Insurance Law Alert

December 2017

In This Issue
New York Court Of Appeals Rejects Blanket Rule Or Presumption That
Reinsurance Limits Apply To Both Defense And Indemnity Payments
The New York Court of Appeals ruled that there is no rule of construction or a presumption
under New York law that a per-occurrence liability limitation in a reinsurance contract caps all
obligations of the reinsurer. Global Reinsurance Corp. of Am. v. Century Indem. Co., 2017 WL
6374281 (N.Y. Dec. 14, 2017). (Click here for full article)“They arecounselors and savvy
partners in addition to
being top-flight lawyers.
The value of services provided
is excellent.”–Chambers USA 2017
quoting a client

Florida Court Rules That Data Breach Claims Are Not Covered By Liability
PolicyApplying South Carolina law, a Florida federal district court ruled that a general liability policy
did not cover claims for damages resulting from the release of personal private information
caused by a data breach. Innovak Int’l, Inc. v. The Hanover Co., 2017 WL 5632718 (M.D. Fla.
Nov. 17, 2017). (Click here for full article)

Finding No Conflict Of Interest, First Circuit Rules That Insured Is Not
Entitled To Select Its Own Counsel
The First Circuit affirmed a finding that an embezzlement counterclaim being pursued byindependent counsel (rather than the insured’s insurer-appointed counsel) did not create
a conflict of interest that would allow the insured to replace its insurer-appointed defense
counsel. Mount Vernon Fire Ins. Co. v. VisionAid, Inc., 875 F.3d 716 (1st Cir. 2017).
(Click here for full article)

Illinois Appellate Court Rules That Bodily Injury Asbestos Claims Arise
From Single Occurrence
An Illinois appellate court ruled that thousands of asbestos-related bodily injury claims
asserted against a conveyor-belt manufacturer arose from a single occurrence and were thus
subject to the policies’ per-occurrence limits. United Conveyor Corp. v. Allstate Ins. Co., 2017
IL App (1st) 162314 (Ill. App. Ct. Dec. 5, 2017). (Click here for full article)

Fifth Circuit Rules That Policyholder Is Not Entitled To Recover Under
Crime Policy
The Fifth Circuit affirmed a Texas federal district court decision holding that a commercial
crime policy did not provide coverage for losses arising out of a Ponzi scheme because thepolicyholder did not “own” the funds for which it sought indemnification. Cooper Indus., Ltd.
v. National Union Fire Ins. Co. of Pittsburgh, PA, 876 F.3d 119 (5th Cir. 2017).
(Click here for full article)

Simpson Thacher & Bartlett LLP

1

Massachusetts Appellate Court Affirms Insurer’s Right To Settle Without
Policyholder’s Consent
A Massachusetts appellate court ruled that a policyholder could not establish negligence or
breach of contract based on her insurer’s settlement of the underlying suit for an amountwithin policy limits. Johnson v. Proselect Ins. Co., 92 Mass. App. Ct. 1118 (Dec. 12, 2017).
(Click here for full article)

North Carolina Supreme Court Rules That Indemnification Agreement
Creates Tripartite Attorney-Client Relationship Among Counsel,
Indemnitor And Indemnitee
The Supreme Court of North Carolina ruled that a tripartite attorney-client relationship arises
from an indemnification agreement because the indemnitor and indemnitee share a common
interest in defeating liability against the indemnitee. Friday Investments, LLC v. Bally Total
Fitness of the Mid-Atlantic, Inc., 805 S.E.2d 664 (N.C. 2017). (Click here for full article)

Policy May Not Restrict Right To Assign Post-Loss Benefits, Says Florida
Appellate Court
A Florida appellate court upheld an order issued by the Office of Insurance Regulation which
held that an insurer may not amend its policy language to restrict the ability of policyholders
to assign post-loss benefits. Security First Ins. Co. v. Florida Office of Ins. Reg., 2017 WL
5907449 (Fla. Dist. Ct. App. Dec. 1, 2017). (Click here for full article)

Reversing Lower Court, Seventh Circuit Finds Insured’s Delay In
Providing Notice Unreasonable As A Matter Of Law
The Seventh Circuit ruled that a policyholder’s twenty-one month delay in providing notice to
his insurer was unreasonable as a matter of law. As such, the insurer had no duty to defend theunderlying claims. State Auto Prop. & Cas. Ins. Co. v. Brumit Servs., 2017 WL 6276199 (7thCir. Dec. 11, 2017). (Click here for full article)

Insurance Implications For Derivative Suits Against Corporations And
Corporate Officers Arising From Sexual Misconduct
Last month, 21st Century Fox reached a settlement in a derivative shareholder suit relating
to sexual misconduct claims, which included a $90 million payment to be made by insurers.
(Click here for full article)

STB News Alerts:
Click here to learn about the Firm’s insurance-related honors and events.

