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.

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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.

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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.

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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

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.

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Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.


R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.

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We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?

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Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.

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Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now and where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.

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More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]