Ethical Issues in Insurance: 2015 Update March 18, 2015; 6:30 PM 8:30 PM

EVALUATION FORM In order for us to improve our continuing legal education programs, we need your input. Please complete this evaluation form and place it in the box provided at the registration desk at the end of the session. You may also mail the form to CLE Director, NYCLA, 14 Vesey Street, New York, NY 10007. Ethical Issues in Insurance: 2015 Update March 18, 2015; 6:30 PM 8:30 PM I. Please rate each speaker in this session on a scale of 1-4 (1 = Poor; 2 = Fair; 3 = Good; 4 = Excellent) Paul Dutka Presentation Content Written Materials Bruce Green Jonathan Lerner Marc Voses II. Program Rating: 1. What is your overall rating for this course? Excellent Good Fair Poor Suggestions/Comments: A. Length of course: Too Long Too Short Just Right B. Scheduling of course should be: Earlier Later Just Right 2. How did you find the program facilities? Excellent Good Fair Poor Comments: 3. How do you rate the technology used during the presentation? Excellent Good Fair Poor Comments: Please turn over to page 2 1

4. Why did you choose to attend this course? (Check all that apply) Need the MCLE Credits Faculty Topics Covered Other (please specify) 5. How did you learn about this course? (Check all that apply) NYCLA Flyer NYCLA Postcard CLE Catalog NYCLA Newsletter NYCLA Website New York Law Journal Website NYCLA CLE Email Other (please specify) Google Search 6. What are the most important factors in deciding which CLE courses to attend (Please rate the factors 1-5, 1 being the most important). Cost Subject matter Location Date and Time Provider Organization of which you are a member Other 6. Are you a member of NYCLA? Yes No III If NYCLA were creating a CLE program specifically tailored to your practice needs, what topics or issues would you want to see presented? 2

NYCLA CLE I NSTITUTE ETHICS ISSUES IN INSURANCE LAW: 2015 UPDATE Prepared in connection with a Continuing Legal Education course presented at New York County Lawyers Association, 14 Vesey Street, New York, NY scheduled for March 18, 2015 Program Co-sponsor: NYCLA's Insurance Law Committee Program Chair: Norma Levy, Chair, NYCLA's Insurance Law Committee Moderator: Professor Bruce A. Green, Louis Stein Center for Law and Ethics, Fordham University Law School Faculty: Paul Dutka, Weil Gotshal & Manges; Jonathan Lerner, Skadden; Marc Voses, Kaufman Dolowich Voluck This course has been approved in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 2 Transitional and Non-Transitional credit hours: 2 Ethics. This program has been approved by the Board of Continuing Legal education of the Supreme Court of New Jersey for 2 hours of total CLE credits. Of these, 2 qualify as hours of credit for ethics/professionalism, and 0 qualify as hours of credit toward certification in civil trial law, criminal law, workers compensation law and/or matrimonial law. ACCREDITED PROVIDER STATUS: NYCLA s CLE Institute is currently certified as an Accredited Provider of continuing legal education in the States of New York and New Jersey.

Information Regarding CLE Credits and Certification Ethics Issues in Insurance: 2015 Update March 18, 2015; 6:30 PM to 8:30 PM The New York State CLE Board Regulations require all accredited CLE providers to provide documentation that CLE course attendees are, in fact, present during the course. Please review the following NYCLA rules for MCLE credit allocation and certificate distribution. i. You must sign-in and note the time of arrival to receive your course materials and receive MCLE credit. The time will be verified by the Program Assistant. ii. iii. iv. You will receive your MCLE certificate as you exit the room at the end of the course. The certificates will bear your name and will be arranged in alphabetical order on the tables directly outside the auditorium. If you arrive after the course has begun, you must sign-in and note the time of your arrival. The time will be verified by the Program Assistant. If it has been determined that you will still receive educational value by attending a portion of the program, you will receive a pro-rated CLE certificate. Please note: We can only certify MCLE credit for the actual time you are in attendance. If you leave before the end of the course, you must sign-out and enter the time you are leaving. The time will be verified by the Program Assistant. Again, if it has been determined that you received educational value from attending a portion of the program, your CLE credits will be pro-rated and the certificate will be mailed to you within one week. v. If you leave early and do not sign out, we will assume that you left at the midpoint of the course. If it has been determined that you received educational value from the portion of the program you attended, we will pro-rate the credits accordingly, unless you can provide verification of course completion. Your certificate will be mailed to you within one week. Thank you for choosing NYCLA as your CLE provider!

