Editor: Steve, it has been two years since the firm's continuation of its expansion with a move into Three First National Plaza, a 57-story office tower in the heart of Chicago's financial district. How many lawyers reside in Proskauer's Chicago office?
Gilford: We started three years ago with three partners doing a variety of litigation and arbitration, particularly in the areas of insurance and reinsurance. Today, we have 21 full-time practicing attorneys, as well as paralegals and a few part-time attorneys. We have taken on additional space on another floor we are slowly but surely starting to fill.
Editor: Please describe your office's practice. What are your strongest practice areas today?
Gilford: We do a wide range of commercial litigation, including in the areas of insurance and reinsurance. In recent months, for example, we have been working on a dispute concerning a default on a mezzanine loan for a real estate development project and one of the first lawsuits by the FDIC against officers and directors of a bank that failed in the recent financial crisis. In the insurance arena, we advise policyholders across the country in virtually every aspect of insurance and handle complex insurance coverage disputes. In addition to our litigation and insurance practices, we have an award-winning bankruptcy & restructuring practice and nationally recognized teams in health care and labor and employment. We also have, in Chicago, practices in the areas of not-for-profit/tax-exempt organizations and, most recently, in executive compensation and employee benefits. The more recent additions of labor and employment and executive compensation and employee benefits are important steps for us. Adding these practices fulfills one of the goals of having this office in Chicago, which is to fill out the firm's platform and our ability to seamlessly service our clients on a national and international basis.
Editor: To what extent do you draw upon the resources of Proskauer's 11 other offices around the globe?
Gilford: We are structured to be able to run major matters out of Chicago and have done so in all our major practice areas. But we have tried to avoid weighing ourselves down with overcapacity or resources that are likely to be needed only on a sporadic basis. Instead, we have in Chicago a group of senior and mid-level lawyers, and a relatively limited number of more junior attorneys, who can drive projects in all of our practice areas and draw upon resources from other offices when there is a peak need, as occurs with some large litigation and the kinds of major bankruptcies and healthcare transactions we are often involved with. We don't need to house all of these resources physically here.
Editor: As co-head of the firm's Insurance Recovery & Counseling Group, please describe how the practice has evolved over the years.
Gilford: Our insurance practice is a national one with lawyers in New York, Chicago and Los Angeles. The goal is to service all issues related to policyholders, from negotiating and reviewing insurance policies to drafting policy language and advising on coverage for claims and claims handling. And, ultimately, if there is a dispute, we can handle it, no matter how complex or whether it is in litigation or arbitration in the U.S. or, particularly with arbitrations, in locations such as London or Bermuda.
We also deal with captives, particularly in the policyholder area. Some of our large policyholder clients have captive insurance companies that reinsure some of their risks into the reinsurance markets, and we advise clients on those matters, including handling reinsurance disputes where they arise. We have a very sophisticated soup-to-nuts kind of practice in the policyholder insurance space.
Editor: Have you noticed an increase in directors' and officers' liability claims?
Gilford: Since the onset of the financial crisis - along with subsequent changes in financial regulation and the uptick in SEC investigation activity - there has been an increase in type and complexity of D&O and certain kinds of errors and omissions claims. Senior management and boards of directors are looking much more closely at their policies, making sure they are adequately covered. We have seen an increase in professional liability issues as well.
Editor: Yours must be a very interesting practice because it is so varied and covers a wide array of insurance needs.
Gilford: What I find most interesting is the difference in risk profiles among companies. People often imagine that all companies have more or less the same sort of problems, but the truth is that risk profiles vary widely. Some companies you might expect to have been exposed to risks from the tsunami in Japan or flooding of the Mississippi proactively managed for those risks and are not significantly impacted. Others that you might not expect to be heavily affected have significant exposures. It all depends on how a company manages its risk, and clients are becoming more sophisticated in their risk management techniques. Enterprise Risk Management ("ERM") is closely tied to the insurance function, because in ERM you manage risk overall, viewing risk management as a comprehensive package. In years past, when people worried about "loss control," they were primarily concerned with personal injury. Now people are much more focused on the overall array of what could happen to a business from supply chain to reputational issues. ERM greatly influences the evaluation of what coverages are needed.
Editor: Have some of the natural disasters that have affected the U.S. in the South and along the Mississippi precipitated an increase in claims? Or, further back, the disaster in Japan?
