Insurance And Reinsurance And A New Office For An Old Firm

Monday, June 1, 2009 - 01:00

Editor: Could you describe both the firm's and your practice in the Chicago office?

Gilford: Proskauer is an international law firm that is over 100 years old. We opened in Chicago about a year ago. We're working to develop a top-level, broad-based practice that would be typical of a major commercial firm, and we currently have lawyers in the areas of litigation, insurance, bankruptcy, healthcare, executive compensation and not-for-profit tax. We're working to expand into other areas.

I have broad-based experience in a wide range of commercial litigation. In addition, I have practiced in the area of insurance and reinsurance for a number of years, particularly doing coverage work for policyholders. I have experience in virtually all lines of coverage.

Editor: Could you describe the growth of the Chicago office? How many lawyers did you start with and how many do you have today?

Gilford: We're extremely excited about what we've been able to accomplish in a relatively short time and the caliber of the people we've been able to attract. We've been here for about a year. We started with three partners doing a variety of litigation and arbitration. Today we have 17 lawyers, and we expect to continue to grow. We've taken on a couple of terrific groups in the bankruptcy and healthcare areas. The bankruptcy lawyers have a strong and wide-ranging practice that is national in scope. They're involved in bankruptcy matters across the country, doing a wide variety of corporate reorganizations and restructurings. Jeff Marwil has a strong focus on hedge fund issues. Mark Thomas recently filed the much publicized Philadelphia Newspaper bankruptcy. In the healthcare area, two lawyers recently joined us: Monte Dube and Elizabeth Mills. Monte's practice focuses on high-stakes transactions for healthcare organizations, a practice in which our firm is already strong. They also represent private equity firms involved in the acquisition and ownership of healthcare businesses and have a lot of experience in privatization transactions. Elizabeth Mills is a leading expert in the tax-exempt issues that many healthcare organizations face and that are integral to just about any of the structural or transactional work they do.

Editor: Are any other practice areas major engines of growth in the Chicago office?

Gilford: General litigation and insurance continue to be really important areas of our practice. In addition to our policyholder practice, our litigators are currently working on consumer class actions, trademark and intellectual property and sport law disputes, labor and employment cases and various other matters. For 2009, we will continue to look at growing by adding bankruptcy and healthcare lawyers and expanding further in the areas of IP and private equity. The firm has a long-time strength in labor and employment, and we want to build that out here. At the right time and place, we'll build-out corporate, real estate and other general practice areas.

Editor: So you're not a full-service office as of yet, but you plan to be.

Gilford: Yes, that is correct. Many of us have diverse experience and we have support from a large law firm with 11 other offices in the United States and abroad, so we have tremendous resources and can handle a lot of different work.

Editor: What kind of claims are you seeing as a result of the large amount of litigation facing insurance companies?

Gilford: We're seeing a lot of work, particularly from claims in the financial sector that involve directors' and officers' liability claims. We're also seeing credit insurance issues, insurance for defaulted home loans and professional liability issues, insurance claims arising from suits against attorneys, auditors and consultants, and employment claims arising from layoffs. We still are seeing major property damage cases from events such as the hurricanes a couple years ago and the recent flood in the Midwest, which resulted in large first-party claims. Many of those claims are being resolved, but those that remain are starting to move along in the arbitration or litigation process. In addition, we continue to see a wide range of complex claims and insurance disputes from products liability and recall claims and advertising injury claims. We are involved in insurance claims based on antitrust suits, and environmental coverage actions continue to arise.

Editor: How amenable to manuscripting policy language do you find insurance companies are today?

Gilford: Manuscript language is a double-edged sword. On the one hand, you can get a policy more carefully tailored to your specific needs. On the other hand, manuscript language is often not well tested by the courts and can lead to disputes. In addition, some courts may not apply the usual pro-policyholder rules of construction to provisions of a manuscript policy that are truly negotiated at arms-length or drafted by the insureds. As capacity increases and pricing goes down, many insurers are more willing to provide manuscript language, but companies should be careful in negotiating such language and, when possible, obtain legal review.

Editor: What measures are you taking to protect clients who are officers and directors of companies?

Gilford: We work with many officers and directors in reviewing their policies, taking into account the companies they are involved with to make sure the policies will adequately protect them. One of the big issues that D & O policies are designed to deal with is bankruptcy or other situations where a company doesn't indemnify or, for some reason, cannot pay. We are also very focused on being sure there is coverage for the defense of SEC and other investigations and for suits by bankruptcy trustees or derivative suits, as well as protecting the individuals in cases where D&O policies also cover the companies. Finally, we look closely at the interplay between insurance and protections provided to the directors and officers by the company's by-laws and indemnification arrangements.

Editor: How do you ensure that the D & O recoveries are kept outside the bankrupt estate?