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Reinsurance
Alert:New York Court Of Appeals Rejects
Blanket Rule Or Presumption That
Reinsurance Limits Apply To BothDefense And Indemnity Payments
Answering a question certified by the Second
Circuit, the New York Court of Appeals ruledthat Excess Insurance Co. Ltd. v. Factory
Mutual Insurance Co., 3 N.Y.3d 577 (2004),
did not establish a rule of construction or apresumption that a per-occurrence liability
limitation in a reinsurance contract caps
all obligations of the reinsurer. Global
Reinsurance Corp. of Am. v. Century Indem.
Co., 2017 WL 6374281 (N.Y. Dec. 14, 2017).
The dispute centered on the extent of Global
Reinsurance’s obligation to pay Century
pursuant to certain reinsurance certificates.
A New York federal district court ruledthat the certificates unambiguously capped
Global Reinsurance’s liability at $250,000(the amount set forth in the Reinsurance
Accepted provision) for both losses andexpenses. Century appealed, arguing thatthe reinsurance limit applied only to losses
and that Global must also pay all expenses,
even if those costs exceeded the limit. In
support of its argument, Century noted thatthe reinsurance certificates follow form tounderlying policies, which expressly provide
for payment of expenses in addition to loss.
As discussed in our December 2016 Alert, theSecond Circuit certified the following question
to the New York Court of Appeals:
Does the decision of the New York
Court of Appeals in Excess Insurance
Co. Ltd. v. Factory Mutual InsuranceCo., 3 N.Y.3d 577 (2004), impose either
a rule of construction, or a strong
presumption, that a per occurrence
liability cap in a reinsurance contract
limits the total reinsurance available
under the contract to the amountof the cap regardless of whether theunderlying policy is understood tocover expenses, such as, for instance,
defense costs?
The Court of Appeals answered the questionin the negative, emphasizing that “thestandard rules of contract interpretation
apply” and that policy language must be

interpreted on a case-by-case basis. The court
explained that the Excess decision depended
on a particular phrase in the relevant
certificate, which the court interpreted
as providing an aggregate limit for both
settlement and loss adjustment expenses. The
court noted that its decision was based on“the unique turns of phrase in the certificate”
and its interpretation of the clause “in light ofthe entire agreement as an integrated whole.”
Further distinguishing Excess, the court notedthat the loss adjustment expenses at issue
there were incurred in litigation between
the insurer and policyholder; they were notthird-party defense costs that the insurer was
obligated to pay under the underlying policy.

Data Breach Alert:

Florida Court Rules That Data
Breach Claims Are Not Covered By
Liability Policy
Applying South Carolina law, a Florida federal
district court ruled that a general liability
policy did not cover claims for damages
resulting from the release of personal private
information caused by a data breach. Innovak
Int’l, Inc. v. The Hanover Co., 2017 WL
5632718 (M.D. Fla. Nov. 17, 2017).
Innovak, a developer of payroll softwaresystems, was the victim of a data breach,resulting in the hacker’s appropriation of
personal private information stored on
Innovak’s database. Following the breach,a putative class action was filed against
Innovak, alleging negligence and breachof contract. Hanover refused to defend thesuit on several bases, including that theunderlying complaint did not allege “personal
and advertising injury” because there was no“publication” of the private information. The
court agreed and granted Hanover’s summary
judgment motion.
The court ruled that Hanover had no duty
to defend Innovak because the underlying
complaint did not allege that Innovak
engaged in the “publication” of private
information. The court noted that thecomplaint failed to allege publication by any
party, but even assuming that the breachconstitutes a publication, there was still
no coverage because the publication wascommitted by the hackers, not Innovak.
3

