Six CMN attorneys were recognized as 2014 Leading Lawyers in Illinois. Bill Chittenden and Don Murday were named Leading Lawyers in Commercial Litigation and Civil Appellate Law. David Novotny was named a Leading Lawyer in the areas of Class Action Defense, Insurance, Civil Appellate Law and Insurance/Reinsurance Litigation. Elizabeth Doolin was named a Leading Lawyer in the areas of Commercial Litigation, Civil Appellate Law and Employment Law: Management. Joe Hasman was named a leading lawyer in Civil Appellate Law, Commercial Litigation, Insurance, and Insurance Coverage & Reinsurance Law. David Schmidt was named a Leading Lawyer in the area of Commercial Litigation. Distinction as a “Leading Lawyer” is the product of a rigorous selection process that focuses on recommendations from peers in the lawyer’s particular practice area followed by extensive discussion with other highly regarded lawyers in the same area of practice. Less than 5% of all lawyers in the State of Illinois are selected for this distinction.
Chittenden, Murday & Novotny LLC proudly announces that Law & Politics Magazine and the publishers of Chicago Magazine have again named Bill Chittenden a “Super Lawyer” in Business Litigation in 2014. The process began with thousands of ballots sent to attorneys across the State of Illinois asking them to nominate the best lawyers they had “personally observed.” A panel of recognized top lawyers in the commercial/business litigation practice area was assembled to review the nominations and evaluation criteria. Through this process, the panel identified the nominees with the highest scores. The attorneys chosen represent the top 5% of attorneys in the State of Illinois.
First National Bank of Ely’s (Nevada) loan officer embezzled over $4.2 million from T-bill accounts for over a decade. Following the employee’s plea agreement to federal charges, Progressive paid over $1.5 million of $1.675 million in employee fraud benefits under its financial institution bond. But as part of its complaint against Progressive, the Bank demanded the balance of bond benefits, plus the full $3 million limit under a separate directors and officers’ liability policy.
On a motion to dismiss, the District Court agreed with the Firm’s arguments and rejected the Bank’s various D&O coverage theories, dismissed all contract and tort counts seeking D&O benefits, all tort counts seeking the $127,000 in remaining bond benefits, and all punitive damages claims.
Moreover, after also securing the dismissal of ABA Insurance Services Inc. (Progressive’s third-party claim administrator) from all counts, the Bank’s $3 million action was reduced to a one count breach of contract claim for $127,000 in remaining disputed bond benefits, with secondary claim-handling allegations.
Just as significant to the case at issue, however, the District Court’s ruling in First National Bank of Ely v. Progressive Casualty Insurance Company confirmed a critical point for carriers defending against separate bond and D&O claims for the same employee fraud loss.
That is: an employee’s criminal fraud – while a potential basis for employee dishonesty coverage under a bond – may exclude any claimed D&O coverage.
The facts of the case are not altogether unfamiliar to banks or their carriers.
After discovering its loan officer’s embezzlement, First National Bank of Ely quickly reimbursed customers, and turned to Progressive for coverage. And after offering various indemnity theories, the Bank settled on one: the Bank maintained its President (and shareholder) was entitled to D&O indemnity for alleged claims made against him by other shareholders. For his part, the President (presumably to help make the case for D&O indemnity coverage) readily admitted he was negligent in failing to prevent the loan officer’s embezzlement which, the Bank then argued, entitled him to D&O coverage.
On behalf of Progressive, the Firm argued the President’s conduct and negligence admission was immaterial.
The President’s negligence was not the source of the Bank’s loss. Rather the source of the Bank’s loss inescapably was the loan officer’s embezzlement. And since the D&O Policy’s Fraud/Violation of Law Exclusion barred all Loss involving a “fraudulent, dishonest or criminal act by the Insured” [with Insured defined as “any Employee”], Progressive argued the loan officer’s admitted conviction and sentence barred all claimed D&O coverage.
The District Court agreed with the Firm’s position, and also rejected the Bank’s argument that the Policy’s “severability” clause (notwithstanding the loan officer’s fraud) created separate coverage for the Bank’s President. Though certain jurisdictions (including California) had construed severability clauses as creating separate D&O coverage for individual employees, the District Court agreed with the Firm’s argument that Progressive’s specific severability clause was more limited in scope and the clause did not affect the Policy’s unqualified exclusion of fraud losses.
