Risk Update

Insurance Update (Part 1) — Premiums and Payouts Spiking in Response to Pandemic & More

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Malpractice Insurance Bills To Climb Even Higher After Virus” —

  • “The BigLaw bill for legal malpractice insurance, already riding an upward trend in commercial coverage rates, is expected to head even higher amid an expected onslaught of pandemic-era disputes with attorneys.”
  • “If elite firms with solid claims histories ‘can demonstrate they’re still managing their risk really well, they will be able to get better terms than some others,’ said Ed Pickard of U.K.-based broker Miller Insurance, whose client list includes about 1,000 U.K. and international law firms. ‘But they’ll likely still see a 10-to-15% increase in premiums for the year, which we saw in April [policy] renewals and which we’re forecasting for October renewals as well,’ he said.”
  • “Eileen Garczynski, senior vice president at insurance broker Ames & Gough, said a significant bump in malpractice claims last year and more mega-payouts from insurers have already helped push up premiums for some large U.S. firms as much as 30%, representing millions of dollars in additional overhead this year.”
  • “Garczynski said an increasingly skittish insurance market has also forced some large firms to scramble to get hundreds of millions of dollars of coverage in place in ‘stacked’ policies that may include scores of underwriters that split up levels of policy coverage and risk… ‘Some insurers are saying they’re just not going to write large firms. It’s too risky, that they’re going to lose their entire $10 million or whatever it may be,’ Garczynski said.”
  • “An Ames & Gough survey of 10 legal malpractice insurers released this week found that seven had paid a claim of over $150 million in the last two years. Eight of 10 also reported that the overall number of claims filed in 2019 was the same or higher than the volume from 2018, marking a turnaround after a long period of relatively flat reported claims.”
  • “Earlier this month, broker and risk management biggie Marsh, a unit of Marsh & McLennan Companies, issued a report saying commercial insurance prices globally rose 14% on average in the first three months of the year compared with last year’s Q1.”
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Risk Update

Partner Exodus — Inside Story of Boies Schiller Lawyer Lateral Departures

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The inside story behind a 15-partner exodus at elite law firm Boies Schiller” —

  • “Fifteen partners are leaving law firm Boies Schiller Flexner to join King & Spalding, marking a culmination of exits that insiders say can be traced, at least in part, to internal friction following a merger with a California firm.”
  • “The moves sent tremors throughout the national legal community because Boies Schiller is no ordinary firm, led by the famous trial attorney David Boies, who earned star status by grilling Bill Gates in the Justice Department’s antitrust case against Microsoft and then representing Al Gore in the 2000 Florida recount.”
  • “Over the past three years, though, Boies has come under scrutiny after media reports of his role as Harvey Weinstein’s fixer, as well as his hardball tactics in representing Theranos, the failed medical technology startup, as chronicled in “Bad Blood,” the book by John Carreyrou.”
  • “Numerous partners in the recent batch of departures had joined Boies Schiller in 2017 as part of a merger with the California litigation boutique Caldwell Leslie, known for representing Hollywood studios, artists and other corporations. By at least five accounts, the merger did not go smoothly.”
  • “Hollywood studios, for instance, found Boies Schiller’s higher billing rates tough to swallow, according to three people familiar with the matter. And press coverage of David Boies’ representation of Harvey Weinstein didn’t do the Boies Schiller name any favors in those circles, these people said.”
  • “He [Nick Gravante, co-managing partner of Boies Schiller] said Caldwell Leslie did not integrate well with Boies Schiller overall, noting that some partners wanted to bring in ‘small matters’ that he said ‘would potentially present major conflicts for us down the road.'”
  • “During a months-long recruiting effort by King & Spalding, Willingham met… talks accelerated over Zoom and virtual conference meetings, as the coronavirus prevented in-person talks, marking the end of a process that included some 50 King & Spalding partners, according to interviews with Los Angeles managing partner Peter Strotz, and another partner and longtime friend of Willingham, Joe Akrotirianakis… The incoming Boies Schiller group, altogether, is expected to bring over to King & Spalding some tens of millions in revenue, according to Los Angeles partner Peter Strotz.”
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Risk Update