As the court noted, a New York court reacheda similar conclusion in Zurich American
Insurance Co. v. Sony Corp. of America, No.
651982/2011 (N.Y. Sup. Ct. New York Cnty.
Feb. 21, 2014) (discussed in our March 2014
Alert). There, the court held that an identicalpolicy provision did not cover hacking claims
because the publication was by the hackers
rather than the insured, notwithstanding
the fact that the policy did not expressly
require publication “by the insured.” Citing
Zurich, the Innovak court held that “the only
plausible interpretation” of the personal andadvertising injury provision is that “it requires
the insured to be the publisher of the PPI[personal private information].”Conflict Of
Interest Alert:

Finding No Conflict Of Interest,
First Circuit Rules That Insured
Is Not Entitled To Select Its Own
CounselThe First Circuit affirmed a finding that anembezzlement counterclaim being pursued
by independent counsel (rather than theinsured’s insurer-appointed counsel) did not
create a conflict of interest that would allow
the insured to replace its insurer-appointed
defense counsel. Mount Vernon Fire Ins. Co.
v. VisionAid, Inc., 875 F.3d 716 (1st Cir. 2017).
The dispute arose out of an age discrimination
lawsuit brought against VisionAid by an
ex-employee. Mount Vernon defended
the suit, initially under a reservation ofrights, but later unconditionally. In thediscrimination suit, VisionAid asserted a
counterclaim of embezzlement against theformer employee. In a previous ruling in thiscase, the Massachusetts Supreme Judicial
Court ruled that Mount Vernon was not
obligated to fund the prosecution of thecounterclaim as part of its defense obligation.
See July/August 2017 Alert. Thus, VisionAid
retained independent counsel for thatparticular purpose, while insurer-appointed
counsel continued to defend VisionAid in
the discrimination suit. During the courseof litigation, the employee offered to drop
his discrimination claim if VisionAid agreed
not to pursue its embezzlement claim, which
VisionAid refused. In the matter giving riseto the First Circuit appeal, Mount Vernon
sought a declaration that there was no conflictof interest between the parties that would
permit VisionAid to select its own counsel todefend the underlying suit. The court agreed,ruling that the presence of the embezzlement
counterclaim did not create a conflict ofinterest sufficient to warrant independent
counsel at Mount Vernon’s expense.
Addressing a preliminary matter, the First
Circuit ruled that under Massachusetts law,
insurer-appointed counsel serves as counsel
for both insured and insurer and owes bothparties a duty of good faith and due diligence.
Notwithstanding this finding, the First
Circuit concluded that there was no conflictof interest by virtue of the embezzlement
counterclaim. The court rejected VisionAid’s
contention that a conflict existed because
Mount Vernon was motivated to devalue theembezzlement claim in order to achieve an
expeditious settlement. The court reasoned
that Mount Vernon and VisionAid shared acommon goal of “crush[ing]” the employee’s
suit and that the factual record lacked any
evidence that Mount Vernon sought toundermine the counterclaim. Further, theFirst Circuit held that even assuming Mount
Vernon wanted to diminish the counterclaim,
it would be unable to do so given that
VisionAid’s independent counsel has solecontrol over that issue. The court also notedthat the consent-to-settlement provision
protected VisionAid’s rights to resolve the suitin the manner it deems just. Finally, the First
Circuit rejected VisionAid’s argument that thepresence of two attorneys representing it in
the underlying litigation was “unworkable,”noting that tension between counsel does notestablish a conflict of interest.
As the court noted, a Massachusetts
appellate court rejected a conflict of interest
argument last month, finding that differing
views between insurer and insured as
to defense tactics does not give rise to aconflict of interests sufficient to justify the
insured’s refusal of the insurer’s defense. See
OneBeacon Am. Ins. Co. v. Celanese Corp., 84
N.E.3d 867 (Mass. App. Ct. 2017) (discussed
in our November 2017 Alert).

4Number Of
Occurrences Alert:
Illinois Appellate Court Rules That
Bodily Injury Asbestos Claims Arise
From Single Occurrence

separate human intervening event
attributable to the conveyor system’s
installation and maintenance isinvolved. Specifically, the installationand maintenance by United’s customers
did not give rise to United’s liability; its
manufacturing activities did.

