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In Executive Risk Indem. Inc. v. Pepper Hamilton LLP , 2009 WL 3347222 (N.Y.), the Court of Appeals of New York was asked to determine, under Pennsylvania law, whether excess insurers Executive Risk Indemnity Inc. and Twin City Fire Insurance Company, based upon their prior knowledge exclusions, and Continental Casualty Company, based upon rescission of its policies, were entitled to summary judgment declaring that they had no obligation to indemnify defendants Pepper Hamilton LLP and one of its members, W. Roderick Gagné, in actions asserted against them for, among other claims, professional malpractice.

The underlying actions arose out of the law firm defendants’ representation of non-parties Student Finance Corporation (SFC), its principal, Andrew Yao, and Royal Indemnity Company. Yao founded SFC, a company that serviced the vocational portion of the student loan market. Defendant Gagné, then an associate of a non-party law firm, assisted with SFC’s formation and its securitization. Gagné later became a member of Pepper Hamilton and brought Yao and SFC with him as clients. In the course of Pepper Hamilton’s representation of SFC, the firm prepared documents which SFC used in connection with the sale of certificates totaling more than $465 million, and Gagné also participated in discussions concerning SFC’s operations with Yao. Royal Indemnity, a client of Pepper Hamilton, also provided SFC with credit risk insurance for the pooled loans.

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