Gilford: There are a number of ways to do that. First, there are provisions you can include in policies that channel payments to the officers and directors first so they have a priority. Some officers and directors prefer to buy a policy that only covers the directors and officers and not the entity. We have also suggested carve-backs - provisions that "carve back" the insurer versus the insured exclusion so that we can be certain that claims by trustees, receivers, creditors' committees and derivative actions are covered. We've also negotiated provisions stating that the obligations of the insurers are not affected by the organization's bankruptcy. No one worries about these kinds of issues when the economy is going well, but when major companies such as the automobile manufacturers are encountering problems no one anticipated, you're glad when someone has really gone over those policies and structured them in a way that ensures the protection will be there when you need it. This is an area where advance planning and legal review can make a really big difference.

Editor: Why are choice of law and forum selection so important in an insurance litigation?

Gilford: Right now most insurance cases are governed by state law, and there are significant variations from state-to-state on key issues such as the effect of late notices, the insurability of punitive damages, or how claims are allocated among multiple policies. For example, some states permit insurance for punitive damage claims while others do not. So it's important to focus on the controlling law that governs a particular situation. In many cases, the choice of the forum will have a significant impact on the choice of law principles used in a particular case so insurers and insureds are often highly motivated to commence a law suit first and control the choice of law analysis. If you can negotiate and include a forum selection or choice of law clause in an insurance policy, it really helps to avoid those kinds of races to the courthouse. A strong arbitration clause can also help avoid these kinds of fights, but it's sometimes hard to agree with the insurers on an acceptable pool of arbitrators.

Editor: How much have arbitration and mediation replaced litigation in settling certain types of claims?

Gilford: There is a long history in the reinsurance markets of the use of arbitration and you will continue to see that. The traditional theory in reinsurance arbitration is that an experienced arbitration panel is more likely to reach a commercially reasonable resolution, without being held to the strict constraints of law. As more and more commercial companies become committed to arbitration and mediation, there are an increasing number of insurance contracts that require arbitration or mediation at the direct insurance level as well. Many of those contracts vary from the old reinsurance model and require impartial arbitration and reasoned written opinions. With respect to mediation, I was on a committee of CPR which focused on trying to develop a commitment by insurance companies to participate in mediations. That kind of effort is developing more and more success as people become concerned about the time and difficulty of protracted litigation in the coverage area. I am a big fan of mediation. Mediation can be very helpful in bringing all the relevant parties into the same place and keeping them on track, especially where you have an experienced mediator. Arbitration and mediation clauses need to be drafted carefully so you get the right arbitrators and mediators in the right location, operating under rules and procedures you are comfortable with in a manner that is likely to be efficient, fair and successful.

Editor: Have you experienced an upsurge in insurance claims in securities-related cases as compared with accounting-related cases which were dominant several years ago?

Gilford: Securities claims have definitely diminished in light of recent securities reform legislation. Accountants' litigation had also been diminishing, though you are seeing more such suits as people look for defendants in the wake of the financial crisis. I'm not sure the suits are always justified, if you really understand the role of an auditor, but they certainly have been on the upswing.

Editor: One area noted in a PricewaterhouseCoopers study is the growth of claims against foreign issuers of securities. Has this been your experience?

Gilford: I think you are seeing more claims against foreign issuers of securities because there are more issuances of foreign securities that find their way into the United States. I think as you see the globalization of securities markets, you are bound to see more and more participation of foreign issuers of securities, and they are going to be subject to claims. Foreign companies need to be sure their coverage extends to claims brought against them in the United States.

Editor: Are you seeing RICO claims as part of securities cases to the same extent as we experienced seeing them in the '80s?

Gilford: During the '80s, RICO claims were in vogue. As a general matter, there have been a number of decisions by the Supreme Court and other courts that have made those claims more difficult, and you're not seeing those as routinely attached to securities claims as you did in the '80s. Early on, I was involved in a number of RICO cases, some involving insurance insolvencies, but they're not nearly as prevalent today.

Editor: Do you anticipate that the U.S. may in time have federal regulation of certain types of insurance along with state regulation? What are the advantages and disadvantages for having these parallel systems?

Gilford: There's been debate over the federal regulation of insurance for at least the last 20 years, and it would undoubtedly have some beneficial effects such as uniformity and predictability. However, it would also require a tremendous amount of interplay between the federal government and the 50 states, or the development of a very significant federal bureaucracy. Many insurance issues, particularly those involving consumers, are handled on a local basis, as is rate setting. Handling these issues nationally would be quite an undertaking. There may be some benefit to consolidating financial regulation as we have more and more national and international insurance companies and groups of insurance companies. Complying with varying regulatory requirements in 50 states creates substantial costs for insurers, agents and brokers. However, it is much harder to consistently manage local conduct on a national basis.

Please email the interviewee at sgilford@proskauer.com with questions about this interview.