Some Relevant Insurance Contracts of Dewey's

COMPANY	COVERAGE
CNA (and various insurers at Lloyds)*	Professional Indemnity
XL Insurance- Hartford	Management Liability
OneBeacon	Excess Management Liability
Iron-Starr	Excess Management Liability
Great Northern Insurance Company	General Liability Employee Benefits Liability Stop Gap Liability
Federal Insurance Company	Primary Property
XL Insurance	Excess Property
Insurance Company of the West	Excess California Earthquake
Great Northern Insurance Company	Foreign Package General Liability Employee Benefits Liability Property Automobile Employer's Liability Employee Repatriation Expense
Pacific Indemnity Company	Workers Compensation Statutory Benefits as per State
Vigilant Insurance Company	Umbrella
Nation Surety Corporation (Fireman's Fund) Navigator's Management Company, Inc.	Excess Liability
Dewey & LeBoeuf LLP	Business Travel Accident
Traveler's Casualty & Surety Company of America (St. Paul Travelers)	Primary Fiduciary
Federal Insurance Company	Excess Fiduciary
Twin City Fire Insurance Company	Excess Fiduciary
Federal Insurance Company	Fidelity (Crime)
XL Insurance	Employment Practices Liability Insurance
Alterra Insurance	Excess Employment Practices Liability Insurance
XL Insurance	Outside Directors & Officers

*There are 7 excess layers of professional indemnity coverage.

Dewey, the "Defunct" & Management Liability Insurance

Michael Sean Quinn, Ph.D, J.D., C.P.C.U., Etc.
Law Office of Michael Sean Quinn
+
Quinn and Quinn

1300 West Lynn #208

Austin, Texas 78703

(o) 512-296-2594

(c) 512-656-9759

mquinn@msqlaw.com

(Resumes found at

www.michaelseanquinn.com)

There has been lots of news coverage regarding the collapse of Dewey & LaBoeuf, including the why, the who is responsible, the who is getting hurt (both outsiders and insiders), the how’s of senior management, and the questionable activities of a slew of lawyers. There is not much being said, however, about insurance aspects of the demise and thereafter. The serious (or advanced) press has not gotten there yet, and the popular press is not fit for the job.

 Even the American Lawyer is publishing only skimpy and superficial pieces. At least it noted, however, that the primary insurer for the management coverage, has indicated coverage problems in the  bankruptcy.

It appears that the judge has permitted the unsecured creditors to sue the insurer or insurers. He noted, however, that providing a right to sue is not a right to judgment.  Maybe the creditors are trying to put money in the hands of the Firm or someone else with liability so that they can get it from there.  This is extremely unlikely it seems to me.  And the carrier, XL Speciality Insurance Company has tried to avoid coverage by arguing that since the Firm is the policyholder, it is suing itself.   I have no idea what is being said here.

There are lots of important questions that need attention. One might wonder, for example: how many policies were there, what all do they cover, what is not covered, what are the policy limits, who made the decisions about buying what policies, who advised Dewey about this, what did the intermediaries say, to what extent did Dewey listen to its agent-brokers, who did risk management at or for Dewey, what did it advise, and so forth. One would expect the insurance press to be "all over" these questions. One would also expect to see references to who is adjusting the claims, and those are likely to be or include specialized, independent adjustment firms, as well as "forensic accountants.” (This often used phrase is simple minded, misleading, and damn near tasteless.)

In addition, the insurers—and there are more than a few of them—will be represented by counsel. One would think that the insurance press would be interested in profiling these lawyers.

Thus, except that which can be derived from this sliver of a remark, there is not much for the insurance junky. Of course, there is more in the bankruptcy court records. Most of the interesting policies are there—as one might expect, there are a lot of them. There are also argumentative discussions of large parts of them. 

Still, even given what all I have just said, it is still mysterious that it is not discussed further, in either the newspaper-press or the industry-press.

Consider the following as a conjectural (or guesswork) introduction. I will probably follow-up in one or more blogs to come. Here is the partial hypo, which is certainly a variation on the whole story.

There were three people in charge of managing the Dewey-show. from the top of the pyramid. One of them had general authority, Steven David, and he is said to have exercised it widely and rigidly. Two of them were probably a little more specialized, e.g., one maybe with more or less daily financial matters, etc., the other with large-scale financial matters, perhaps. The former may have been Stephen DiCarmine, while the latter would have been Joel Sanders. There will be no further reference to these "gentlemen" by name. Probably, their responsibilities overlapped.

I speculate that one of the minions might have been in charge of collecting  unpaid fees,   routine billing problems, and  handling some parts of dealing with bonuses for incoming "rain makers," partners, and others. It should be kept in mind that the "Senior Executive Group" repeatedly arranged shocking and insolvency-producing, salary-bonus, entry arrangements for some new partners, over what appears to be a considerable time. There will be insurance coverage problems here. The relevant policies will almost certainly be "claims made" policies and probably "pure claims made" contracts and they will also involve the definition of "wrongful acts," which will (and would have anyway) reeked havoc on the effects  a whole pattern of idiotic decisions.

