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AIG units may be liable in airline reservations dispute

Posted On: Apr. 21, 2017 2:26 PM CST

A New York State appeals court has upheld a lower court ruling that American International Group Inc. units may be liable for indemnification and legal expenses in connection with a $200 million settlement that reservations technology firm Sabre Inc. had reached in litigation with American Airlines Inc.

“The court correctly determined that issues of fact exist as to plaintiffs’ claims for prompt payment” under the Texas insurance code, said a unanimous three-judge panel of New York Supreme Court’s appellate division in in its one-page ruling Thursday upholding a Nov. 28, 2016, ruling by New York State Supreme Judge O. Peter Sherwood in Sabre Inc. v. The Insurance Company of State of Pennsylvania.

According to the Supreme Court ruling, AIG unit Insurance Company of the State of Pennsylvania had issued a commercial general liability policy to Southlake Texas-based Sabre Holdings Corp. for the policy period March 15, 2010, to March 15, 2011, which included coverage for “personal and advertising injury” and imposed a duty to defend.

Fort Worth, Texas-based-based American Airlines participates in Sabre’s computerized booking system, said the ruling. In the mid-2000s American began to incorporate a new technology that was a competitive threat to Sabre, it said. 

American contended, in a lawsuit first filed in Texas state court in January 2011, that Sabre retaliated against American by biasing its flights so that it was harder for travel agents to find unpurchased American flights.

Under a settlement agreement reached with American Airlines in October 2012, Sabre agreed to make two payments to American totaling $200 million, according to the ruling.

Meanwhile, a dispute arose with AIG as to Sabre’s insurance coverage, with Sabre contending it had incurred and paid more than $70 million in defense fees and costs defending the American litigation until the settlement was reached.

A lawsuit filed in New York Supreme Court in June 2012 against Insurance Company of Pennsylvania and Chartis Specialty Insurance Co., units of New York-based AIG, alleged nine causes of action including charging Insurance Company of Pennsylvania with “breach of duty to defend and indemnity Sabre in connection with the underlying actions in which ‘personal and advertising injury’ damages were sought.”

In his ruling, Judge Sherwood held that AIG had a duty to defend Sabre in the underlying actions and that it had a conflict of interest that precluded the insurers from controlling defense of the underlying actions. It also denied the insurers’ motion for summary judgment in the case. The case was then appealed to the appellate division.