New York County Lawyers Association Continuing Legal Education Institute 14 Vesey Street, New York, N.Y. 10007 (212) 267-6646 Ethical Issues in Insurance Law Wednesday, March 18, 2015, 6:30 PM-8:30 PM Program Co-sponsor: NYCLA's Insurance Law Committee Program Chair: Norma Levy, Chair, NYCLA s Insurance Law Committee Moderator: Professor Bruce A. Green, Louis Stein Center for Law and Ethics, Fordham University Law School Faculty: Paul Dutka, Weil Gotshal & Manges; Jonathan Lerner, Skadden Marc Voses, Kaufman Dolowich Voluck Relevant Authorities The text of the Relevant Authorities May be downloaded from the NYCLA website. Download Instructions: Please visit www.nycla.org Click CLE on the left-hand side of the home page, another list of links will appear under CLE Click Course Materials/Publications and select the course you need from the list that appears. The link will remain active for one month after the program http://www.nycla.org/index.cfm?section=cle&page=course_materials---publications ABA Formal Opinion 96-403 (Obligations of Lawyer Representing an Insured Who Objects to Proposed Settlement Within Policy Limits) ABA Formal Opinion 01-421 (Ethical Obligations of Lawyer Working Under Insurance Guidelines) ABA Formal Opinion 03-430 (Propriety of Insurance Staff Counsel Representing the Insurance Company and Its Insureds; Permissible Names for an Association of Insurance Staff Counsel)

NYSBA Ethics Opinion 716 NYSBA Ethics Opinion 721 NYSBA Ethics Opinion 726 NY Rule 1.2(c) provides a lawyer may limit the scope of the representation if the limitation is reasonable under the circumstances, the client gives informed consent and where necessary notice is provided to the tribunal and/or opposing counsel. NY Rule 1.4 (Communication with client) NY Rule 1.8(f) provides a lawyer shall not accept compensation for representing a client, or anything of value related to the lawyer s representation of the client, from one other than the client unless: (1) the client gives informed consent; (2) there is no interference with the lawyer s independent professional judgment or with the client-lawyer relationship; and (3) the client s confidential information is protected as required by Rule 1.6. NY Rule 4.1 provides that when representing a client, a lawyer shall not knowingly make a false statement of fact or law to a third person. Model Rule 5.4(c) provides a lawyer "shall not permit a person who pays a lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering legal services." Restatement (Third) of the Law Governing Lawyers 134 at 408 (2000). Fed. R. Civ. P. 26(3)(a) protecting trial preparation materials prepared for, or in anticipation of, litigation for another party or its representatives (including the other party's insurer). Cardin v. Pacific Employers Ins. Co., 745 F. Supp. 330 (D. Md. 2000). San Diego Navy Federal Credit Union v. Cumis Insurance Society Inc., 208 Cal. Rptr. 494 (Cal. App. 1985). Danaher Corporation v. The Travelers Indemnity Co., No. 10 Civ. 0121, 2014 WL 4898754, at *1 (S.D.N.Y. Sept. 30, 2014). Parsons v. Continental National American Group, 550 P.2d 94 (Az. 1976).

