NEW YORK, July 20 (Reuters) - A $50 million insurance policy
is emerging as a key factor in efforts to resolve the bankruptcy
of defunct law firm Dewey & LeBoeuf and avoid years of costly
The policy, which was taken out by Dewey in October 2011,
covers claims of misconduct against former chairman Steven Davis
and a handful of other former top executives at the firm,
according to three former Dewey partners who are familiar with
the policy and who spoke on the condition of anonymity.
As bankruptcy negotiations proceed, the estate, former
partners and creditors are sorting out how the policy affects
their different interests.
In a proposal put forward last week by the firm's estate,
former partners were asked to contribute between $25,000 and $3
million each toward a $103.6 settlement pot and to forfeit any
legal claims against the defunct firm and its officers. In
exchange, the partners would be released from liability for the
firm's $315 million debt.
Davis was pointedly left out of the deal, an arrangement
which frees creditors to sue him in his capacity as the former
chairman, and also personally. The $50 million insurance policy
provides an incentive for creditors to go along with the
For former partners, on the other hand, the policy could be
a disincentive because anyone who signs on is relinquishing the
right to sue Davis and the others, including the recovery of
back compensation that some former partners say they are owed.
Settlement talks involving the creditors, the estate and the
former partners have been under way since late May, when Dewey
filed for Chapter 11. The existence of the $50 million policy
was acknowledged by Joff Mitchell, the chief restructuring
officer for the Dewey estate, at a July 3 settlement meeting
with lawyers for former Dewey partners.
"[The creditors] think that one benefit to them of this deal
is that by having all the partners release their claims against
other partners, there will be less competition to recover
against that policy," wrote one lawyer who attended the July 3
meeting in a follow-up email to his clients. The contents of the
email were later obtained and reviewed by Reuters.
Dewey & LeBoeuf, which once housed more than 1,000 lawyers
in 26 offices worldwide, began unraveling earlier this year as
the firm struggled with debt. Davis was removed from his post on
April 29 amid an investigation by the Manhattan district
attorney into allegations related to his management of Dewey.
Davis has denied wrongdoing.
A lawyer and a spokeswoman for Davis did not respond to
requests for comment.
The insurance policy was taken out on Oct. 2, 2011, and
expires on the same date this year, according to bankruptcy
court records. It could not be determined if the management
liability policy renewed a pre-existing one or if it was a new
policy. Even though the policy expires on Oct. 2, creditors --
or any other party afflicted by Dewey's collapse -- could sue
Davis after that date and still be eligible to go after the $50
million. At least one former Dewey lawyer has already brought
claims against the firm's management, alleging fraud, which
means all related future claims would trace back and be filed in
connection with that suit, according to two insurance experts.
The policy was listed as an asset in New York bankruptcy
court on May 28, but five former partners contacted by Reuters
were unaware of it and were unsure how or if it would affect
their decision to participate in the settlement. Their reactions
ranged from curiosity about the details to agreement that Davis
should be shut out.
"There's no way to include him," said one former partner
knowledgeable of the insurance policy. "There's insurance and
Former members of Dewey's executive committee are also
covered by the policy and theoretically could have been
potential targets in litigation by creditors. But Mitchell, the
restructuring officer, offered an exemption to any member of the
committee who participates in the settlement. He also offered
exemption to two other players who had coverage under the
policy: Dewey's general counsel, Janis Meyer, and Stephen
Horvath, who ran the firm in its final days as executive
Former Dewey executive director Steve DiCarmine and former
chief financial officer Joel Sanders were not offered an
exemption, according to the three partners.
Ed Weisfelner, a lawyer representing the creditors
committee, declined comment, as did Mitchell. Meyer and Al
Togut, lead bankruptcy counsel for Dewey, did not respond to
requests for comment.
That Dewey had management liability insurance at all is
somewhat unusual, said Mike Santocki and Brian Dunphy, directors
of the insurance brokerage firm Frank Crystal & Company. Fewer
than half of all law firms typically carry that type of
insurance, they said, though more firms have begun making
inquiries about it in the wake of the Dewey collapse.
A handful of insurance companies carry Dewey's management
liability policies, which cover claims of misconduct such as
breach of fiduciary duty. They include XL Insurance of Dublin,
Ireland, Minnesota-based OneBeacon Insurance Group and
Bermuda-based Iron-Starr Excess, according to documents filed in
New York bankruptcy court. Representatives for those companies
either declined comment or did not return a request for comment.
To go forward with the settlement, which must be approved by
the former partners and creditors, the Dewey estate has said it
needs a minimum participation from former partners of $50
million. Former partners must decide by August 7 whether or not
to opt in.
(Reporting by Casey Sullivan)
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