Law Firm Data Breach (A Different One) — Client (Insurance Provider Hiscox) Sues Its Firm

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Company Sues Its Law Firm Over Data Breach” —

  • “Security Boulevard reported on April 20 that insurance company Hiscox has sued one of its law firms, Warden Grier, a four-person firm in Missouri. It had hired the firm to assist with “first party” non-marine insurance claims. The firm represented insureds who had purchased insurance from Hiscox – it therefore had both personal information about these clients and attorney-client privileged information.”
  • “In December 2016, hacker group Dark Overlord hacked the law firm’s computers and stole data concerning Hiscox, as well as the clients of the insurance company. The law firm hired its own law firm and contacted the FBI to investigate, ultimately paying ransomware to the hacker group to keep the stolen data private. It is unknown whether the firm hired an independent forensics firm to investigate the scope and extent of the breach.”
  • “Warden Grier did not tell Hiscox or clients of the insurance company about the breach.”
  • “On March 27, 2020, the insurance company sued Warden Grier in federal court in Kansas City. Hiscox Insurance Co., et. al., v. Warden Grier, Dkt. No. 4:20-cv-00237-NKL (E.D. Missouri). The company alleged that the law firm breached its legal obligations under the retainer agreement with the company, that it breached its ethical obligations to protect client confidences, and that it was negligent in failing to protect the client data. The company also asserted that the law firm itself failed to notify its customer (the insurance company) as required by Missouri law and that this caused the insurance company to fail to timely notify its own clients (the insureds) as required by the same statute.”

See additional commentary from Anderson Kill: “In Novel Case, Insurer Sues Own Law Firm After Data Breach

  • “Disputes between insurers and third parties following data breaches often happen behind closed doors, attorneys who handle cyberinsurance cases say. But it is rare for such a dispute to surface in federal court filings.”
  • “‘You just don’t see this kind of situation and these kinds of allegations made every day,’ said Joshua Gold, chair of Anderson Kill PC’s cyber insurance recovery practice group.”
  • “Insurers have sued law firms that represent their policyholders in the past, but such cases normally claim that the law firm jeopardized a payout with malpractice or professional misconduct, Gold said.”
  • “‘I’ve definitely seen an uptick in insurance companies suing law firms in this kind of setting, but this is certainly the first case I’ve seen address an alleged misstep in reporting a data breach in a prompt fashion,’ Gold added.”
  • “Data breach notification statutes differ by state in the U.S, but cyberinsurance attorneys say law firms should as a best practice tell their clients when they have reason to believe that their data has been exposed in a cyberattack. The American Bar Association has also urged attorneys to notify clients in the event of a data breach and to keep them updated on subsequent investigations.”
  • “‘This case shows some of the hazards that all companies face when they choose to not proactively notify their business partners about a breach… You really need to review closely your contractual obligations to third parties, and think about them expansively, rather than narrowly,’ said Farella Braun & Martel LLP partner Tyler Gerking.”
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Risk Update

Law Firm Hacked & Data Leaked — Big Risk, Big Ransom, Big News

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Celeb Law Firm Refuses Hacker Ransom as Lady Gaga Files Leak” —