NYCLA Insurance Law Committee Outline for March 18, 2015 Program Insurance and Ethics Moderator: Participants: Professor Bruce A. Green Fordham University Law School Louis Stein Center for Law and Ethics Jonathan J. Lerner Skadden, Arps, Slate, Meagher & Flom, LLP Paul Dutka Weil Gotshal & Manges, LLP Marc S. Voses Kaufman, Dolowich & Voluck, LLP Hypothetical 1 While on Wolf cable news, Reverend Pat Anderson stated that mixed martial arts fighter Justice Jean, on whom Reverend Pat had placed a good-sized wager, had thrown her championship challenge fight against Robot Ronda. The Robot sued Reverend Pat for defamation seeking $10 million in compensatory and $10 million in punitive damages. Reverend Pat notified his commercial general liability carrier and tendered the defense under his $5 million dollar policy. The carrier accepted coverage under a reservation of rights should it be determined that there was a deliberate tort. The carrier appointed panel defense counsel Dana Black, Esq., who regularly handles auto defense cases for the carrier, but has little, if any, experience in defamation suits. After meeting Black, Reverend Pat tells the attorney that she is too inexperienced and too cozy with the carrier, which provides Black with the bulk of her matters and, correspondingly, income. Reverend Pat says that he wants to select his personal lawyer P. Michael Levesk because the damages alleged in the complaint exceed the policy s limit and punitive damages are not insurable. 1

Hypothetical 2 After discovery commences, Attorney Black receives a settlement offer from the Robot s lawyer of $5 million, which she dutifully reports to both her client (Reverend Pat) and the carrier. In response to the news, Reverend Pat says Wow, Dana, I really underestimated you! It s a big relief to me to get this done with. I was really worried about the uninsured punitive damages. Thank you! But on her call with the carrier, Attorney Black gets a different perspective. The claims manager tells Black: You have them on the run! This case is frivolous. The Reverend was merely expressing an opinion and Robot Ronda is a public figure. Take this baby to trial. I instruct you not to settle. Oh, and one thing more, you re doing far more work on this case than it merits go easy on the depositions and no motions without my permission. Reverend Pat is livid when he hears this and tells Black, Look, you re my lawyer not the carrier s lawyer and I want the deal and, of course, the carrier should pay the settlement. After all those premiums they sucked out of me, it s the least they can do! Hypothetical 3 As Joe Peta opens his front door to enter the airport limousine being held open by the Lucky Louis driver, his beloved German Shepherd Killer bounds out and playfully nips the driver requiring Louie to be driven to the hospital where he receives 35 stitches. Joe immediately notifies Homeowners Insurance Company ( HIC ). Louie retains counsel and sues Peta for $500,000 fifteen years salary showing why he is called Lucky. HIC, which has the right and obligation to provide a defense and a policy limit of $1 million, determines to vigorously contest the case. It appoints counsel to handle the defense. During the preparation session for Peta s deposition, counsel learns that Killer has bitten two other individuals who have not sued Peta and that this information was not disclosed in the policy application. Based on his review, counsel determines that disclosure of this information could lead to criminal penalties against Peta for harboring a dangerous animal, could lead to the destruction of Killer, and could allow the carrier to disclaim liability. Hypothetical 4 The Acme Car Company, a publicly-held company traded on the NYSE with its executive offices in Germany, announced that its third-quarter earnings would be below its guidance by fifty 2

cents per share and that it was revising downward its annual guidance by eighty cents per share. It also announced a recall of its best-selling car assembled at an Acme Plant in Alabama due to faulty ignitions that could cause engine fires. The shares plummeted thirty percent, causing $10 billion in lost equity. Almost immediately, numerous securities class actions were filed by several national plaintiffs class action law firms located in New York that concentrate in securities class actions in the Northern District of Alabama against Acme, its officers and directors. Several derivative actions were also filed in the same court against Acme s officers and directors seeking to hold them personally liable for any money paid out by Acme as a result of the class action claims. Acme immediately notified its primary D&O carrier, the Gekko Insurance Corporation, which provides the first $10 million layer (above the $1 million retention amount) of the $350 million tower, as well as the excess coverage carriers. The primary carrier reserved its rights to disclaim coverage asserting that the initial guidance was provided before the policy s effective date and that the complaint asserts the guidance was deliberately too optimistic, a fact which was omitted from the application for the policy. The policy provides that Acme may select defense counsel after consultation with, and consent by, the carrier which will not unreasonably be withheld, and contains no other limitation on counsel to be selected. After negotiating a 10% reduction from its standard rates, Acme retained an outside law firm, Bigger & Better, headquartered in New York which has litigated successfully for Acme before and its partner, Joe Big, who is a highly-regarded litigator with extensive experience in defending securities class actions, and advises Gekko of the retention and discount. Acme and its lawyers agree that it is critical to get the case dismissed because the discovery in Germany will be massive, extremely expensive and very harmful and Acme tells the lawyers to immediately start drafting motions to dismiss the complaints and instructs them to turn over every stone and spare no expense. Acme reviews and pays Bigger & Better s bill for the first month of work, which came close to, but did not exhaust, the $1,000,000 retention amount, and forwards a copy to the carrier. Shortly thereafter, the primary carrier s outside law firm sends a letter to Bigger & Better and Acme stating, among other things: 1. It has serious concerns about the retention of New York based counsel for a case venued in Alabama given the disparity in billing rates and the need for additional Alabama counsel, which will create unnecessary legal fees. It suggests an Alabama firm be retained which handled insurance claims for Gekko and which charges rates that are less than half of Bigger & Better. 3