An Illinois appellate court ruled thatthousands of asbestos-related bodily injury
claims asserted against a conveyor-belt
manufacturer arose from a single occurrence
and were thus subject to the policies’ peroccurrence limits. United Conveyor Corp. v.
Allstate Ins. Co., 2017 IL App (1st) 162314 (Ill.
App. Ct. Dec. 5, 2017).
United, a manufacturer of conveyor belt
systems for coal plants, was named inthousands of suits alleging injuries fromasbestos exposure. After defending United
for more than two decades, Travelers notified
United that the applicable per-occurrence
policy limits had been exhausted. United filed
suit, seeking a declaration that the asbestos
claims constituted multiple occurrences andwere within the policies’ aggregate limits.
Ruling on cross-motions for summary
judgment, an Illinois trial court held thatthe claims arose from a single occurrence –United’s continuous manufacture and sale of
the asbestos-containing conveyor systems.
The appellate court affirmed.
Applying a cause-based analysis, the appellate
court concluded that the “single, unitarycause of claims against United is the factthat it incorporated asbestos-containing
components or products into each of its
systems.” In so ruling, the court deemed
irrelevant the fact that each system wasdesigned individually to the customer’s
specifications (rather than mass produced). In
addition, the court distinguished Nicor, Inc. v.
Associated Electric & Gas Insurance Services,Ltd., 860 N.E.2d 280 (2006), in which theIllinois Supreme Court held that mercuryrelated injuries caused by the installation ofresidential natural gas regulators arose out ofmultiple occurrences. The court explained:
Contrary to United’s position, thecause of its loss was not attributable
to the installation and maintenance byUnited’s customers of each conveyor
system that contained asbestos
products. Likewise, unlike Nicor, noPonzi Scheme
Alert:

Fifth Circuit Rules That
Policyholder Is Not Entitled To
Recover Under Crime Policy
Our July/August 2016 Alert reported on a
Texas federal district court decision holdingthat a commercial crime policy did notprovide coverage for losses arising out ofa Ponzi scheme because the policyholder
did not “own” the funds for which it sought
indemnification. Cooper Indus., Ltd. v.
National Union Fire Ins. Co. of Pittsburgh,PA, 2016 WL 3405295 (S.D. Tex. June 21,2016). Last month, the Fifth Circuit affirmed.
Cooper Indus., Ltd. v. National Union Fire
Ins. Co. of Pittsburgh, PA, 876 F.3d 119 (5thCir. 2017).
Cooper invested approximately $175 million
in Westridge Capital Management, a
registered investment advisor. Unbeknownst
to Cooper, Westridge was part of a Ponzi
scheme orchestrated by individuals who
owned a controlling share of Westridge, as
well as two other related entities (WGTC,a registered broker-dealer, and WGTI, an
unregulated entity utilized to facilitate
investments into WGTC). Before the scheme
was discovered, Cooper recouped its principal
investment plus earnings in Westridge’s
equity fund. However, Cooper did not redeem
its investment in Westridge’s bond fund.
5

Cooper sought coverage from National Union
for lost principal investments, earnings andinterest. National Union denied coverage, andCooper brought suit, claiming losses of nearly$20 million.
The Fifth Circuit affirmed the district court’s
ruling that the policy does not provide
coverage because Cooper did not “own”
the funds for which it sought recovery, as
required by the policy. The court reasoned
that when Cooper loaned the money to
WGTI in exchange for promissory notes, it
no longer had an ownership interest in theproperty. The court declined to interpret“own” as encompassing both legal andequitable ownership, noting that no Texas
court “has held that a party continues to ‘own’
funds it was fraudulently induced to loan tosomeone else.”
The court also concluded that Cooper did not
suffer a “loss” under the policy when it loaned
the bond-fund principal to WGTI. Cooperargued that a loss “occurs at the moment aborrower fraudulently induces a loan.” Thecourt disagreed, finding that even where aloan is fraudulently induced (and is thus
voidable), ownership of the funds passes tothe borrower (here, WGTI) and the loss does
not occur until the funds are stolen. Finally,
the court noted that Cooper’s substantial
profit on its equity fund investment “belies
any argument that it sustained a ‘loss’ when it
funded the loan.”