(One of the newspaper articles states that the committee in the bankruptcy says that King-Pin and his two minions have "'over-distributed the Firm's available cash to select partners; abusively relied on guarantee agreements that bore no economic rationality; and concealed the Firm's true financial condition from its partners, employees and creditors,' for selfish reasons motivated by greed[.]" Apparently, the bankruptcy judge has noted this passage or part of it in one of its orders, according to the same source.

One of the jobs that one of the minions might have performed included the purchase, maintenance, and replacement of the $1.2M worth of artwork, hanging within Dewey's easy client-visible pleasing places.  

One of them might have also been in charge of how to avoid paying various retired partners at all. (Of course, if the firm owed these folks fiduciaries, cutting them off is probably a breach of fiduciary duties. Interestingly, there is a speculative insurance policy for this sort of thing.)

I will name these three dedicated destructioners "Head Knocker," or just "Knocker," "Designer Minion," or just "Md," and "Florida Minion," or just "Mf.” The minion names are motivated by the fact that, one of them entered a prominent New York school of design upon being humiliated out of Dewey, while the other moved to Florida to be a financial something for another law firm. One wonders if that firm, the Greenspoon Firm, will praise itself for its foresight and wisdom in taking on Mf?

In any case, these three whip-men, for what may be the greedy-leopards at the circus, are covered by $50M, or so, of Management Polic[ies?]. (Of course, so might others in the firm with coverage.  D & O policies usually have broad reaching conceptualizations of covered people.) Apparently, one primary and other excess policy or policies. (That is perfectly customary, depending on the size of the primary policy, and those excess policies may be umbrella policies.)

The primary policies are, no doubt, attached to more than a few filings in the bankruptcy court, even though there is something like 1000 of them. I have not yet seen the excess policies at all; indeed, I have not seen any, even remote, descriptions of them. As indicated, all of the excess policies are, almost certainly, attached to some pleading or brief in the bankruptcy court. However, I am not aware of serious discussions of meaning there, although I am certain there are "advocacy discussions"; alas, they are often distorted. (Some might say that they are always distorted.)

Of course, there are probably other forms of unusual insurance. One of them will cover the artwork, whether purchased or rented. This will be a form of property insurance. Another might cover Dewey's liability for banquets and the like. Often, the latter is bought on an event-by-event basis. Likely, there will be insurance covering ransom demands connected to kidnappings—a very secret form of insurance, for obvious reasons. No doubt, there will be "Errors & Omissions" insurance, which used to be called malpractice insurance, and there may be a separate policy covering nothing but breaches of fiduciary duties. Later there will be a brief blog covering at least some of the relevant policies.

Therefore, I will begin by guessing. Management policies, as they are sometimes called, are probably E&O ("Errors and Omissions") policies for a variety of different "professionals.” There is no reason why management teams for large firms could not have such a thing. The premiums would be enormous. 

In addition, D & O policies cover not only directors but officers as well, and both Knocker and the Minions were officers. Hence, management liability policies, as these certainly are, will cover these three "terds" for unintentional management misconduct, often designated in contracts as "wrongful conduct.” Given the names of the policies, they will probably not cover the firm.

It is likely that the excess policy or policies will either be or be like "follow form" policies. This means that the upper echelon contracts will be identical (or close to it) in important ways to the primary policy. In addition, it or they may be umbrella policies, covering some unusual activities, etc., the primary does not.

So what kinds of wrongful acts or omissions might be covered and which ones not? The primary policy, at least, will contain a definition of "wrongful act.” D&O policies always have them or their equivalent. This definition is of crucial importance. It may be that the nearly “follow form” policies will vary their definitions slightly, often expanding coverage a bit. Excess policies usually make it clear that they really are excess. Such carriers always try an make sure that readers of all sorts know that they are nothing but excess insurers.

All these facts leave a huge number of questions on the table. Here are statements, which will generate some of them.

