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Judge in bad-faith case was bribed, USF&G says


JACKSON, Miss.-United States Fidelity & Guaranty Co. is suing to rescind a $1.5 million bad-faith settlement with a former policyholder, charging that the policyholder's attorney-a prominent Mississippi trial lawyer-bribed a judge to influence the case.

The insurer's racketeering complaint, filed in U.S. District Court in Jackson, alleges that the Peoples Bank of Biloxi, Miss., conspired with Biloxi lawyer Paul S. Minor and a state judge to force the 2002 settlement of the bank's bad-faith action against USF&G for refusing to defend it in a pair of customer lawsuits.

Along with Mr. Minor, a past president of the Mississippi Trial Lawyers Assn., and his law firm, Minor & Associates, the insurer's racketeering suit names Walter W. Teel, a former state Chancery Court judge who presided over the bad-faith case.

Judge Teel's actions in the case "were corrupt and were the products of financial considerations extended to Judge Teel by Minor, the law firm and Peoples Bank," according to USF&G, which seeks $12.5 million in compensatory and punitive damages.

The charges mirror allegations in a July federal grand jury indictment of Mr. Minor, Judge Teel and two other state judges-one of them a Mississippi Supreme Court judge-on bribery and other charges. The indictment, returned in federal court in Jackson, alleges that Mr. Minor helped to arrange and then pay off several loans to the judges starting in 1998 in return for favorable treatment of his clients, including Peoples Bank.

Mr. Minor, Judge Teel and the other defendants have pleaded not guilty to the criminal charges. A trial is scheduled for March 2004.

Representatives of Mr. Minor, Judge Teel and Peoples Bank also deny USF&G's allegations.

"The case USF&G wants to revisit was an open-and-shut matter that was settled entirely on its merits," said Abbe D. Lowell, a Washington-based lawyer for Mr. Minor, in a statement. The insurer "wants to take advantage of the unsupported allegations in federal charges-in which all involved are presumed absolutely innocent-so that they can once again try to duck their legal responsibilities."

Albert L. Necaise, a Gulfport, Miss., lawyer representing Judge Teel in the criminal case, said USF&G "will have a hard time proving" that the judge unduly influenced the settlement. Mr. Necaise pointed out that the insurer could have gone to trial and, if necessary, to appellate courts rather than pay a settlement it thought was unfair.

"They have every right to say, `Wait, we don't think it's worth $1.5 million,"' he said of the settlement talks. "The judge can't make them pay any more."

The dispute has its roots in two lawsuits filed against Peoples Bank in the mid-1990s over the bank's practice of "force-placing" property insurance for borrowers who allowed their own insurance to lapse. The bank tendered the first case to USF&G, a St. Paul Cos. Inc. unit that provided the bank's general liability and umbrella coverage.

USF&G concluded that the policies did not cover the claim, though, and refused to defend the case. Peoples Bank then handled both suits itself, settling both for less than $20,000 and incurring total costs of less than $500,000, according to the insurer's court filing.

The bank then filed its bad-faith action against USF&G in Chancery Court in Gulfport, where nearly all cases are tried before judges rather than juries and where Judge Teel ultimately presided over USF&G's $1.5 million settlement of the case.

At the time the suit was filed, Judge Teel was not yet on the bench: He was elected in November 1998 after a runoff campaign for which he borrowed $24,571 from Peoples Bank. Mr. Minor helped arrange the loan and personally guaranteed repayment, according to USF&G's suit.

In February 2000, Mr. Minor arranged for another lawyer to advance Judge Teel $27,500 to pay off the loan, the suit alleges. The judge knew he was not expected to repay the advance, though; instead, Mr. Minor repaid the lawyer the following month, according to USF&G. The transactions both concealed Mr. Minor's relationship with the judge and ended the judge's involvement with Peoples Bank, allowing him to take over the bad-faith case-which had been assigned to another judge-without raising conflict of interest issues, USF&G charges.

The judge who initially presided over the Peoples Bank case assigned Judge Teel to hear a preliminary discovery issue in May 2000 and later that year-following a request by Mr. Minor-transferred responsibility for the entire case to Judge Teel, USF&G says.

Judge Teel later ruled in the bank's favor on the issue of USF&G's duty to defend and indemnify, and in December 2001 presided over a settlement conference. At the conference, Judge Teel "misused his authority as a extort a substantial settlement from USF&G," threatening the insurer that "`if this case goes to trial, you have a real risk of punitive damages because I am offended by what USF&G did here,"' the insurer's complaint charges.

Judge Teel said at the conference that "his" settlement figure was $1.5 million, and the parties agreed to this, though the bank had originally sought $5 million and USF&G offered to pay the bank's actual damages of $500,000, according to court filings and a lawyer familiar with the case.

The judge, Mr. Minor and Peoples Bank "fraudulently concealed" their financial dealings, which were meant to influence Judge Teel's actions in the insurance dispute, the USF&G complaint alleges, leveling racketeering, fraud, conspiracy and negligence charges.