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Verizon can recover $24M in defense costs from AIG, others


A Delaware court has ruled that Verizon Communications Inc. can recover $24 million in defense costs in connection with litigation surrounding a 2006 spinoff.

The complex litigation involves the 2006 spinoff by Verizon Communications Inc. of a telecommunications portfolio to Charlotte, North Carolina-based FairPoint Communications Inc., according to Tuesday’s ruling by the Delaware Superior Court in Verizon Communications Inc. v National Union fire Insurance Co. of Pittsburgh, PA et al.

FairPoint Communications went into bankruptcy in 2009, emerging in 2011. The bankruptcy trustee sued Verizon in 2011 in connection with the deal, in a “fraudulent transfer” lawsuit, which was eventually settled for $95 million. A fraudulent transfer lawsuit is litigation where it is charged that transfers are made with the intent to defraud creditors.

At issue in the ruling was whether AIG unit National Union, the primary insurer on policies issued to FairPoint in connection with the transaction, as well as to Verizon, and the policies’ excess insurers must provide $24 million in defense costs.

The policies provide coverage for securities claims. Central to the insurers’ motion to dismiss the litigation was whether it involved securities claims, according to the ruling, with insurers contending it did not.

“Under the plain language of the FairPoint policy, the FairPoint action is a securities claim,” the bankruptcy trustee was a “security holder” of FairPoint and the litigation was brought derivatively on behalf of FairPoint, the ruling said.

Verizon is entitled to summary judgment on the defense costs, the ruling said, in granting the insureds’ motion to cover the legal expenses.

Excess insurers also named as defendants in the litigation were XL Specialty Insurance Co., a unit of Axa SA, National Specialty Insurance Co., a Markel Corp. unit.; U.S. Specialty Insurance Co., a unit of Tokio Marine HCC; Axis Insurance Co., a unit of Axis Capital Holdings Ltd.; and St. Paul Mercury Insurance Co., a unit of Travelers Insurance Group Holdings Inc.

Attorneys in the case had no comment or could not be reached.

In 2017, a Delaware court held that AIG and several excess insurers were obligated to provide more than $48 million in defense costs to Verizon in connection with litigation over the 2006 spinoff of its print and electronic directories business into a stand-alone company, which later went bankrupt.





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