The District Court also agreed that the Bank could not sustain common law tort claims of fraud and negligence.
In each count, the Bank claimed Progressive’s separate bond and D&O denial letters misrepresented coverage. But as the Firm argued and the Court agreed, not only had Progressive accurately recited both the bond and D&O Policy (which the Bank had a legal duty to read), but the Bank did not plead it detrimentally relied on any supposed misrepresentation or that any such misrepresentation caused the Bank damages. Nor could plead these essential elements since the Bank – far from relying or acting on these alleged coverage misrepresentations – refuted those same alleged misrepresentations by filing suit.
And finally, the District Court rejected the Bank’s arguments that Progressive had waived, was estopped from asserting, or otherwise failed to preserve its coverage arguments. Again, the Court adopted the Firm’s position, ruling that Progressive’s reservation of rights included in its coverage letters together with the coverage arguments asserted in the litigation were more than adequate to preserve its coverage position.
Altogether then, with the favorable ruling dismissing $3 million of the Bank’s claim combined with a denial of the Bank’s petition to amend the complaint, the claimed contractual exposure was reduced $127,000. And following the ruling, the case was resolved.
A copy of the District Court’s opinion can be found at First National Bank of Ely v. Progressive Casualty Insurance Company, No.: 3:11-cv-00859, *1, ___ F. Supp. 2d ___ (D. Nev. Nov. 27, 2012), a copy of which is attached below. CMN attorneys Michael B. Galibois and Julie F. Wall handled the case.
Congratulations to the CMN participants in the Chicago Volunteer Legal Services Race Judicata 2013 Spring for Justice 5K. CVLS is an organization of over 3,000 volunteer attorneys who donate free legal services to thousands of low-income Chicagoans annually. All proceeds from the Race Judicata go toward the general operating costs of Chicago Volunteer Legal Services.
The CMN participants pictured below include Mike Galibois, Rebekah Rogers, Paola Jauregui, Joe Jeffery, Stuart Primack, Rob Hunger, Vivian Infantino, Kaitlyn Luther and Victor Terrizzi (not pictured). The CMN race shirt was designed by Jill Chittenden…CMN 10 years running strong.
Chittenden, Murday & Novotny LLC proudly announces that Joseph R. Jeffery, Jennifer S. Stegmaier & Julie F. Wall have been named Members of the Firm effective January 2013. Their practice is focused on representing the Firm’s clients in a wide variety of litigation matters in state and federal courts.
Chittenden, Murday & Novotny LLC proudly announces that Donald A. Murday has been named Vice Chair of the Litigation Section of the ALIC effective August 2012.
When Fortune 500 companies were asked to name the top law firms they turn to when litigation arises, Chittenden, Murday & Novotny LLC was on their list. CMN is pleased to announce that it has again been named as a 2012 “Go-To Law Firm”® in Litigation. CMN was also named a 2012 “Go-To Law Firm”® in Employment Litigation. The honors are awarded by ALM Media based on surveys sent to general counsel at each of the top 500 public companies.
Bill Chittenden was among 35 Leading Lawyers in Chicago selected for an article profiling his career in the 2012 issue of Leading Lawyers Magazine. See attached article.
Six CMN attorneys were recognized as 2012 Leading Lawyers in Illinois. Bill Chittenden, Don Murday and Joe Hasman were named Leading Lawyers in Commercial Litigation and Civil Appellate Law. David Novotny was named a Leading Lawyer in the areas of Class Action Defense, Civil Appellate Law and Insurance/Reinsurance Litigation. Elizabeth Doolin was named a Leading Lawyer in the areas of Commercial Litigation, Civil Appellate Law and Employment Law: Management. David Schmidt was named a Leading Lawyer in the area of Commercial Litigation. Distinction as a “Leading Lawyer” is the product of a rigorous selection process that focuses on recommendations from peers in the lawyer’s particular practice area followed by extensive discussion with other highly regarded lawyers in the same area of practice. Less than 5% of all lawyers in the State of Illinois are selected for this distinction.