Gilford: We are just starting that cycle. The issues near the Mississippi are only weeks old, but we have already been contacted by clients who have businesses impacted by the flooding. As for Japan, many of the multinational companies which do not actually have facilities in impacted areas have been able to make short-term adjustments. It is going to take a while to see which supply chains are ultimately impacted and how willing insurers are to pay claims that may develop. Like with Hurricane Katrina several years ago, these claims take a while to be quantified; we will have to wait a while to see whether they will be paid by insurers or ripen into disputes.
Editor: Growth in manufacturing in the Midwest has registered around nine percent this past year, which is phenomenal. How has this affected your insurance practice?
Gilford: One of the reasons Proskauer came to the Midwest was to better serve manufacturing clients in this region. Manufacturing clients often have general liability exposures from products they manufacture and property exposures from large physical plants that can be very significant and different from the risks faced by most consulting and financial service clients. As manufacturing continues to grow, companies are highly focused on obtaining appropriate levels of various lines of coverage and on having policies that work the way that they expect them to.
Editor: Would you describe the major victory that you achieved for Union Carbide in the New York Court of Appeals? What are the ramifications of this decision?
Gilford: We've represented Union Carbide for a number of years, primarily with respect to insurance for asbestos claims. One of the issues that developed in that litigation was that Carbide, like many major companies then and now, had policies that extended over multiple years. The question was: if you had a policy that extended over three years, did your policy limit apply separately to each of those years or did it apply across all three years together? If the first is true, you have three times as much coverage. Not surprisingly, some of the insurers took the position that there was one per policy limit, while Carbide took the position that you get a separate policy limit for each policy year.
We thought our position was clearly correct, and ultimately the New York Court of Appeals agreed with us. The decision highlights the importance of looking closely at your policies and making sure the wording works the way you expect it to. In this case, the court enforced the policies as Carbide expected them to operate.
Editor: Two prominent cases in which Proskauer's office acted as counsel were the Chapter 11 reorganizations of TLC Vision Corporation and of the Philadelphia Inquirer. Why were they both accorded the "Turnaround of the Year" award by M&A Advisor ?
Gilford: Each of those cases presented complex and difficult bankruptcies. The Philadelphia Newspapers case involved multiple auctions to sell the company's assets and a very complex set of issues related to unions and pension funds. More than a dozen pension funds and unions were involved. In addition, that bankruptcy involved groundbreaking litigation that went up to the Third Circuit Court of Appeals in which the court held that secured lenders could not "credit bid" - bid the value of their debt without putting up cash - at an auction sale proposed under a company's Chapter 11 plan of reorganization. This decision significantly affected the position of the secured creditors in the reorganization. The successful, coordinated handling of all of these issues was very important to allowing the continuing viability of these newspapers, including the continued employment of many of their employees.
TLC is a leading company in the laser eye surgery space. There had been a proposal by the company's senior secured lenders that would have provided them with virtually all of the company's value, but our bankruptcy team ultimately structured a revised deal that resulted in unsecured creditors receiving 80 cents on the dollar on account of their claims, which is almost unheard of in a bankruptcy situation.
As the head of the Chicago office, from my point of view, these cases demonstrate our ability to draw on resources from all over the firm. Neither of these bankruptcies occurred in Chicago, and although the lawyers primarily responsible are in our Chicago bankruptcy practice, they drew on lawyers from many of our offices. We handled litigation from Chicago, New York and other offices, and the team had assistance from many lawyers in disciplines all over the firm.
Editor: What areas of opportunity do you foresee for Proskauer's Chicago office? How does a Midwest presence support the objectives of the firm's international/national clients?
Gilford: We see the office continuing to grow in all our areas of core and strategic strength. We expect that each of our existing practices will continue to develop and expand. We are also looking to add to our corporate and transactional capacity here in Chicago, including in the private equity space where we have a national practice and reputation. In litigation, we hope to add to our corporate defense and white collar criminal capacity and to continue to grow commercial litigation to complement these practices in other offices. We have a national wealth management practice that deals with high net worth individuals, and we hope to bring that to Chicago, too. Together with our current practices, these additions will enable us to continue to build our office into a significant presence in the Chicago legal community and an integrated part of Proskauer's national and international practice.