Settlement Alert:

Massachusetts Appellate Court
Affirms Insurer’s Right To Settle
Without Policyholder’s Consent
A Massachusetts appellate court ruled that apolicyholder could not establish negligenceor breach of contract based on her insurer’s
settlement of the underlying suit for an
amount within policy limits. Johnson v.
Proselect Ins. Co., 92 Mass. App. Ct. 1118
(Dec. 12, 2017).
A medical malpractice suit resulted in a $5
million judgment against the physician.
Proselect, the physician’s professional liability
insurer, opted to forgo post-trial motions
or an appeal, and instead settled the case(over the physician’s objection) for $3.75

million – an amount within the policy’s $4
million limit. The physician sued Proselect,
alleging negligence and breach of contract
based on Proselect’s post-verdict conduct. A
Massachusetts trial court granted Proselect’s
summary judgment motion on those claims,
and the appellate court affirmed.
On appeal, the physician argued that although
the settlement released her from all liability,
it harmed her “professional reputation, her
future career prospects, and caused heremotional distress.” She further asserted
that notwithstanding the policy provisionauthorizing Proselect to settle a post-verdict
claim without her consent, Proselect did nothave an absolute right to settle where pursuitof post-trial motions would have best served
her interests. The appellate court rejected
these arguments. The court explained that
under New Hampshire law, negligence basedon an insurer’s duty of reasonable care in
defending an insured can only be established
if the insurer’s misconduct exposes its insured
to personal liability. Additionally, the court
held that there could be no breach of contract(including the implied duty of good faith andfair dealing) because the policy expressly gave
Proselect the right to reach a post-verdict
settlement without the physician’s consent.

Privilege Alert:

North Carolina Supreme Court
Rules That Indemnification
Agreement Creates Tripartite
Attorney-Client RelationshipAmong Counsel, Indemnitor And
Indemnitee
The Supreme Court of North Carolina ruledthat a tripartite attorney-client relationshiparises from an indemnification agreement
because the indemnitor and indemnitee
share a common interest in defeating liability
against the indemnitee. Friday Investments,
LLC v. Bally Total Fitness of the MidAtlantic, Inc., 805 S.E.2d 664 (N.C. 2017).
An asset purchase agreement between Bally
and Blast Fitness transferred all obligations
arising under certain property leases fromBally to Blast. The agreement contained anindemnification clause wherein Blast agreed
to defend and indemnify Bally against any
losses relating to the leases. Thereafter, a real6

estate investment firm sued Bally for paymentof back rent and other charges due undera certain lease. Blast agreed to defend andindemnify Bally pursuant to the agreement.
During discovery, plaintiff’s counsel moved
to compel the production of “post-suitcorrespondence and documents exchanged
between [Bally] and Blast.” Bally objected
and moved for a protective order basedon attorney-client privilege. After an incamera review, a North Carolina trial court
summarily granted the motion to compel.
An appellate court affirmed, holding that a
tripartite attorney-client relationship did notexist between Bally, Blast and defense counsel
because “an indemnification provision in an
asset purchase agreement, standing alone, isinsufficient to create a common legal interest
between a civil litigant indemnitee and athird-party indemnitor.” The North Carolina
Supreme Court modified the ruling andremanded the matter.

The North Carolina Supreme Court ruledthat the indemnification agreement created a
tripartite relationship among Bally, Blast anddefense counsel because the legal interests of
Bally and Blast were contractually aligned.
However, the court noted that the existenceof such a relationship did not automaticallytrigger privilege. Rather, for privilege toapply, the communications must satisfy afive-factor test that considers the content
and timing of the communication, among
other things. The court held that because
the factual record below was “bare” (lacking
findings of fact or conclusions of law), it could
not conclude that the trial court abused its
discretion in compelling disclosure of the
documents at issue. The court remanded thematter for additional proceedings.

Assignment
Alert:

Policy May Not Restrict Right To
Assign Post-Loss Benefits, Says
Florida Appellate Court
A Florida appellate court upheld an orderissued by the Office of Insurance Regulation
which held that an insurer may not amend
its policy language to restrict the ability ofpolicyholders to assign post-loss benefits.
Security First Ins. Co. v. Florida Office of Ins.
Reg., 2017 WL 5907449 (Fla. Dist. Ct. App.
Dec. 1, 2017).
Security First, a property and casualty
insurer, submitted a proposed policy
endorsement to Florida’s Office of Insurance
Regulation, as required by state statutory
law. The proposed endorsement “restricted
the ability of policyholders to assign post-loss
benefits absent the consent of all insureds,
all additional insureds, and all mortgagees
named in their policies.” The Office of
Insurance Regulation disapproved of theendorsement, finding that it violated Florida
statutory law by improperly restricting theassignment of post-loss claims. See Fla. Stat.
627.411. Security First appealed the ruling,
and a Hearing Officer upheld the decision. A
Florida appellate court affirmed.
Security First argued that Florida’s
prohibition against the enforcement of policy
provisions that require consent for post-loss
assignments applies only to provisions that
require the insurer’s consent, whereas the
proposed endorsement requires the consent
of other parties. Additionally, Security First
asserted that the endorsement furthers
several public policy interests, including
concerns “about the significant increasein post-loss assignment of benefits from
homeowners to third-parties” and potential
bad faith claims against insurers in cases
in which an assignment occurs without theconsent of all insureds, thereby potentially
impairing the rights of some insureds. The
appellate court rejected these assertions,emphasizing that “the right to recover under
an insurance policy is freely assignable
after loss.”7

