Dewey Law Firm’s policy

On December 28, 2012, a blog that was entirely hypothesis, conjecture, and guesswork about what the specialized executive business liability policy for Dewey-LaBoeuf, would “look like,” indicated that I would try to be a bit more detailed sometime in the further.  This is it.

The actual title of the policy was LAW FIRM MANAGEMENT LIABILITY AND COMPANY REIMBURSEMENT INSURANCE POLICY.  The copy obtained for me off Pacer by the perfect paralegal here was 59 pages; many of them replacing temporally previous endorsements.  The main body of the policy, as well as some of the endorsements, provide an odd list of nearly named insureds.

I finally obtained a copy of the policy several weeks ago.  It can be found on PACER if one wants to look for it.  What follows will be a summary of some parts of the text.  I am not trying to describe it completely.  I may also not summarize it correctly; there are no cases, and, although there is a resemblance between this policy and some D & O policies, interpreting this policy might be an indirect way to correct the D & O policies. In any case, you’ll get an idea about the text of the policy.

My summary will contain comments from me.  (For good or for ill, I don’t even try to stop myself. Yesterday, I even made up a “gap story” for what I’m sure would have been in the Gospel of Matthew if that “essay” didn’t have to have been so short.)

Lest one think this survey and analysis it too late since the judge has approved the liquidation plan, one might keep in mind that (apparently anyway) the court’s approval did not completely determine the disposition of the aggregate proceeds ($25M) available from this policy.  After it covered part of the management of the firm and not the firm itself.

In any case, so far as a partial sketch and pioneering analysis are concerned, this is it.

Declarations Pages (or “Sheet).”  This part of the contract can be and almost always is extremely important.  The forms for entries on many of these are the same or similar across a whole panoply of different policies, at least those in the same category, e.g., homeowners, liability, business interruption, and so forth.  Here are some examples

Type of Policy (Here it’s a “claims made” policy meaning that the claim has to be filed during the life of the policy or an agreed and purchased extension period or periods.)

The policyholder (Here called “Parent Company.)Limits of Liability ($25M)Deductibles (They are here called “retentions”)Optional Extension Period (an extra time period the insured has to report a loss)Proceedings: Pending and Prior (previous lawsuits, etc., that are still alive)Where Notices required by the Insurer are to be delivered.Premium ($541,500.00 for regular period and “1,083,00.00) [*]

Designated Insured Person(s) (Here there were some individual people designated by “office” held, and a number of insureds being whoever sat on certain named committees. These insureds are almost always called “Additional Named Insureds,” but not here.  The reason may be that no one is the policyholder or the “[Principal] Named Insured.”  The key phrase here is “Insured Person.”

List of endorsements.  (In this policy is done by a special list.  In some policies, there is a standard list some boxes are checked off.)  The use of that category in an insurance contract like this one is not a helpful way to think.  There are a lot of changes in endorsements over time.

[*Why so much?  Variety of reasons, one or more at a time: (1) Length additional to “file” claim.  (2) Dangerous period for the filing of claims.  (3) Method of discouraging purchase. (4) High-profit addition.

Various Sheets.  Terrorism, Offices of Foreign Assets Control, Privacy Policy, Fraud Notice Information About Various Jurisdictions (States).  [MSQ:  These can appear in a variety of places, and they need not all be placed together.]

LAW FIRM MANAGEMENT LIABILITY AND COMPANY REIMBURSEMENT INSURANCE COVERAGE FORM

This portion begins with standard clauses making sure that the actual reader (or sophisticated observer) knows that this is a contract.  Like many other types of policies, the application is made part of the policy.

I. Insuring Agreement.  

This part of the contract is supposed to say what’s covered.  [Sometimes exclusions are “snuck” into the insuring agreement, but almost nobody admits that.]

