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An insurance company must defend New York-based Napoli, Kaiser & Bern in a dispute with two other law firms over settlements in a mass tort litigation involving diet supplements, a Southern District judge has ruled. Judge John G. Koeltl said Tuesday that the “four corners” of the firm’s insurance policy entitle it to seek reimbursement for hundreds of thousands of dollars in attorney’s fees spent defending itself, even though the insurance company argued the complaints against Napoli Kaiser dealt with contractual damages and fraudulent conduct. Koeltl’s ruling in Napoli, Kaiser & Bern v. Westport Insurance Corp., 02 Civ. 7931, involved coverage for federal and state suits brought against Napoli Kaiser in connection with the referral of cases in the Fen-Phen and Redux drug litigation. The firms, Parker & Waichman and New Jersey-based Davis, Saperstein & Salomon, sued Napoli, Kaiser & Bern over thousands of clients they had referred to Napoli Kaiser. Under the referral agreements, Koeltl said, Napoli Kaiser agreed to represent the referred clients and share a “substantial percentage” of the legal fees for those clients. But the two firms claimed that Napoli Kaiser obtained higher awards for clients it was already representing, and left the referred clients with smaller settlements that were less than their actual worth, which meant lower legal fees. The complaints also alleged that Napoli Kaiser failed to contact some of the referred clients or did not prosecute their cases. Westport Insurance claimed it was not obligated to defend Napoli Kaiser, which responded by moving for summary judgment and asking Koeltl to order the reimbursement of more than $727,000 in attorney’s fees spent to date. Koeltl noted that, under New York case law, the burden was on Westport to show that the claims at issue fall “solely and entirely within policy exclusions.” Westport claimed the allegations that Napoli Kaiser breached its fiduciary duty to the referred clients are invalid as a matter of law. And Koeltl said the underlying complaints raise the issue of whether the referring firms have standing to claim breach of fiduciary duty on behalf of the referred clients, and even if they cannot, whether Napoli Kaiser owed a fiduciary duty to the referring firms, and whether it breached that duty. But the judge said it was unnecessary to reach those issues. “It is plain that NKB has been sued in part based on allegations that it breached its fiduciary duty to its clients — the referred clients,” he said. “That allegation falls squarely within the four corners of the policy because it is a ‘claim’ arising by reason of an act, error or omission, arising out of the services which should have been rendered by NKB, and arising out of NKB’s profession as a lawyer.” “Regardless of the ultimate legal merits of those claims, it is plain that NKB is currently engaged in litigating them, that they fall within the terms of the policy’s coverage, and that they arguably arise from the covered events,” the judge said. “The insurer is therefore required to provide a defense against them.” INTENTIONAL CONDUCT The judge rejected Westport’s claim that the gravamen of the complaint involved intentional conduct and not negligence, saying that the underlying complaints raised a “legal and factual possibility that the claimant firms may recover on at least one claim without proving that NKB acted fraudulently or deliberately.” The judge also disagreed with Westport’s argument that much of the dispute is over “business or commercial” conduct: the suit by one firm against another for fees. “The case before this court does not involve a ‘fee dispute’ where NKB simply is withholding money owed to the claimant firms for the referrals,” he said. Peter Biging, Kevin O’Malley and Michael A. Castelli of Nicoletti Hornig Campise Sweeney & Paige represent Napoli, Kaiser & Bern. Westport is represented by Peter C. Contino and Michael V. DeSantis of Rivkin, Radler and Ross Smyk of Bollinger, Rubbery & Garvey.

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