• Fifty million is a lot of money. Why so much? What was said to the underwriters to get them to issue that much? These questions must certainly be asked, explored, and answered.
• The amount of coverage is so high, that one would expect there to be more than one excess policy.
• One fact that would explain the size of the coverage would be that a lot of lawyers in the firm are also covered under the policies.
• Whether the insureds committed actual  separate wrongful acts or were trying to protect themselves from liability for a string  deliberate acts, may be partially determined by answering these questions.
• Who were the intermediaries; what was said to them by people at the firm; and what did they say to the underwriters? Policies may be canceled if there are the "right" sorts of misrepre-sentations in the applications for insurance. Some managers at the Firm may have dreamed false answers up and made them to the underwriters.
•  If the Firm's agent made them up, without the firms consent, mattes are quite different.
• How could a ultra-sophisticated company, like the Firm, not realize that the intermediary was engineering  lies, supposedly on the Firm's behalf and certainly to feather his own nest? 
• The period of coverage (the policy period) of D & O policies, among others, are rather short lived, subject to renewal often enough and subject to very expensive extension periods that function to report claims after the end of the policy period.
• Usually, the same sorts of representations made in the first application have to be made in renewal applications. So what did Knocker and the Minions tell the insurer and/or the intermediaries? What did they know when they spoke? It seems almost certain to me that there were misrepresentations involved and maybe fraud.
• What was said to the reinsurers about the applications and who said it? This question may be less relevant.
• How long did the cursing sins at Dewey continue? When was the beginning? The middle is probably relevant to renewal applications, and the end is perfectly obvious.
• Most D & O policies pay for defense and indemnity, but not always, just as most routine liabilities do. Sometimes D&O policies permit the insured’s to run their own defenses. In that situation, the insured may pick its own lawyer from an approved list, and the insurer pays a reasonable fee to the firm or attorneys defending the case directly . In addition, in these policies—like other professional malpractice policies—defense expenses are often deducted from policy limits. 
• Granted, $50M is a lot of money, but so will the defense costs of      Knocker and his minions, Md and Mf. And, of course, the amount of fees will go up depending on how many other insureds there are who get sued.  This is especially true since each of them will need separate counsel.  In any case, the members of the Triumverate have just started getting sued. So it must be impossible now to know how defense expenses work, or how much they will be. 
• Usually, an ordinary liability insurer must defend a whole case, if it has to defend any of it. This proposition is not always true for D & O policies, so it will be interesting to see how that is handled in the coming suits.
• One popular source says that policy proceeds are some how  being diverted into the bankruptcy court for paying unsecured creditors. I am not sure I understand why this wouldor could be true.   
• D & O policies are sometimes geared to cover directors. An analogy might be involved here. That might make retired innocent partners prime "beneficiaries" under the policy. 
• Most D & O liability policies cover officers, only if the companies they work for have not indemnified them. That will almost certainly be true in the case of a "Management Liability Policy," since they are likely  pieces of D&O contracts of insurance, lifted out and treated by them selves. I am not sure what is true if the company has indemnified them, but the company has gone belly up. I could guess that this is not usually a situation in which the officers are cut off from coverage.

There is much more to be said, but that will have to wait for a further blog. The next one will simply be a list of what may be all or close to the entire Dewey contracts of insurance, plus a few "footnotes," maybe. 

Keep The Following In Mind

Michael Sean Quinn, Ph.D, J.D., C.P.C.U., Etc.

2630 Exposition Blvd  #115

Austin, Texas 78703

(o) 512-296-2594

(c) 512-656-9759

mquinn@msqlaw.com

(Resumes found at

www.michaelseanquinn.com)

When reading my stuff, keep in mind at least the following "Eleven Commandments":

1. No proposition that is not a tautology or an analytic truth is probably always true. 

2. In different situations, even propositions which appear undeniable may not be true in all situations.

3.  General assertions are like that.  Even specific assertions can be like that.  Situations change.  (Is this propositions true of the following: Reservation of right letters are never denials.  Or is this an analytic truth?)

4. Analyses of law, in general and in particular, are like the assertions in #3, excluding the example. This is true of case analyses, just as it is for statutes, constitutions, administrative rules, and everything else in the law.

5. Reasonable minds almost certainly adapt to, or change, in some strikingly different situations.  When advocates argue different positions at different times, they have not necessarily changed their minds about anything.  

6. Asserting a proposition one believes in a certain situation and asserting its opposition in a substantively different situation, is not necessarily inconsistent.  Neither one, taken alone or together, entails advocacy.

7. A good expert witness conforms to the last two sentences.   The good expert witness must believe what s/he asserts while a witness and not thereby be advocating, the way a lawyer may. However, good expert witnesses can be effective.  Effective formulation and methods of assertion do not entail advocacy.  The good expert witness must also either have or believe s/he has justification for is being asserted.  (Sometimes "justification" is called "basis.")

8. Mistakes always involve being wrong in some way.  (This proposition may be an analytic truth.)  A mistake is not always a bad thing.  A mistake is often a better learning tool than getting something right.  Some mistakes, properly appreciated, are very educational.  (It is hard to see how this idea "works" in representing a client.) 

9.  A variation is never identical to that which is being varied.  Both of them can be true at the same time.  Then again sometimes they are something like contradictory, though probably not completely, given the meaning of "variation." 

10. Variations can be small, or they  can be large.  No total variation can be both small and large at the same time.  If one thing is totally a variation on another, then no part of the second will be something other than a variation on the first.  (This is probably an analytic truth, even in the post modern age, though the classical easy example, "All bachelors are unmarried male adults," may not be.)

11. Remember, all propositions asserted herein, especially #3 & #7, apply to all elements of this list, except #1 and maybe #5 (depending on the unspecified definition of "expert witness.")

In fact, keep these 11 Commandment whens reading any lawyer writing about anything related to the law.