There are three separate insuring agreements.  The following are attempts at summarizing and explication, not quotes:

(A) Coverage for insured losses.  XL, the insurer, will pay for losses on behalf of an insured resulting from a “wrongful act,” unless the “Parent Company” has an internal that XL executes its obligation by means of indemnity.  [In insurance contexts like this one, “indemnity” means that the covered person pays for the loss first, or someone else pays it for him, and then the insurer reimburses the person or entity that has paid.  The phrase “Wrongful Act” is crucial to (A).  It will be discussed presently.

(B)  “The insurer shall pay on behalf of the Company [,] loss which the Company is required to or permitted to pay as indemnification [to any insured person] . . . .”  [It looks like the language of (B)means, in his context, that if Dewey must or may indemnify an additional named insured, (likely to be a lawyer in the firm or a senior manager), then XL will step in and pay for and not to Dewey what reimbursement it is obligated to pay.  In other words, XL will Dewey when it becomes liable, not after it pays. [*] The phrase “Wrongful Act” is again crucial.

[In this situation, an insurer may simply pay the person or entity that has made a claim about Dewey and where Dewey has become liable or certainly will, instead of paying the insured. Doing something like that would not be an obligation of the insurer.]

(C) In this insuring agreement, XL agrees to pay on behalf of Dewey insured losses resulting solely from any claim first made against Dewey during the policy period or the extension period.  The term “Wrongful Act” is again crucial.

[*This part of the policy expressly requires both that (1) a claim by the insured company, Dewey, notifying XL of a potential claim against it, Dewey, and seeking coverage, together with (2) any claim made against Dewey must occur during the insured period, usually a year plus an extended period of time.  Obviously, it is prudent for a claimant against a law firm to be made comfortably before the expiration of the policy period.  The law firm may not want to send a writing to the potential claimant informant him/her/it of the last day of the policy.  The insurer might assert a lack of cooperation.  In any case, shortly before the end of the insured period, it behooves the prudent law firm to get an inventory of probable (and somewhat probable) claims and then have personnel watching for methods of communication into the law firm (hand delivery, email, fax, and so forth).  The danger is an email being sent to an individual; not everything can be watched over.  It is imprudent for a claimant to pull an idiot move like this.  The only reason I can think of is to torture the firm, knowing that it has plenty of money.]

II. Definitions.  

There are several definitions in this set forth in this section.  At least at the beginning of studies by far the most important of them, at least for general purpose and initial understanding, are that of “Wrongful Act” and “Loss.”  They will now be set forth and discussed to some degree. They are so important that they must be set forth in quotes:

Here is the definition of “Wrongful Act”:

Any wrongful act based on, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving any of the same or related facts, series of related facts, circumstances, situations, transactions, or events.

“Wrongful Act”–Two major sections (1) & (2) plus three subsections under (1).

(1)  act, error, omission, misstatement, misleading statement, neglect, or breach of duty by any Insured Person while acting in his or her capacity as an:

(a)  Insured Person of the Company or a person serving in a functionally equivalent role for the Parent Company or any Subsidiary.

(b)  Insured Person of the Company who at the specific written request of the Company is serving as a director, officer, trustee, regent, or governor of a Non-Profit Entity.

(c)  Insured Person of the Company, who at the specific written request of the Company is serving in an elected or appointed position having fiduciary, supervisory, or managerial duties and responsibilities comparable to those of an Insured Person of the Company, regardless of the name or title by which such position is designated, of a Joint Venture, or

(2)  act, error, or omission by the Company. [End of definition.]

The phrase “wrongful act” is used in many contracts pertaining to these types of policies and those like them.

There are many semantically based and/or implied problems with this definition.

When is someone acting in his capacity as an “Insured Person,” e.g., an employee or a partner in Dewey?  [This is a problem that comes up in many types of insurance, e.g.,Workers Compensation Insurance, Commercial General Liability, and so on and on.When is someone acting as a “functional equivalent” of an “Insured Person?”What all, as they say, fiduciaries (e.g., to whom or what) will help create a context for a “wrongful act? “To a very ill partner?To a disabled partner?To some clients?Any person from outside the firm but to whom a fiduciary duty is owed?The requirement of a written request is involved here several times. What counts as a “written request?”  