2. It will require a budget that it must approve before any work may commence. 3. Even though the first month s bill does not exceed the retention amount and Acme is solely responsible for paying it, Gekko s claims manager objects on various grounds including (i) block billing; (ii) overspending, because two partners attended an initial conference in Alabama; (iii) refuses to pay travel time; and (iv) refuses to pay for legal research which it claims is law firm overhead. The claims manager, therefore, asserts most of the bill will not be counted toward reaching the retention amount. 4. All law firm bills must contain highly detailed descriptions of the work and be submitted to an outside accountant retained by the carrier to audit the billing. 5. Its outside counsel must receive timely drafts of court papers and be invited to participate in all deposition preparation sessions. 6. An extensive list of documents must be submitted to it to enable it to investigate and understand the allegations in the pleadings to enable the carrier to (i) determine whether the claims are covered; and (ii) monitor outside counsel s work and evaluate any settlement proposals. Acme s coverage counsel writes back stating: 1. Acme s potential liability vastly exceeds the primary insurance layer provided by Gekko, and extends even beyond the entire tower of excess coverage. It asserts Gekko s preoccupation with legal fees is not in good faith and constitutes an attempt to rewrite the policy to include limitations on selection of counsel nowhere found in the terms of insurance. 2. It also asserts that Gekko, as a third-party payer of legal fees, may not instruct Acme s counsel on how to defend the case and that it would be a violation of Rule 5.4(c) of the Model Rules of Professional Conduct for defense counsel to allow Gekko to use so-called budgeting to direct or regulate defense counsel s rendering of its professional judgment to its client. 3. As to the carping over the various items on the statement, coverage counsel states that Bigger & Better s statement was carefully reviewed by the General Counsel s office of Acme, the detail was adequate and all amounts were deemed by Acme to be reasonable, appropriate and consistent with charges customarily billed by elite law firms. Inasmuch as Acme was responsible to pay these fees, its willingness to do so proves that a sophisticated purchaser of legal services found them reasonable and Gekko s attempt to chisel on the fees confirms that it is not acting in good faith. 4

4. In this context, coverage counsel also asserts the information requests are intrusive, vexatious and beyond what is necessary to evaluate services or monitor outside counsel. It appears to be an effort to fish for information to try to manufacture a claim to rescind the policy now that a claim has been made. In all events, the discovery in the action will be provided to Gekko on a timely basis and, therefore, should satisfy any legitimate need of Gekko. Where feasible, draft briefs will be provided but Gekko will not be allowed to participate in privileged deposition preparation sessions. After the dismissal motion is briefed and argued, the Court denies it in substantial part and orders the parties to participate in a mediation before a mediator appointed by the Court. Shortly thereafter Gekko s claims manager writes to Acme demanding a written analysis by Acme s counsel of the strengths and weaknesses of the case, along with an estimate of the potential likelihood the case can be successfully defended, to enable the insurer to evaluate any settlement proposals. The letter warns Acme that failure to comply with any of these items will violate Acme s duty to cooperate. Coverage Counsel responds to the request by advising Gekko that the request for a written analysis is in no one s interest and will likely cause the privilege to be waived. 5

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