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.com story by Jane Wester, “Sam Bankman-Fried Sues Insurer to Cover Defense Costs in New York Criminal Trial, Other Litigation”, reports that indicted FTX founder Sam Bankman-Fried sued an insurance firm for assistance with his defense costs, one day before jury selection began in his fraud trial in Manhattan.  Bankman-Fried’s attorneys at Lewis & Llewellyn and Cohen & Gresser argued that the Continental Casualty Co., also known as CNA, has breached its contractual obligation to pay Bankman-Fried’s defense costs “on a current basis, without regard to whether payments may exhaust the policy limit.”

According to the complaint, Bankman-Fried’s companies held a CNA policy as a second-layer excess policy offering “a $5 million limit of liability, which attaches upon exhaustion of the $10 million in aggregate limits of the underlying insurance.”  The primary insurance policies and the first-layer excess policies have both been exhausted, according to the complaint, so Bankman-Fried is seeking reimbursement from CNA through the court after “numerous” requests for payment were unsuccessful.

The suit comes less than a year after FTX collapsed and filed for bankruptcy in November.  Bankman-Fried was arrested in the Bahamas in December at the request of U.S. officials and agreed to come to the United States to face charges; he spent approximately eight months on house arrest at his parents’ home in California before he was remanded to Brooklyn’s Metropolitan Detention Center for allegedly attempting to tamper with witnesses.

While Bankman-Fried’s current criminal trial is expected to last approximately six weeks, the insurance suit noted that that case is not the full extent of his legal troubles.  He is set to face another criminal trial for a group of severed charges in 2024 and is “further involved in more than a dozen civil and regulatory actions relating to FTX,” his attorneys noted.

His attorneys argued that CNA’s alleged breaches of the policy “have caused, and threaten to cause, substantial and irreparable harm” to Bankman-Fried, including the impairment of his defense.  They argued that Bankman-Fried has already incurred more than $75,000 in monetary damages for his efforts to obtain CNA coverage and out-of-pocket defense costs.  The suit seeks unspecified damages for CNA’s alleged breach of contract and alleged bad faith conduct, along with a declaration that CNA has a duty to pay Bankman-Fried’s defense costs “on an ongoing basis.”

A recent Law 360 story by Ganesh Setty, “Miami Law Firm Fights For Coverage Of Overbilling Claims”, reports that a Miami law firm's insurer cannot rely on an "ambiguous" fee dispute exclusion to totally avoid defending overbilling claims, the law firm told a Florida federal court, arguing that even if the exclusion applies, the underlying lawsuit it faces involves broader legal malpractice claims.  In a brief opposing James River Insurance Co.'s motion for summary judgment, Sheehe & Associates PA and three of its attorneys said that, despite the insurer's effort to construe the underlying action as an "overbilling scheme," at least two counts — breach of fiduciary duty and breach of oral contract — are still covered.

And the potential for coverage triggers an insurer's duty to defend an entire lawsuit, the firm noted.  According to court filings, James River issued a professional liability policy to Sheehe running from March 2020 to March 2021 that broadly provided coverage for wrongful acts in the performance or failure to perform "professional services."  The policy defined that term in part as services performed by an insured as a lawyer, arbitrator or trustee, along with other fiduciary roles performed in one's capacity as a lawyer.

In the underlying action, Frontline Insurance Co. accused Sheehe and the attorneys in state court of overbilling hours worked while handling first-party property claims, alleging that in some cases multiple attorneys for the firm individually billed Frontline more than 24 hours for a single day.  Frontline specifically lodged breach of fiduciary duty, negligent supervision, unfair trade practices, unjust enrichment, breach of oral contract, fraud and legal malpractice claims.

In denying coverage, James River argued that overbilling does not constitute professional services, pointing in part to a fee dispute exclusion that barred coverage for claims arising from the "rights or duties under any agreement including disputes over fees for services."

Highlighting an underlying allegation that Sheehe and the other attorneys failed to ensure their legal services were "reasonable and necessary and advanced the best interest of Frontline," the law firm said such a claim shows that Frontline is not just suing Sheehe for a billing dispute but its "strategic decisions," too.  "A claim for breach of fiduciary duty grounded in an attorney-client relationship is considered a malpractice action and subject to the same standards as a legal malpractice claim," Sheehe continued, adding that the same goes for the breach of oral contract claim.

As for the fee dispute exclusion itself, its use of "any agreement" renders its scope overly broad since all professional services in the policy stem from an attorney-client relationship in which an attorney agrees to appropriately represent their client's interests, the firm further argued.  "This exclusion precludes coverage for all agreements, including ones between attorneys and clients, rendering the coverage illusory if read as expansively as James River urges," it said.

For its part, James River further cited in its August motion for summary judgment a prior knowledge exclusion, which barred coverage for a professional services claim if "any insured" could have reasonably foreseen their conduct would give rise to a claim.  It also invoked a "gain of profit or advantage" exclusion barring coverage for any gain or profit an insured is not legally entitled to.

But the policy still covers claims following its retroactive date of March 2004, which was prior to Sheehe's representation of Frontline, the firm responded, adding that the audit Frontline commissioned was still ongoing at the time Sheehe's policy started coverage.  "As the audit included dates cited in the complaint late as March of 2020, there is no allegation in the underlying complaint that supports that Sheehe would or should know that a claim would arise," the firm said.  The gain of profit or advantage exclusion, meanwhile, does not extend to the breach of fiduciary duty and oral contract claims either, Sheehe said, noting both counts seek damages rather than repayment of fees.

