The Intelligent Quarterly from the publishers of The Insurance Insider

Autumn 2017

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A premium strategy

Joe McCullough Joseph T McCullough IV (Joe McCullough) is a partner in the litigation practice group of law firm Freeborn & Peters LLP and leader of the firm's insurance/reinsurance industry group. Daniel Hargraves is also a partner at Freeborn, with extensive experience in complex commercial litigation and international and reinsurance arbitrations, as well as appeals. Prior to joining Freeborn, he co-founded Hargraves, McConnell & Costigan PC in 1998. The pair explained to Insider Quarterly the motivations behind merging the two firms.

Insider Quarterly: Freeborn & Peters recently merged with New York-based Hargraves, McConnell & Costigan. What were the drivers behind the merger?

Joe McCullough: A client of both Freeborn & Peters LLP and Hargraves, McConnell & Costigan PC was the proverbial "matchmaker". The client called me and explained why from his perspective a union of the two firms would better serve his company's needs, as well as those of other insurance and reinsurance companies engaged in cross-border business.

From Freeborn's perspective, satisfying a valued client's needs, and the resulting additional benefit of continuing strategic growth for the firm into one of the most important business centres of the world [New York], made this a very easy decision.

Daniel Hargraves: We were a victim of our own success. We saw a need to expand the depth of our practice so we could continue to represent our clients in their larger disputes and take on even more. In seeking a partner for growth, there were very few other firms that had the same depth of knowledge and experience in insurance/reinsurance as Joe McCullough and his large team at Freeborn.

The combination of the two practices' teams created under one roof at Freeborn one of the largest reinsurance practice groups in the country. The firm's collegial culture was also a major factor in our decision.

Insider Quarterly: What do you see as the main advantages of the merged entity going forward?

Joe McCullough: Obviously, the entry into New York is a major strategic step for Freeborn, not just for the firm's insurance/reinsurance practice but also for our many other practice areas for which a New York presence better serves existing clients and attracts others to the firm.

A number of the firm's clients have offices in or near New York, and many of their contracts call for dispute resolution in New York. In fact, in recent years, New York became the venue in which the vast majority of my practice group's court cases and arbitrations have taken place. That development makes New York an ideal location in which to have Freeborn litigators in residence.

Freeborn is a full-service firm, so other practice areas will also expand into the New York office. We are currently recruiting for additional laterals for the reinsurance practice as well as our highly successful real estate and corporate practices.

Daniel Hargraves: Although the reinsurance group is one of the country's largest, Freeborn is not burdened with the baggage of a large firm. For example, Freeborn does not suffer from the myriad conflicts issues faced by large firms, nor do we have to charge extremely high hourly rates to support a behemoth, far-flung network of offices.

Insider Quarterly: What have been the most significant developments in the insurance/reinsurance legal market recently?

Joe McCullough: Perhaps the most significant development is the substantial number of mergers of large insurers and the continued acquisition of legacy books by the large run-off players. The resulting industry consolidation has led to fewer players in both the live and legacy space, and thus fewer entities are arbitrating and litigating disputes.

Quite a number of law firms that dabbled in reinsurance disputes have fallen by the wayside, and only firms like ourselves with large, highly experienced reinsurance teams are thriving in the current environment.

Daniel Hargraves Daniel Hargraves: As far as future market developments, the issues for law firms to keep an eye on are cyber crime and cyber security, as well as sports concussion claims. There are also more and more talcum powder claims, and we believe there will be legal issues and disputes in the future arising from mobile and vehicle telematics.

Obviously, law firms like Freeborn that stay on top of the developments in the underlying lawsuits will be best equipped to represent clients in insurance coverage and reinsurance disputes when those claims arise down the road.

Insider Quarterly: What significant developments have you noted in case law recently, and how has the firm been involved in or affected by them?

Daniel Hargraves: The most notable development in the last 12 months has been the New York Court of Appeals' decision on In Re Viking Pump (New York Court of Appeals, 2 May 2016).

This is the most recent pronouncement concerning allocation and exhaustion among successive general liability policies covering multi-year asbestos occurrences.

Previously, New York legal precedent favored allocation of loss on a pro rata basis across all affected policies. In the Viking Pump decision, the Court applied an "all sums" allocation but did so based upon the specific wording of the policy.

The Court of Appeals decision has left future litigants leeway to argue for either an all sums or a pro rata allocation depending on the specific policy language at issue.

Joe McCullough: On the reinsurance side, there are a number of recent cases in the area of follow the fortunes/follow the settlements and on late notice, in which courts are giving reinsurers wider latitude to question the decisions of their cedants.

There has been a series of cases over the past four years holding that even if a reinsurer is bound to follow its reinsureds' settlements, it can challenge its allocation of the settlement to its reinsurers.

On the subject of late notice, there have been a number of notable cases involving the question of whether a reinsurer needs to prove that it suffered prejudice to establish a late notice defence.

The answer is largely dependent upon which state's law applies, with states like California and New York generally requiring a showing of prejudice, while states such as Illinois and Virginia do not - at least when the contract requires "immediate" or "prompt" notice.

A very important development in the past few years is New York holding that no prejudice needs to be established if the late notice was due to the cedant's violation of the duty of utmost good faith owed to its reinsurers - for example, by acting recklessly or with wilful disregard for the interests of its reinsurers.

Insider Quarterly: Do you have any additional plans for expanding or diversifying the business in terms of adding practice areas, new offices, etc?

Joe McCullough: Freeborn's combination with the Hargraves firm is a great example of our philosophy on growth.

We are not looking to expand for the sake of expansion itself. Too many firms make growth the top priority without sufficiently considering the detrimental impacts that rapid expansion can bring, such as a negative impact on firm culture, the major expenses often incurred when opening myriad offices around the world and the conflicts of interest that major mergers create.

We are looking to combine with smaller firms which share similar values, have a collegial culture like ours and enjoy outstanding reputations in their specialist practices.

We just opened an office in Tampa, Florida, with a highly successful insurance coverage practice. We anticipate there will be additional expansion in other key markets as the opportunities present themselves.

This article was published as part of issue Summer 2017

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