sued their policyholder Crystal entities in 2022, asking a judge to define the scope of its duty to indemnify the client.

Crystal subsequently moved to dismiss the action not yet ripe and sought an award of attorneys fees, should their motion prevail. Utica cross-moved for partial summary judgment, asking the court to find it had no duty to indemnify Crystal as to the costs of repair or replacement of the curtain wall.  “This attorney fee request implicates a legal question about the parameters of a prevailing insured’s entitlement to attorney fees from its insurer that New York appellate courts appear not to have considered,” the judge wrote.

“The parties do not cite, and this court has not found, any decision of the Court of Appeals or the Appellate Division discussing whether a prevailing policyholder is entitled to attorney fees when the insurer has acknowledged a duty to defend but contested the duty to indemnify,” the order states.  Absent precedent, Lebovitz said the court concludes for itself that a policyholder is entitled to attorneys fees when it prevails in an action brought by the insurance company challenging its duty to indemnify.

“New York doctrine in this area rests on the insurer’s duty to defend its insured in ‘any action arising out of the occurrence, including a defense against an insurer’s declaratory-judgment action.’ (City Club Hotel, 3 NY3d at 598 [emphasis added].)  This is true when an insurer contests both the duty to defend and to indemnify,” the judge wrote.  “No logical reason exists why it should be different—why an insurer’s duty to defend its insured should suddenly cease—when the insurer disputes only the duty to indemnify.  And the Court of Appeals’ holdings in this area have always been phrased in broad terms that would encompass an insurer’s indemnification-only challenge: They permit recovery by the insured that prevails against ‘the legal steps an insurer takes in an effort to free itself from its policy obligations,’ period—not merely the insurer’s policy obligation to defend.”

A recent Law.com story by Adolfo Pesquera, “Does New Insurance Law Cut Out Attorney Fees? High Court to Decide”, reports that the Texas Supreme Court justices responding to a federal appellate certified question appeared perplexed about the lack of guidance on how or if attorneys could get paid on property-damage insurance claims.  The justices heard oral argument on Rodriguez v. Safeco Ins. Co. of Indiana, a case that came to them from the U.S. Court of Appeals for the Fifth Circuit.  A federal trial court granted the insurer summary judgment and the homeowner appealed.

The appeal argued that when Safeco invoked the policy appraisal provision after litigation began, and paid damages and interest, a Texas insurance law created by the legislature in 2017 did not intend to eliminate attorney fees.  In examining the 2017 Texas Prompt Payment and Claims Act, the Fifth Circuit decided it could not interpret the law and asked the Supreme Court to weigh in on the issue.

Melissa W. Wray of Daly & Black, arguing for the homeowner, said the intent of the law is to promote prompt payment of insurance claims by imposing liability for statutory interest, attorney fees and prejudgment interest on insurers who do not pay claims in accord with the act’s deadline.

“Safeco asks the court to adopt an interpretation of the statute that would, in the context of attorneys fees, ignore the claim payment deadlines that the legislature has put in place and effectively redefine prompt payment of a claim to mean payment of a claim at any time up until the moment before the trial judge enters the final judgment,” Wray said.

Throughout the hearing, the justices grappled with a phrase in the law—”the amount to be awarded in the judgment”—and Justice Brett Busby began by referring to caselaw, Ortiz v. State Farm Lloyds (Texas 2019), where the supreme court said there is no claim for breach of contract when the insurer pays the appraisal award.  “So, wouldn’t the ‘amount to be awarded’ in the judgment for your claim under the insurance policy be zero?” Busby asked.

Wray drew a distinction, moving away from a breach of contract claim, to argue damages was not necessarily relevant to an “amount to be awarded,” because the only defined term in the statute was a “claim.”  “Safeco wants to interpret that as the amount of unpaid policy benefits for which the insurer remains liable at the time of judgment.  Those words aren’t used in the statute,” Wray said.

When Safeco’s representative, Mark D. Tillman of Tillman Batchelor, rose to speak, the justices repeatedly tried to pin him down on when the language of the statute allegedly read attorney fees out of the act.  “There has to be the possibility that a plaintiff can obtain a judgment,” Tillman argued.  “The legislature clearly tied the ability to award attorney’s fees to, in the future, obtain a judgment. That simply cannot happen here.”  Justices Busby, Jeff Boyd and Evan Young took turns arguing that point.

Boyd said Tillman was embracing the absurd argument that, speaking hypothetically, a $50 million building could be destroyed and insurance company disagrees with the amount damages claimed.  “You have five years of litigation, finally get to a jury trial, the jury finds for the insured, and you file your JNOV and the judge denies it and the judge says ‘send me an order.  I’m going to sign a final judgment awarding all this money,’ and your client at that moment can write a check and avoid all attorney’s fees,” Boyd said.

Busby jumped in, “You’re getting back to my question then.  Where is the moment … when you’re looking at what is ‘to be awarded?’  To Boyd’s point, it’s not the day before the judgment is signed.  So in the life of the case, when is it?”

Tillman said that in this particular case, the appraisal amount was paid immediately.  “I understand, but we have to write the rule not just for your case,” Busby said.  Justice Young asked, “What will inform the answer to that question if it’s not in the text of the statute?”  Tillman finally said he did not know.  Then we go right back to Justice Boyd’s hypothetical.  I’m with him.  I don’t understand where the line is if that’s the only thing the statue says and the only thing we’re guided by,” Young said.

Tillman argued Boyd’s hypothetical scenario was an extreme case and one he had never encountered in the real world.  He told the court not to “throw the baby out with the bathwater” using an extreme example to overturn a statute intended to curb abuses by trial attorneys that led to its passage in the first place.  “Then why not just embrace it and say, ‘Yeah, that’s an extreme hypothetical, not going to happen, but the statute says it and if it’s a problem there’s no judicially discernable way to draw that line, leave it to the legislature to fix that,” Young suggested.

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