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NEW YORK � West Coast expansion proved a costly mistake for British legal giant Clifford Chance. According to a recent decision by a New York state judge, some of those costs may not be covered by insurance. Manhattan Supreme Court Justice Bernard Fried last week denied Clifford Chance’s motion for summary judgment in a suit against management liability insurer Indian Harbor Insurance Co. The London-based law firm is trying to recover the costs of a settlement it paid over its 2002 recruitment of a large group of partners from San Francisco’s Brobeck, Phleger & Harrison to open Clifford Chance offices in California. Brobeck declared bankruptcy the following year. In 2004, Clifford Chance agreed to pay $5.5 million to Brobeck’s bankuptcy trustee and an undisclosed amount to a group of retired Brobeck partners. Clifford, in exchange, received a full release from claims that it helped precipitate Brobeck’s collapse. The partners who defected, led by former Brobeck Chairman Tower Snow, received partial releases as part of the settlement. Clifford Chance asked Indian Harbor to cover this settlement and the $2.3 million in legal bills it incurred, but the insurer said it would only pay 40 percent of the settlement on the grounds that the rest of the cost should be allocated to the former Brobeck partners, who were not covered by Clifford Chance’s policy. In its summary judgment motion, Clifford Chance had asked Justice Fried to apply the “larger settlement rule,” under which directors and officers liability insurers are prevented from allocating settlement costs to uninsured corporate entities unless those entities’ activities resulted in a larger settlement. But the judge said there was no New York precedent for applying the rule in this case. He noted that the rule had been most commonly used by courts following the Ninth Circuit and Seventh Circuit U.S. Court of Appeals in cases where insurers sought to allocate costs to uninsured parties or parties not named in the underlying suit. “By contrast, in this case, Clifford Chance is both an insured under the Policy, and a party to the underlying action or proceeding,” he wrote in Clifford Chance v. Indian Harbor Insurance Co., 602862/05 The policy purchased by Clifford Chance stated that the parties would take into account the “relative legal and financial exposures of, and relative benefits obtained in connection with the defense and/or settlement of the Claim by the Insured and others.” Justice Fried said the policy terms suggested that the proper rule to apply to the allocation of settlement costs was not the larger settlement rule but the competing “relative exposure rule,” under which insured and uninsured parties are apportioned a percentage of liability. The question remained, the judge said, whether Indian Harbor’s apportionment of 60 percent of settlement costs to the partners was proper. He said that would have to be determined at trial. Clifford Chance was represented by William Schwartz of Cooley Godward Kronish. Indian Harbor was represented by Gerald T. Ford of Newark’s Landman Corsi Ballaine & Ford. The partners who left Brobeck have also since left Clifford Chance, which closed its main California offices in 2004, barely two years after it opened them. At the time the firm said the offices had not been profitable enough. Many of the Brobeck lawyers, including Snow, later settled remaining claims by Brobeck’s estate.

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