There are three requirements built into the insurance policy: writing (including delivery), a request, and specificity.  Here I will list abstract possibilities and not write anything about them.

A “Writing?”  What counts as a valid writing and/or delivery method, aside from letters and/or emails? Here are a few eccentrics, dramatic possibilities which may bring attention to less striking, potentially difficult, and continual problems: Prose in code?Poetically encrypted, in a way the insurer does not understand.Sent on twitter.Writing sent to a wife (for delivery) of designated recipient?Sent to husband of anSent to lover of?To the “friend” of the claims officer who accidentally dies before he/she can act?The writing is 10 words written in pencil on the back of envelop handed to the stoned butler of a high-level official of the insurer.and so forth(Stephanie Rodriguez, person of eminent common sense in my office, thinks anything but certified mail is utter madness.Insurer seldom enforce requirements–or conditions–like these.  Phone calls pursuant to which a claim number is assigned are usually OK.  Similar messages to agents are also enough, as a rule.A “Request”?  What counts as a “request?

A command” “Fix it. You have until Friday”The threat “By Friday, or else.”Either-or “Do it.  Do it this way or do it that. Just do it.”To the spouse to be conveyed “Please tell your wife to attend to the claim straight away.”“I wonder if you might. . . ?”

What counts as specificity?

Obviously, it’s not vague, like saying, “It’s east of the river.”It’s not incoherent.It must be detailed enough to orient the adjuster.

But specific descriptions can be confusing. “Divide the area into quadrants.  Then cut each quadrant in half.”  Do the area between 12 and 2:46.”

And what are the purposes of these three components? Create a clear history for all those adjusting the claim to understand and get oriented.

Another is to actually get the insurer rolling relatively quickly, that there is evidence that it was or wasn’t asked, and the demand for action was action-oriented.

Obviously, another function here is to help make it as sure as one can, that the whole claim is not based on falsehoods.

Help defeat fraud by insureds.

The last part of the definition of “wrongful act” pertains to an act performed by an insured company, like Dewey?  Perhaps performed by an uninsured?

There is a related phrase, “Interrelated Wrongful Acts.”  That need not be attended here.

Now we turn to the definition of “Loss,” beginning with a quote:

“Loss” means damages, judgments, settlements, or other amounts (including punitive or exemplary damages, where insurable by law) and Defense Expenses more than the Retention that the Insured is legally obligated to pay. A loss will not include:

(1)     the multiplied portion of any damage awarded by statute;(2)     fines, penalties, or taxes imposed by law; or(3)     matters which are uninsurable under the law pursuant to which this policy is construed.

Note: It is agreed that the law of the jurisdiction most favorable to the insurability of punitive or exemplary damages shall control for the purposes of resolving any issue or dispute regarding whether these damages are insurable under the Policy If based on the written opinion of counsel for the Insured, punitive damages are insurable under applicable law the Insurer will not dispute the written opinion of counsel for the Insured.” [Quote quits here.]

It is important to note that there are significant exceptions or exclusions built into the definition.  Insureds bear the burden of proof with respect to exceptions if they are exclusions in disguise, so it will be important for the insurer to avoid the phrase “will not include” as part of what counts of damages and is not an exclusion. The interests of the insured are the opposite.

As with “Wrongful Act,” there are several semantic-based and/or implied problems in the definition of “Loss”:

What kinds of punitive or exemplary damages are insurable under the law of a given state?

Are punitive damages and exemplary damages always the same?

What constitutes “reasonable legal fees”?  [There are disputes as to this; indeed; these disputes are quite often in policies like this one.]

What constitutes “legal expenses”?  And how are the reasonable ones decided?  

[The last two problems are especially “designed” for dealing with issues when the insured is handling the defense (though often being “supervising” by insurer retained counsel) but must have the insurer’s consent, which must not be unreasonably withheld.  Must the insurer’s consent come before or after the job is undertaken and/or the expenses have been incurred and/or made?]

What constitutes “Legal Expenses”? [Remember:  Legal fees and legal expenses are both included within the definition of “Legal Expenses.”

