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Washington, D.C.-based McKenna & Cuneo’s Robert Carter Jr. and Andrew Reidy are looking for the next big wave. Four years ago, the duo split off from the powerhouse insurance group led by Jerold Oshinsky of D.C.’s Dickstein Shapiro Morin & Oshinsky to build a plaintiffs’-side insurance practice from scratch. Oshinsky and other heavy-hitters at firms such as D.C.’s Covington & Burling and Swidler Berlin Shereff Friedman built multimillion-dollar practices by inventing new kinds of lawsuits. Now heading a 20-lawyer group of their own, Carter and Reidy are seeking to step out of the shadows of their former boss by targeting a new breed of claim. The group is pressing a series of high-profile suits stemming from the Y2K computer scare. The premise is somewhat exotic — that the insurance industry owes reparations to corporations that invested billions of dollars to fix computers and thus staved off Y2K disasters. Naysayers characterize the litigation as a long shot. But to McKenna, a firm fighting to raise its profile as a high-tech player, and to its young insurance practice, the cases represent a solid business investment. “This could be bigger than asbestos,” says the 35-year-old Carter. “Some estimates put the insurance industry’s exposure at $150 billion. Any single win could open the floodgates.” While McKenna isn’t the only firm pressing such suits, few firms have as much riding on them. McKenna has sued more than 20 insurance companies since August 1999 on behalf of the Unisys Corp., ITT Industries Inc., the Kmart Corp., and Owens Corning. According to Carter, about half the insurance group is working on nothing but Y2K-related matters. Certainly, if there is a flood of similar litigation, McKenna stands to benefit. But with no precedent in the area, the firm’s position is precarious. The insurance industry has demonstrated every intention of fighting vigorously against Y2K claims, even bringing their own pre-emptive suits against policyholders. One or two early losses for insureds will discourage further suits entirely. And even if the cases are successful, many lawyers say, Y2K claims will be little more than a flash in the pan, compared with the earlier waves of litigation related to environmental damage and asbestos disease. As one local insurance litigator puts it, “I wouldn’t exactly characterize Y2K as a growth area. There’s a finite set of opportunities there, and the size of that set is going to decline.” Carter and Reidy concede that their gambit could have a limited payoff. Their hope is that, regardless of how the Y2K cases fare, their work will provide entr�e to the burgeoning area of technology-related insurance claims — a new province of insurance law, with opportunity for new leaders to emerge. “If you look at the insurance coverage field, first asbestos dominated the scene. Then 15 years ago, the environmental claims took off,” says 37-year-old Reidy. “Now we’re seeing more and more activity arising out of computers and business over the Internet.” McKenna was not the first firm to file a suit seeking to bill insurers for Y2K remediation expenses; D.C.’s Howrey Simon Arnold & White represents the GTE Corp. in the first suit brought in June 1999, which is still pending. But McKenna boasts more active cases than any other firm. The firm would not say how much of the work is being done at reduced fees, noting only that none of the matters is being handled on full contingency. At the center of McKenna’s cases, and in approximately 10 similar pieces of pending litigation, is a standard segment of first-party property insurance policies known as the sue and labor clause. The provision, which became common in the 17th century, states that the insurer will cover the cost of actions taken by the policyholder to prevent or minimize damage to insured property. Its original intent was for situations such as a ship captain jettisoning cargo to save a sinking vessel. The McKenna team and others say the sue and labor clause can be applied to the Y2K situation. “What happens is, insurance companies have placed an obligation on corporate America to take steps to avoid loss. Then when corporate America turns around and says, ‘Pay us for the cost of avoiding loss,’ the insurance industry balks,” Carter explains. But according to Shaw Pittman partner Walter Andrews, who represents insurers in two Y2K cases, the logic is overreaching. “They are turning sue and labor on its head. This is not what sue and labor was meant to do,” Andrews says. “For one thing, none of these situations involved any actual physical damage.” Another hurdle identified by Andrews is the notice requirement of most property insurance policies. While most corporations began remediation efforts in the mid-1990s, they are only now informing insurers of the expense, he says. “I would be astonished if any of these cases were successful,” he adds. Swidler Berlin partner Laurence Eisenstein, a policyholder-side attorney and perhaps the first to address the significance of sue and labor in the Year 2000 context, says the strength of each case rests on the precise language of a specific policy. For instance, he says, for the sue and labor clause to kick in, it helps if damage to computer systems is explicitly covered by the policy. “We’ve really tried to focus our practice on clients that have the most favorable policy language. There’s too much of a trend to generalize,” Eisenstein says. Swidler Berlin’s insurance group, where alternative dispute resolution is the modus operandi, has not filed any suits, he says, but is attempting to resolve through negotiation claims worth upward of $1 billion. Dickstein’s Oshinsky and Covington & Burling partner Douglas Phillips also say their firms are looking at the issues for clients but have no related litigation pending. “I think a great many policyholders have given notice to property insurers and are reserving rights to pursue claims but have elected to wait and see,” says Phillips, an insurance litigator who coordinated Covington’s Y2K group. Carter and Reidy, on the other hand, have aggressively pursued clients willing to wage courtroom battle in an untested area. Of the four litigants, only Unisys was an existing client. An additional dozen clients have retained the firm to look into their claims, Reidy says. Y2K NOT? The obvious question is why McKenna would invest so much on an area where other lawyers see large risk and dubious chances of a big return. But for Carter and Reidy, Y2K is just the type of opening they were seeking when they joined the firm, along with partner Catherine Serafin, back in 1996. The trio split off from Oshinsky’s 35-lawyer group as it moved from the D.C. office of New York’s Anderson Kill Olick & Oshinsky to Dickstein Shapiro. Under Oshinsky, there was little room for young lawyers to develop their own business. Striking out on their own meant the chance to make their own fortune. “It was time for us to build our own practice,” Reidy says. In the past four years, the insurance group has grown from three to 20 lawyers, none over the age of 40. According to Carter, the group’s revenue climbed seven-fold from 1998 to 1999. McKenna’s overall prosperity has been less impressive. The firm’s average revenue per lawyer slipped last year, and average partner profits hover around $350,000. Earlier this month, half of McKenna’s ailing San Francisco office left for the San Francisco outpost of Pittsburgh’s Kirkpatrick & Lockhart. And as McKenna, widely known for its government contracts group, attempts to boost its profile in other areas, a great deal of hope rides on Carter and Reidy’s gamble that computer and technology-related claims, including those related to Y2K, will be the next big thing in insurance law. “It’s an objective of the firm to fully develop our technology practice,” says D.C. managing partner Frederic Levy. “We’re not just supporting their work. We’re pursuing it.” Some insurance lawyers say that, despite a rise in disputes stemming from issues like intellectual property, online privacy, and computer viruses, the field will never match the early booms of coverage work in the 1980s and ’90s. “The thing about asbestos and environmental claims was, the issues were pretty much standard,” says Oshinsky. “In the intellectual property realm, the cases are each different. A single case doesn’t automatically generate 50 others that are the same kind of case.” Eisenstein agrees: “Yes, it could be very big, but it’s not going to be big in the same way as asbestos or environmental claims.” But at least one young D.C. insurance litigator sees a bit of brilliance in McKenna’s efforts. “They went after this segment harder than any other policy-side D.C. firm. If they can pull this off, they’re really going to put their name on the map,” he says. And Carter and Reidy say they have already found new visibility. “We’re getting calls from law firms around the country that want to know more about what we’re doing. Everyone is interested,” says Carter.

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