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Jury finds AIG unit acted in bad faith with Yahoo claims


A federal jury on Wednesday found that an American International Group Inc. unit acted in bad faith when it failed to defend Yahoo Inc. in several class action lawsuits filed against it and awarded the company $618,380 in attorney’s fees.

According to the final jury verdict form in Yahoo! Inc. v. National Union Fire Insurance Co. of Pittsburgh, PA, the U.S. District Court jury in San Jose, California, answer “yes” to the questions of whether Sunnyvale, California-based Yahoo had proved by a preponderance of evidence that AIG unit National Union had acted in bad faith when it failed to defend it, and that its conduct was a substantial factor in causing the company harm.

The jury awarded the $618,380 as reasonable attorneys fees incurred to obtain policy benefits, but answered “no” to the question of whether it should also be awarded punitive damages.

According to an October 2018 ruling in the case by the District Court, the origin of the dispute were lawsuits filed against Yahoo over its practice of scanning the content of emails.

The ruling said National Union had denied coverage, and although it eventually retracted the denial for some claims, Yahoo had by then put on its own defense and settled the claims, paying more than $4 million in the process.

Yahoo, which had obtained four consecutive National Union commercial general liability policies from May 2008 to May 2012, charged the insurer with breaching its duties to defend and indemnify it and with bad faith when it denied and delayed coverage, according to the ruling.

The ruling said the 2011 policy, which is the one most relevant to the case, was a fronting policy, and that Yahoo “retained the loss and generally agreed to indemnify National Union.”

The court ruled that “Yahoo’s’ positions on National Union’s duties are largely correct, but that a material dispute precludes summary judgment on the claim for bad faith.”

It said that “because the court is unable to draw inferences from the evidence and resolve the claim as matter of law, a jury must decide whether National Union’s claims-handling with respect to the Email Scanning Lawsuits constitutes bad faith.”

According to a motion submitted by National Union in the case on May 9, “Yahoo has not established that National Union’s bad faith, if any, caused Yahoo to incur $3 million in defense cost and $4 million in settlement costs” in one of the suits.

It said, “The only consequential or extra-contractual damages that National Union’s coverage decision possibly caused were Yahoo’s attorney fees incurred to obtain the policy benefits just described.”

Attorneys in the case could not immediately be reached for comment.

In 2017, a federal appeals court upheld a $7.1 million breach of contract and bad-faith verdict issued by a jury against AIG in a dispute concerning acceptance of a settlement agreement. 


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