Turning now to legal fees, other matters regarding and allocation:

The definition of “Legal Expenses” excludes “overhead.” [There will be arguments about what that term means.]

What if the insurer asserts that some parts of a loss are covered and some are not but asserts that they are all covered, or that a greater fraction is covered? [This is to be handled when the policy required that the two of them “will use their best efforts to determine a fair and appropriate allocation of [the] loss. . . .]

What does “best-effort” mean here?

Is there a possibility of insurer bad faith here? Is there a possibility of contract dispute over whether there has been good faith on both sides?

“Upon the written request of an Insured, the Insurer will advance Defense Expenses. . . ” [subject to various qualifications].  How is all this figured? 

Any written request?Include reasonable arguments?Arguments = justifications?At what stage are they paid?  How long?What is “advance”?Including legal fees?  [Keep in mind that legal fees can be correctly perceived as excessive.  What if counsel announces its withdraw, if the fee is not paid up and the threat will actually happen?]How quickly must the insurer act?And so forth.

Section III “Exclusions,” contains a myriad of them. They will only be referenced here”

Some “actual or alleged bodily injury, sickness, mental anguish, emotional distress, libel, slander. . . [plus some exceptions.]”  [These are not included in many E & O policies.]Pollution [plus some exclusions. One wonders about discussions, etc. up to the pollution events.]ERISA violationsPreviously existing lawsuitsPrevious “Wrongful Acts.”Some timing, types of notice and insurance for previous claimsClaims against any Insured Person “brought about or contributed in fact by any (1) intentionally dishonest, fraudulent or criminal act or omission or any willful violation of any statute, rule or law; of (2) profit or remuneration gained by any Insured to which such Insured is not legally entitled; as determined by final adjudication in the underlying case or proceeding.”  This is an extremely important exclusion. It explicitly invokes the virtually universal characteristic, to wit: fortuity. The great advantage to those who are insured is that the carrier will pay defense costs until final adjudication.The Insured included both an Insured Person and the Company.  [Conjunctions usually mean “both.” Would those rules of grammar apply here?]And there are a whole raft of other exclusions, characteristic of insurance contracts like this one. What I’ve set forth is enough to give the reader an idea of what the whole list is going to look like.

VI. General Conditions.  

Virtually all–or Absolutely All–have a section entitled this or something like it.  (And if they don’t have a section with such a title, many or most of its usual contents will be found somewhere in the policy.)  My review of the exclusions will involve merely phrase and subsection designations since the contents of this section are so well known.  There will be a tiny amount of brief explanation below.  Here are their names:

A. Notice: Timely v. Late–Starting from when.B. Interrelated ClaimsC. Other insurance: implications in some categories of casesD. Merger and Acquisitions:  What happens if. . . .E. Cancellation and RenewalF. Optional Extension PeriodG.  Assistance, Cooperation, and SubrogationH. Exhaustion [of Coverage]I. Representation ClauseJ. Action Against the Insurer, Assignments, and Changes to the PolicyK. Authorizations and NoticesL. Entire Agreement

Perhaps a little bit needs to be said about some of these:

B. How one wrongful act and another related wrongful act are to be treated.

G. This is frequently the most important condition (if that’s what it is as opposed to a covenant, i.e., “mere” promise in the contract. “Assistance” means help upon reasonable request, e.g., by providing documents. “Cooperation” means roughly the same thing, so far as I know, and I have never seen a case turn on a suggestion that there was a distinction. Subrogation roughly means that an insurer that pays for a loss, can obtain a judgment in its favor from whoever or whatever non-insured was actionably involved in causing the loss for which the insurer has paid. The insured has a duty to cooperate in this lawsuit even if the insurer has paid it.

H. What happens when the insurer has spent its limits.

I. Statements in the application, etc., are true, comprehensive, and nothing relevant is kept secret.

J. The insurer’s consent is required. This is usually not enforced as to suits by the insured itself.  It is enforced as to an insured assigning the policy. Policy terms do not change unless the insurer itself consents