Legal/Regulatory

Verizon Wins $40 Million in Long-Standing Court Battle with Insurers

Verizon Communications was awarded defense costs in excess of $40 million after years-long battle over securities claim litigation.
By: | May 21, 2018 • 5 min read

In a court battle with its insurers spanning nearly 10 years, the score was finally settled when the Delaware Superior Court awarded Verizon Communications $40 million in unreimbursed defense costs plus millions more in prejudgment interest.

Advertisement




The telecommunications conglomerate went up against its primary and excess liability insurance carriers after they denied coverage to Verizon for an underlying securities claim litigation from 2009.

Liability Claims and Bankruptcy 

Verizon sued its insurers after a long list of internal company decisions, new business adventures, policy language disputes and court battles. The main underlying actions at hand were:

  1. Verizon decided to create a standalone company as a “spin-off” of its print and electronic yellow-pages directories business. The company was called Idearc Inc. and was spun-off in 2006.
  2. Next, Verizon transferred its directories business to Idearc in exchange for Idearc’s common stock and promissory notes.
  3. Verizon distributed all its outstanding shares of Idearc common stock to Verizon shareholders. It took Idearc’s notes and transferred them to its own banks. In exchange, the banks gave the company debt securities they had purchased in the open market.
  4. The banks took the Idearc debt securities and sold them to previously solicited purchasers and lenders.

After the spin-off, Idearc functioned as an independent company. Then it defaulted on its promissory notes. Idearc filed for bankruptcy in 2009 with a total debt of $9.5 billion and assets of $1.8 billion, leading to a number of suits filed against Verizon alleging liability in connection to the spin-off.

Policies: Doing Due Diligence 

Before the bankruptcy, when litigation was a mere concept and the spin-off’s prospects looked promising, Verizon and Idearc purchased primary and excess liability policies to protect against potential litigation risks and liabilities that could arise.

Illinois National Insurance Company held the primary policy. Excess policies were issued by a number of insurers, prominently XL Specialty Insurance Company, Zurich American Insurance Company and Twin City Fire Insurance Company. Requests for comment on the case by the carriers and/or their parent companies were declined.

Verizon and Idearc purchased primary and excess liability policies to protect against potential litigation risks and liabilities that could arise. It’s primary policy covered up to $15 million in liability limits.

These policies, collectively referred to as the Runoff Policies, would provide coverage for liability resulting from claims made during the policy period, November 2006 to November 2012. They allowed Verizon to recover defense costs in the event a securities claim was brought against the company and an insured person and they shared a joint defense.

Advertisement




When Idearc defaulted on its notes and was forced to file bankruptcy, one of the more prominent suits that came against the spin-off and Verizon was filed by U.S. Bank National Association.

U.S. Bank was appointed litigation trustee in Idearc’s bankruptcy. Its job was to recover funds for Idearc’s debt securities holders. It demanded $14 billion in damages from Verizon and John Diercksen, an executive and Idearc’s sole director. This flung the parties into a court battle spanning five years.

Ultimately, Verizon obtained dismissal of the initial claims in 2012.

Legal Fees and Denied Coverage

However, the years of litigation added up and legal costs were getting steep. At the start of the process, Verizon notified its primary carrier, along with the Runoff Policy holders, about the U.S. Bank suit. The primary carrier issued coverage for Diercksen’s defense costs, but it left Verizon hanging.

The policy, said the insurer, did not cover Verizon’s defense costs, because “the U.S. Bank complaint does not constitute a securities claim.”

Meanwhile, U.S. Bank was not satisfied. In 2013, it filed a second lawsuit, naming both Verizon and now Andrew Coticchio, former chief financial officer of Idearc, as defendants. It sought more than $2.85 billion in damages, including the non-payment of the Idearc debt securities from the first suit.

Verizon turned to its policy issuers, this time filing an instant suit that said it was entitled to $48 million in defense costs. The Runoff Policy holders held firm, claiming both U.S. Bank suits did not involve a securities claim.

At the end of 2014, the Runoff Policy holders conceded that, “if US. Bank fit within the Policy’s definition of ‘Securities Claim,’ [Verizon] would be entitled to defense costs.”

The telecommunications conglomerate was tasked with proving the underlying suits were, in fact, a securities claim.

The Final Leg of the Legal Race 

Collectively, the Runoff Polices decided to let Illinois National, the primary policy holder, take the lead and speak on behalf of all the insurers, excess included, during the hearings. For over a year, Verizon and Illinois National worked hard to define the parameters surrounding the underlying suit.

In Verizon Communications, Inc. v. Illinois National Insurance Company, et al., waiting for the primary carrier to decide hurt the excess carriers big time.

In a court hearing in March 2017, Verizon reminded its excess carriers that if the “Defendants’ counsel [in this case, Illinois National] again conceded that if the Court ruled in favor of Verizon on the ‘Securities Claim’ issue, Verizon would be entitled to 100% of its costs.”

The excess carriers didn’t sway on their counsel, instead leaving the decision in Illinois National’s hands; the court found the U.S. Bank suits constituted as a securities claim. The excess carriers were on the hook.

The Runoff Policy holders then tried to fight the ruling, but the court wouldn’t budge. Because the excess carriers chose to let Illinois National handle counsel, they were not entitled to challenge rulings where they had already played a role.

Advertisement




The Delaware Superior Court laid down the law: “It is the Court’s opinion that it is simply time to stop this litigation Ferris wheel.

“If the Excess Insurers believe that they will overpay the Plaintiffs’ Defense Costs, now is not the time to address that concern,” said Judge J. Carpenter at the May 7, 2018 hearing. “This litigation has been pending for many years and even after concluding that the U.S. Bank Action is a Securities Claim, [Verizon and co.] have still not been advanced their costs.”

All excess carriers are obligated to pay prejudgment interest from January 9, 2014 until March 24, 2017, with a fixed interest rate of 5.75 percent. Illinois National was on the line for its full $15 million in policy limits plus prejudgment interest. In total, Verizon was awarded $40 million in unreimbursed defense costs, plus millions more in prejudgment interest.

McKool Smith represented Verizon in this case. Attorneys representing the excess carriers were unavailable or declined to comment. To read the court’s opinion, see Verizon Communications, Inc. v. Illinois National Insurance Company, et al. &

Autumn Heisler is the digital producer and a staff writer at Risk & Insurance®. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

Advertisement




That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

Advertisement




Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]