Notice Alert:

Reversing Lower Court, Seventh
Circuit Finds Insured’s Delay In
Providing Notice Unreasonable As
A Matter Of Law
The Seventh Circuit ruled that a policyholder’stwenty-one month delay in providing notice
to his insurer was unreasonable as a matterof law. As such, the insurer had no duty to
defend the underlying claims. State Auto
Prop. & Cas. Ins. Co. v. Brumit Servs., 2017
WL 6276199 (7th Cir. Dec. 11, 2017).
The coverage dispute arose out of a minor
automobile incident in which Carl Brumit,
owner of a small construction business, strucka pedestrian while backing out of a parking
space. Brumit was unaware that he had
struck a pedestrian until a bystander alerted
him as he was driving away. The pedestrian
was treated by an EMT for skin scrapes
but declined a trip to the hospital. Brumit
believed the incident was so insignificant that
he was not required to report it to his businessautomobile liability insurer. However, nearly
two years later, he was sued by the pedestrian
for personal injuries. He promptly notified
State Auto of the suit. Thereafter, State Autosought a declaration that it had no duty to
defend Brumit because he had breached thepolicy’s notice requirement. An Illinois federal
district court granted Brumit’s summary
judgment motion, finding that the twenty-one
month delay was reasonable as a matter oflaw. The Seventh Circuit reversed.
Under Illinois law, the reasonableness of adelay in providing notice is determined byevaluating five factors. The district court had
determined that all five factors mitigated infavor of a finding of reasonableness. However,as set forth below, the Seventh Circuit
concluded that all factors lean toward theunreasonableness of the delay.
Policy Language: The Seventh Circuitemphasized the unambiguous noticerequirement in the policy, dismissing the
district court’s reasoning that the noticerequirement would not be understood torequire policyholders to report “each andevery accident” they were involved in.

unsophisticated end of the spectrum.” Rather,
the Seventh Circuit explained that as a highschool graduate with two years of college
courses, several years of work experienceand two years of business ownership, Bremit“should be expected to possess a betterthan-average understanding of commerce
and insurance.”
Awareness of Possible Claim: The district
court had reasoned that because theincident was so trivial and had resulted in
no apparent harm, Brumit had a reasonablebasis to conclude that no claim would
arise. The Seventh Circuit rejected thisreasoning, finding that “no matter how
minor the incident appeared to be at thetime, a reasonable driver would understandthat a claim” might later be filed based onlatent injuries.

Brumit’s Diligence: The Seventh Circuit“strongly disagree[d]” with the district court’s
conclusion that “[t]here is very little [Brumit]
could have done to be more diligent.” The
Seventh Circuit emphasized that Brumit took
no action during the twenty-one month delay,
noting that he could have made inquiries to
his insurance agent about the necessity ofreporting the accident.
Prejudice to State Auto: The Seventh Circuit
held that State Auto was prejudiced by thedelay because earlier notice would have given
the insurer an opportunity to investigate theaccident and the pedestrian’s alleged injuries,
and to evaluate the pedestrian’s willingness
to settle immediately after the accident. The
court concluded that the deprivation of thoseopportunities establishes prejudice under
Illinois law.

Brumit’s Sophistication: The Seventh
Circuit rejected the district court’s findingthat Brumit “falls somewhere on the8Litigation Alert:
Insurance Implications For
Derivative Suits Against
Corporations And Corporate
Officers Arising From Sexual
Misconduct
Last month, 21st Century Fox reacheda settlement with the City of Monroe
Employees’ Retirement System relating tosexual misconduct litigation. Unlike thewave of recent lawsuits brought by victimsof alleged sexual misconduct, the 21stCentury Fox settlement resolved a derivative
suit against the company brought by its
shareholders. The shareholder derivative
suit alleged that the company’s management
allowed a culture of sexual and racial
harassment, resulting in financial harm to thecompany. Notably, the suit was not actually
filed until November 20, the same day thatthe settlement agreement was submitted to
the Delaware Court of Chancery.