  • “Days after the celebrity law firm that represents Madonna, Bruce Springsteen, and Nicki Minaj admitted it was “victimized by a cyberattack,” the hackers that executed the breach released their first batch of stolen data Thursday: files that focused on the law firm’s work with Lady Gaga.”
  • “The unnamed hacker group, using ransomware dubbed “REvil,” launched the cyberattack against the internal data systems of Grubman Shire Meiselas & Sacks; on Wednesday, they asked the law firm for $21 million in exchange for the 756 gigabytes of stolen data. However, after the firm allegedly hired cyber-extortion specialists to combat the ransomware demands, the hackers released a 2.4 gigabyte batch of files Thursday.”
  • “The ‘first part’ was a 2.4-gigabyte folder including legal work the law firm did for Lady Gaga: contracts sent to producers, collaborators, and members of her touring ensemble; promotional agreements; expense sheets; confidentiality agreement forms; performer agreements; reimbursement forms for the artist Jeff Koons; a handful of promotional photos; and reams of tedious paperwork one would expect to find in the database of an entertainment law firm. (A representative for Lady Gaga declined to comment.)”
  • “‘Our elections, our government, and our personal information are under escalating attacks by foreign cybercriminals. Law firms are not immune from this malicious activity,’ a spokesperson for Grubman Shire Meiselas & Sacks told Rolling Stone in a statement. ‘Despite our substantial investment in state-of-the-art technology security, foreign cyberterrorists have hacked into our network and are demanding $42 million as ransom. We are working directly with federal law enforcement and continue to work around the clock with the world’s leading experts to address this situation.'”
  • “‘This is a lose-lose situation for both the firm and its clients,’ Callow tells Rolling Stone. ‘If the firm does not pay the criminals, it’s likely that more data will be published. If the firm does pay, it will simply receive a pinky promise from a bad-faith actor that the stolen data will be destroyed. But why would a criminal enterprise ever delete data that it may be able to further monetize, and especially if that data may have a high market value?’ For example, there is nothing preventing the hackers from reaching a settlement with the law firm, only to then turn around and shake down their celebrity clients with the stolen data.”
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Risk Update

Conflicts News & Allegations — Lawyers Finances in Focus, Retaliatory DQ Accusation

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PG&E victims’ lawyer scrutinized over Wall Street connections” —

  • “San Antonio lawyer Mikal Watts was telling the group about a $13.5 billion settlement he had helped broker with PG&E Corp. to pay victims of fires caused by the company’s power lines. Watts’ clients stood to benefit from that deal, a major milestone in PG&E’s bankruptcy case that became public days earlier.”
  • “Flipping through a presentation projected on a screen flanked by a Christmas tree and a U.S. flag, Watts reviewed the details of the settlement. Then, after at least 50 minutes of talking, he shifted gears. He jokingly told victims that he wanted to ‘be your daddy’ for a little bit, according to a video reviewed by The Chronicle.”
  • “Victims needed to consider ‘all sorts of conflicts of interest out there,’ Watts said. He stressed that he knew he had to earn his clients’ trust.”
  • “What followed was a somewhat confusing spiel about his ‘huge’ line of credit and various exchanges he had with other lawyers and Wall Street financiers before he agreed to the settlement with PG&E. Watts said he learned along the way that part of his line of credit had been ‘in effect, cordoned off,’ or allocated, to two New York financial firms, Apollo Global Management and Centerbridge Partners.”
  • “Apollo holds more than $600 million of PG&E debt and insurance claims against the company, according to court papers filed in April… Members of the group have said in court papers and interviews that Watts’ remarks signal a potential conflict of interest that he did not properly disclose. They have asked PG&E’s bankruptcy judge to intervene, arguing that fire victims were not fully informed when they began voting on the company’s plan to resolve its bankruptcy a few weeks ago.”

Tyson Slams ‘Retaliatory’ Bid To DQ Judge Who Repped It” —

  • “A law firm facing disqualification and its client shouldn’t be able to force out an Arkansas federal judge from a $5 million liability case because he once represented Tyson Foods Inc., as they are retaliating against him because he questioned whether the firm should exit the litigation, the food giant has contended.”
  • “Conway Olejniczak & Jerry SC and its client Robinson Metal Inc. fail to meet the standard set by legal precedent for U.S. District Judge Timothy L. Brooks to recuse himself from the case, even though the judge represented Tyson in unrelated matters about a decade ago, according to the response brief filed on Wednesday by subsidiary Tyson Mexican Original Inc.”
  • “‘Robinson’s motion to disqualify amounts to little more than a retaliatory and slanderous assault on the integrity of this court and its sound rulings on Robinson’s motion to dismiss,’ the response brief reads, ‘as well as a poorly disguised effort to both intimidate and discourage the necessary disqualification of its current counsel.'”
  • “Judge Brooks in March ordered Robinson to demonstrate why Conway Olejniczak should not be disqualified, given that attorney Steven J. Krueger had been deposed as part of the litigation and likely would need to serve as a witness in the case.”
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Risk Update

