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An American International Group Inc. unit is not obligated to pay more than $2.5 million in the defense costs incurred by a water freight carrier employee because the firm failed to report its claim on a timely basis, says a federal appeals court in affirming a lower court’s ruling in the directors and officers liability insurance case.
In April, 2008, a search warrant was executed at the Jacksonville, Florida, headquarters of Crowley Liner, a unit of Crowley Maritime Corp., in conjunction with an alleged price-fixing conspiracy being investigated by the FBI and the U.S. Department of Justice, according to Tuesday’s ruling by the 11th U.S. Circuit Court of Appeals in Atlanta in Crowley Maritime Corp. v. National Union Fire Insurance Co. of Pittsburgh, Pa.
The day before the search warrant was executed, an affidavit, which was sealed, was delivered to support the search warrant.
After Crowley’s D&O insurer, AIG unit National Union, refused to pay more than $2.5 million in defense costs in the case, an arbitration panel ruled against Crowley in January 2013. AIG did cover almost $3 million in defense costs incurred beginning in February 2013.
In April 2015 a Crowley official went on trial in connection with the investigation but was acquitted. The affidavit was unsealed shortly before the trial ended.
The maritime firm filed suit in U.S. District Court in Jacksonville over the issue of the $2.5 million, which ruled in AIG’s favor. A three-judge appeals court panel also held Crowley was not entitled to the defense costs.
National Union contended Crowley had failed to timely report the claim. “Crowley insists it timely reported the Claim even though an affidavit evidencing the Claim was under seal until after the relevant Claim reporting period expired,” said the ruling.
The appeals court panel agreed with the AIG unit. “Even assuming that the Claim based on the affidavit was ‘first made against’ (the employee) during the Policy Period or the Discovery Period, Crowley failed to timely report that claim to National Union as required” by the policy, said the ruling.
“With respect to the reporting period between April 16, 2008, and Dec. 31, 2012, Crowley is bound by the arbitration panel’s finding that Crowley had not reported a Claim to National Union as required by the Policy at that time,” said the ruling.
“With respect to the reporting period beginning immediately after Dec. 31, 2012, and running through the end of the Discovery Period of Nov. 1, 2013, we conclude that Crowley failed to report the Claim based on the affidavit as required by … the Policy because it did not report any new information relating to the affidavit until after both the Policy Period and the Discovery Period had expired,” said the ruling in affirming the lower court’s judgment.
Attorneys in the case could not immediately be reached for comment.
Last week, real estate firm Cushman & Wakefield Inc. filed suit against an AIG unit, charging the insurer with breach of contract and bad faith in the latest instance of litigation between the two firms.
An American International Group Inc. unit has ultimately prevailed in coverage litigation with Office Depot Inc. in a whistleblower case it had previously successfully appealed to a federal appeals court.