The settlement, which does not admit any
wrongdoing, provides for the establishment ofa Fox News Workplace Professionalism andInclusion Council and the implementationof procedures to ensure a “proper workplaceenvironment.” In addition, the settlement
provides that the defendants will “cause
their insurers to make a payment” of $90
million back to the company. A recent press
release issued by 21st Century Fox confirmsthat the payment is to be funded by insurers.
However, it is unclear which insurers andwhat type of coverage is involved, andwhether any exclusions would arguably bar
coverage for such claims. These and otherinsurance-related issues may be significant in
the event that similar derivative shareholder
suits are filed in the future.

STB News Alerts:
Mary Beth Forshaw has been named a 2017
Law360 “MVP” in Insurance. Law360’s MVP
awards honor attorneys in various practiceareas based on their achievements in highstakes litigation, complex global matters andrecord breaking deals. The winners werechosen from over 1,000 submissions.
Mary Beth Forshaw and Andy Frankel werenamed to Who’s Who Legal: Insurance andReinsurance, which recognizes the world’s
leading insurance and reinsurance lawyers.
Attorneys receiving this honor were selectedbased on research with clients and peers.

The complaint named several individual
defendants, including Roger Ailes, Rupert
Murdoch and other company directors,
and alleged breach of fiduciary duty
against Murdoch and others and an unjust
enrichment claim against Ailes’s estate (basedon severance pay to Ailes). The complaint
alleged that the Board of Directors failed
to take steps to address sexual harassment
issues and to implement sufficient controls
to prevent a hostile work environment.
According to the complaint, those failures led
to numerous sexual harassment settlements
and race discrimination suits that cost thecompany millions of dollars, as well as
damage to the company’s good will.

Lynn Neuner was named one of New YorkCounty Lawyers Association’s “Outstanding
Women in the Legal Profession” and will behonored in Crain’s Leading Women Lawyers
in New York City.
Deborah Stein was elected to the Board ofGovernors of the Women Lawyers Associationof Los Angeles.
Bryce Friedman spoke at the 2017
ARIAS•U.S. Fall Conference on November 2.
His panel, Workers’ Compensation Disputes
in the Insurance and Reinsurance Sphere – A
Practical Guide, addressed the key proceduraland substantive issues presented in workers’
compensation arbitrations in insurance andreinsurance settings.

9

Simpson Thacher has been an international leader in the practice of insurance and reinsurance law for
more than a quarter of a century. Our insurance litigation team practices worldwide.

David J. Woll
+1-212-455-3136
dwoll@stblaw.com

Bryce L. Friedman+1-212-455-2235
bfriedman@stblaw.com

Deborah L. Stein+1-310-407-7525
dstein@stblaw.com

Mary Beth Forshaw+1-212-455-2846
mforshaw@stblaw.com

Michael D. Kibler+1-310-407-7515
mkibler@stblaw.com

Craig S. Waldman+1-212-455-2881
cwaldman@stblaw.com

Andrew T. Frankel+1-212-455-3073
afrankel@stblaw.com

Michael J. Garvey+1-212-455-7358
mgarvey@stblaw.com

Susannah S. Geltman+1-212-455-2762
sgeltman@stblaw.com

Lynn K. Neuner+1-212-455-2696
lneuner@stblaw.com

Tyler B. Robinson+44-(0)20-7275-6118
trobinson@stblaw.com

Elisa Alcabes+1-212-455-3133
ealcabes@stblaw.com

Chet A. Kronenberg+1-310-407-7557
ckronenberg@stblaw.com

George S. Wang
+1-212-455-2228
gwang@stblaw.com

Summer Craig+1-212-455-3881
scraig@stblaw.com

This edition of the
Insurance Law Alert was
prepared by Bryce L. Friedman
bfriedman@stblaw.com /+1-212455-2235 and Deborah L. Stein
dstein@stblaw.com /+1-310-407-7525
with contributions
by Karen Cestarikcestari@stblaw.com.

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