Technology Risk News — Court Moves Proceedings to Zoom + More on Smart Device Security

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We’ve covered the security fallout and move away from Zoom by some corporations and law firms, so it caught my interest to see: “Northern District of Georgia Turns to Zoom as Proceedings Go Remote” —

  • “Long-established policies created by the Judicial Conference of the United States and adopted by the U.S. District Court for the Northern District of Georgia barred visual or audio recording devices and live broadcasts from the downtown Atlanta courthouse without a court order. Those have now been loosened due to the pandemic.”
  • “Federal judges in Atlanta, Rome, Gainesville and Newnan may now use Zoom and other technology to conduct public hearings in real time without bringing everyone into the courtroom.”
  • “Any recording—including audio, video, or still screen shots—of Zoom proceedings is prohibited, and anyone doing so is subject to sanctions, said Chief Judge Thomas Thrash. ‘There is to be only one record of a proceedings in federal court,’ he said. ‘If you start letting people record and re-transmit bits and pieces of court proceedings, that will be a disaster.'”
  • “The Northern District isn’t alone in adapting to the pandemic by turning to technology like Zoom. Last month, the Supreme Court of Georgia instituted oral arguments via Zoom. The Georgia Court of Appeals followed suit on Wednesday with Chief Judge Stephen Dillard presiding in the courtroom at the downtown Judicial Center while Judges Brian Rickman and Trent Brown and counsel joined in remotely.”
  • “Cohen also said that Zoom has a function that allows lawyers and their clients to conference privately during a Zoom session.”

Next, thanks to Simon Chester at Gowling WLG for sending in this excellent overview of likely prudent practices: “How To Make Your Amazon Echo and Google Home as Private as Possible” —

  • “With news that Amazon lets human employees listen to Alexa recordings, you might want to tighten up your smart assistant ship.”
  • “And Amazon had not been forthcoming about its Alexa auditors. Apple and Google, who make popular smart speakers as well, aren’t shouting it from the rooftops either, but both companies had mentioned previously that they use human reviewers as well.”
  • “When WIRED asked Amazon if there is an opt-out for sharing recordings to improve the Alexa service, Amazon declined to comment.”
  • “The easiest way to ensure that no one is listening through your smart assistant’s microphone is to mute the device.”

(Relating to these themes on a personal level, last week I discovered my child’s school-managed meeting room, class long since over, had been quietly recording hours of audio activity in the living room, uploading it to an inaccessible cloud repository. Thankfully, those were just between me and her. There might have been a book or two read. If you care to know, yes, I do voices. Embarrassing potentially, but not a breach of duty…)

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Risk Update

Playbook Conflicts Allegations — Boy Scouts Abuse and Bankruptcy Proceedings

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Tensions rise over local councils’ role in Boy Scouts bankruptcy proceedings” —

