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An American International Group Inc. unit must contribute along with a Great American Insurance Co. unit to the defense of a real estate services unit of Berkshire Hathaway Inc., a federal appeals court said Monday, in affirming a lower court.
In the underlying action, Houlihan Lawrence Inc., a subsidiary of Berkshire unit HomeServices of America Inc., was charged in a putative class action with engaging in firm-wide dishonest and fraudulent activity relating to the purchase and sale of real estate property, where the unit represented both the buyer and seller in the same transaction, according to court papers in Great American Insurance Co. v. AIG Specialty Insurance Co.
Great American is providing a defense to Houlihan subject to a reservation of rights, but AIG has said it has no duty to defend or indemnify Houlihan under the Specialty Risk Protector insurance policy it issued to HomeServices, either because its policy was issued before it became an insured subsidiary, or because the charges involved related acts that occurred before it became one.
Great American, which said it has incurred almost $2 million in defense costs in the case, filed suit against AIG in U.S. District Court in New York seeking a declaration AIG had an obligation to defend and indemnify Houlihan.
The district court ruled in Great American’s favor, and was affirmed by a three-judge appeals court panel. “AIG has failed to escape its duty to defend,” the appeals court said.
“As a preliminary matter, AIG has a presumptive duty to defend because there is ‘a reasonable possibility of coverage,’” the ruling said, in quoting an earlier opinion, and questioning whether there were related acts that would relieve the insurer of its obligation to provide coverage.
Attorneys in the case did not respond to requests for comment.