A recent Law.com story by Adolfo Pesquera, “3 Lawyers? One’s Enough, Court Rules in Insurer’s Fight Over Attorney Fees”, reports that a Texas state district court was found to have erred in denying an insurer’s summary judgment motion in an attorney fees dispute, where plaintiffs alleged more than one attorney was needed to avoid a “potential” conflict of interest.

The Ninth District Court of Appeals reversed a ruling of the Montgomery County 457th District Court in a case where a government entity and two elected officials depended on a Directors and Officers policy from Mid-Continent Casualty Co. to provide for their defense when a losing candidate filed suit alleging election irregularities.

Insurer Right to Control Defense

The reversal hinged on Mid-Continent’s right under the policy to control the defense, and whether there was an actual conflict of interest that the insurer formally recognized.  In the underlying suit, third-place candidate Edgar Clayton sued Harris County Municipal Utility District No. 400 and the two candidates who placed ahead of him, Ann Marie Wright and Cheryl Smith.

The court ultimately dismissed the lawsuit with prejudice, but the parties disagreed about how many lawyers the insurer should provide the district.  James Stilwell of Stilwell, Earl & Apostolakis, based in The Woodlands, Texas, and acting for the district responded to Mid-Continent’s letter agreeing to defend but preserving its reservation of rights.  Stilwell told Mid-Continent that was a “possibility of a conflict of interest in representation regarding Mid-Continent’s desire to have a single attorney represent all three defendants.”

Stilwell and the district were informed by a claims adjuster for Mid-Continent that it was the opinion of coverage attorney Brent Cooper of Cooper & Scully that Mid-Continent had the right to select defense counsel “because the facts to be adjudicated are not necessarily the same facts that control coverage,” and the Houston attorney Britt Harris had been retained by Mid-Continent as their counsel.

Instead, Stilwell’s subsequent correspondence informed Mid-Continent that the elected officials would be represented by Houston-area attorneys and Bruce Tough and Kenna Seiler, and the district by its general counsel, Chris Skinner of Schwartz, Page & Harding.

Conflict of Interest?

Stilwell asserted the potential conflict had to do with Wright and Clayton having run on the same slate against Smith, as well as the district’s desire to defend the election through trial, whereas the individual directors possibly wanting a do-over or settlement.

Mid-Continent attorney Mark Lewis cut a check made out to the district for $4,290 in attorney fees, which covered the period up to Mid-Continent’s offer to assume the defense.  Stilwell, in a pre-suit demand letter asked for attorney fees of $151,750 for the Clayton suit defense, plus $5,600 attorney fees for defending the wrongful denial.

Referring to the Texas Disciplinary Rules of Professional Conduct, the Ninth District court noted a lawyer may only represent multiple clients if he reasonably believes each client will not be materially affected, and each client consents after full disclosure of possible adverse consequences of common representation.

The deposition testimony and affidavit generally averred that the defendants discussed material conflicts at a board meeting and would not waive those conflicts, and they requested separate counsel, the opinion stated.  Nevertheless, the Ninth District held that the district’s “arguments are without merit.”

“We note that the information on which appellees rely falls outside the eight-corners of the pleadings and the insurance policy,” the court said.  In addition, the court said Stilwell’s responses to Mid-Continent referred only to “potential” conflicts, but never stipulating actual conflicts.

“We conclude that Clayton’s petition did not allege facts that would necessitate separate counsel. Clayton does not allege anything in his petition that would make the interests of Wright, Smith, or MUD 400 adverse to the interests of each other,” the court said.

A recent Law 360 story by Hailey Konnath, “’SoCal Edison’s Insurer Ordered To Pay Wildfire Attorney Fees”, reports that the insurer for Southern California Edison Co. must pay in full the counsel fees stemming from a number of negligence suits over the September 2020 Bobcat Fire that the carrier initially refused to defend, a move that was a breach of its insurance contract, a California federal judge ruled.

U.S. District Judge John F. Walter granted in part and denied in part SoCal Edison's motion for summary judgment, agreeing with the utility that Greenwich Insurance Co. forfeited the right to limit counsel fees associated with those cases when Greenwich refused to defend them.  However, the insurer can indeed rely on California law to impose lower billable rates on future defense fees incurred in three cases that Greenwich agreed to defend earlier this year, the judge held.

"There is no evidence that Greenwich has breached its duty to defend as to the three lawsuits tendered on Jan. 13, 2023, and May 11, 2023," Judge Walter said.  "As such, it has not forfeited its rights and may take advantage of the rate limitations set forth in California Civil Code [Section] 2860."

The dispute centers on a slew of suits against SoCal Edison and its parent company, Edison International, following the devastating Bobcat Fire in the Angeles National Forest in September 2020.  The plaintiffs in those suits claimed that the fire was likely caused by tree branches and other vegetation that came into contact with SoCal Edison's conductors.

The utility sought coverage from Greenwich under a commercial general liability policy that the insurer issued to Utility Tree Service LLC, which SoCal Edison hired to provide vegetation services where the fire started.  But the insurer repeatedly denied its duty to defend.

Last year, SoCal Edison filed suit against Greenwich, asking the court to declare that the insurer owes coverage under the CGL policy and asserting breach of contract and bad faith claims.  Greenwich argued that it has no defense obligations to the utility company because the underlying suits don't accuse UTS of negligence.  However, in January, the court held that SoCal Edison clearly established that Greenwich has a duty to defend.

The utility lodged its motion for partial summary judgment in June, arguing that Greenwich has failed to reimburse its fees in full following that order.  Instead, it told the utility it planned to pay only a fraction of the fees by significantly reducing the hourly rate of SoCal Edison's defense counsel, it said at the time.

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