  • “The role of local Boy Scout councils in the national organization’s Chapter 11 bankruptcy, and the sexual abuse crisis that propelled it, is a flashpoint in a slew of new lawsuits on behalf of men who say they were abused as scouts.”
  • “Under the Scouts’ proposed reorganization plan, local councils would be ‘Protected Parties’ not liable for sexual abuse claims filed against the organization. Victims’ attorneys are fighting against that division, noting that the vast majority of the Scouts’ assets lie outside the national organization’s holdings.”
  • “On Monday, the case hit another potential snag. In federal court in Delaware, Judge Laurie Silverstein held a hearing to review Century Indemnity Company’s objection to work being done on the case by Sidley Austin, a corporate law firm retained by Boy Scouts. The insurance company argued that it is a conflict of interest since it previously worked with Sidley Austin in a dispute over insurance payouts involving Boy Scout sexual abuse claims.”
  • “Sidley represented Century in a dispute with Lloyd’s of London over reinsurance Century purchased from Lloyd’s to help cover major claims events. Lloyd’s refused to reimburse Century for settlements in Boy Scout sexual abuse cases, leading to a lengthy legal dispute.”
  • “In recent years, the Boy Scouts have battled with insurance carriers who refused to pay out claims, saying the Scouts failed to take effective measures to prevent continued abuse. In 2018, Boy Scouts sued six of its carriers including Century. Experts include insurers’ refusal to pay out claims as one of the driving factors leading Boy Scouts to file for bankruptcy.”
  • “Though Sidley didn’t represent Century in the Scouts’ suit against them, Century’s attorneys have argued that Sidley understands the playbook from the Lloyd’s of London case, and will successfully help the Boy Scouts demand that Century cover large payouts to victims in the bankruptcy proceedings.”
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Risk Update

Sample in a Jar — In Whiskey Conflict, Ethical Screen/Information Barrier Prevents Watering Down

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This title caught my eye, as we noted it last year, and I enjoy the subject matter — both questions of ethical walls and information barriers, and the particular subject of the suit. (Friends, all donations of the water of life presently welcome during these sheltering times, and will be put to good use powering the blog.)

Whiskey Glass Maker Can’t Ax Rival’s Law Firm” — 

  • “In a ruling penned for the panel, Court of Appeal Judge Julian Flaux found that a lower court judge didn’t err in refusing to grant the injunction sought by Glencairn IP Holdings Ltd., which would have blocked solicitors at Virtuoso Legal from continuing to act for rival manufacturer Product Specialties Inc.”
  • “‘In my judgment, the judge’s evaluation of the evidence is not open to criticism and he carried out the balancing exercise correctly,’ Judge Flaux said. ‘His conclusion that the balance of justice was against the grant of an injunction was unimpeachable.'”
  • “Glencairn, which owns a European trademark and a registered design for its distinctive glassware, unsuccessfully argued that the court should intervene since the solicitor for the opposing party had previously acted for another company that Glencairn sued for infringement — and thus had access to privileged, confidential information about a settlement reached in the earlier case.”
  • “Thursday’s judgment notes that Virtuoso’s principal, Elizabeth Ward, testified that the Product Specialities team didn’t have knowledge or access to the confidential information connected to the other matter and its settlement. The burden of proof to show that the law firm’s ‘information barrier’ failed was on Glencairn, which hadn’t made its case, Judge Flaux said.”
  • “Additionally, Judge Flaux said, if information is misused or openly disclosed or there is some threat that it will be, the sufficient remedy is to restrain the opponent and his legal advisers from misusing the information — not to block the law firm from acting.”
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Risk Update

(Likely) Unwaivable Conflicts — Related Matters, Opposing Interests, Complex Facts

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Lawyer Likely Can’t Defend Clients on Related Criminal Charges” —

  • “A New York lawyer representing two clients in separate but related criminal matters faces a ‘likely unwaivable’ conflict of interest based on the facts presented, a recent state bar association opinion said.”
  • “A conflict of interest exists for a lawyer in this situation if it will involve the lawyer in representing opposing interests, or that there’s a ‘significant risk’ that the lawyer’s professional judgment will be adversely affected by the lawyer’s own interests, the April 22 opinion said.”
  • “The clients are in a relationship, and one is charged with a crime where the other was a victim, the opinion recounted. But the alleged victim was intoxicated when the event occurred, and was arrested for driving while intoxicated after the alleged perpetrator was arrested, it said. And each is a witness in the others case, with the alleged victim wishing to testify in favor of the perpetrator, it said.”
  • “The charges ‘arise out of the same common nucleus of circumstance,’ the bar opinion said. Although the clients are facing separate charges, it’s ‘impossible to divorce the allegations of one from the allegations of the other,’ it noted.”
  • “A conflict can be waived if the lawyer ‘reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client’ and if each client gives ‘informed consent confirmed in writing,’ the court explained. But the question of a waiver is a ‘very fact-intensive’ inquiry and ‘depends on a variety of factors of which we have limited knowledge here,’ it said.”
  • “The bar admitted it was “reluctant” to conclude that a conflict may never be waived on the facts as presented but that is was ‘very skeptical that informed consent is possible.'”

And on the topic of crime: “Is a client using your legal services to commit a crime? New ethics opinion outlines your duty to inquire” —

  • “Lawyers have ethical duties to inquire whether a client is seeking to use their services to commit fraud or other criminal activity. This duty to inquire extends beyond Model Rule 1.2(d), which prohibits a lawyer from advising or assisting a client with conduct the lawyer knows is criminal or fraudulent. The ABA’s Standing Committee on Professional Responsibility has issued Formal Opinion 491 to clarify this requirement in the wake of increased reporting of individuals using legal services for money laundering and terrorist financing.”
  • “The opinion states that ‘the legal professional has become increasingly alert to the risk that a client or prospective client might try to retain a lawyer for a transaction or other non-litigation matter that could be legitimate but which further inquiry would reveal to be criminal or fraudulent.'”
  • “If the client refuses to answer a lawyer’s questions or asks the lawyer not to evaluate whether a course of action or transaction is legal, the lawyer must still make an ‘appropriate inquiry.’ If the client will not provide the necessary information to the lawyer, the lawyer must withdraw or decline representation.”
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Risk Update

Ethical Screens, Conflicts & Vigilance — One Firm Disqualified, One Firm Still Fighting

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Cozen O’Connor Disqualified Over Delaware Case Conflicts” —

  • “Law firm Cozen O’Connor has multiple conflicts in a Delaware life insurance trust case and can’t continue to represent its client due to a risk that its lawyers will need to testify, the Delaware Superior Court ruled.”
  • “Even though Cozen screened off the attorneys from one another and ‘demonstrated the vigilance appropriate to the profession,’ it can’t continue to represent Sun Life Assurance Co. of Canada, Judge Paul R. Wallace said.”
  • “Cozen represented Sun Life in the suit, but it had a longstanding outside counsel relationship with WSFS, according to the court. And it previously represented a company called Ocean Gate Life Settlement Program LP, which purchased the life insurance policy from the original insured and beneficiary, the court said.”
  • “But Sun Life conceded Ocean Gate was a prior Cozen client, he said. The two are materially adverse…”

Williams & Connolly Fights DQ Bid In $150M LabMD Suit” —

  • “Williams & Connolly LLP told a Virginia federal court that it shouldn’t be disqualified from representing Reed Smith LLP in a $150 million malicious prosecution lawsuit brought by LabMD Inc., saying the defunct cancer-screening company, which has pursued a number of similar suits, doesn’t have the evidence to back up its motion.”
  • “Williams & Connolly wrote in its response Monday to a motion to disqualify from LabMD that the medical testing company had waited eight months after learning the firm represented Reed Smith before objecting and that it had not provided anything to back up its claim that LabMD had been a client of Williams & Connolly.”
  • “In March, the company said that a Williams & Connolly attorney consulted with LabMD before the lawsuit was filed and was provided with confidential information. In its response Monday, Reed Smith said that the attorney in question, Rob Cary, met Daugherty at an event in 2017, where they both talked about litigating against the government. Cary was screened from the case after the firm checked for potential conflicts, according to the response.”
  • “The firm also argued that LabMD was never a client of Cary or Williams & Connolly and that the company had waited too long to object to the representation. With a July 10 deadline for completing discovery looming, the firm said, it would be highly unfair to expect Reed Smith to find and familiarize new counsel in the case.”

 

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