As Wolf Block settles its fight with a former partner over severance payments, the defunct law firm’s battle with its insurer to cover the severance case appears to continue.

Shortly after a Philadelphia trial judge denied Wolf Block’s summary judgment motion in Budin v. Wolf Block onNov. 20, Michael Budin reported to the court that he settled his claims against the firm and its former chairman, Mark Alderman. The parties filed a notice to discontinue the action Nov. 26.

Earlier this year, Wolf Block had filed a declaratory judgment and breach of contract action against its insurer, Federal Insurance Co., in the Philadelphia Court of Common Pleas, arguing the insurer improperly denied the firm coverage for the Budin matter. That case, Wolf Block v. Federal Insurance, was removed to the Eastern District of Pennsylvania in mid-November and the insurer filed a motion to dismiss Nov. 19.

Budin sued Wolf Block in March 2010 in the Philadelphia Court of Common Pleas when he did not receive an annual $26,000 severance payment due him Feb. 28 of each year through 2017. He had been receiving the payments since he entered a separation agreement with the firm in 2003. The firm had stopped making the payments because it voted March 23, 2009, to dissolve and later told Budin he had to get in line behind the other creditors.

Wolf Block’s attorneys at Greenberg Traurig had argued the matter should be sent to arbitration under a 2003 partnership agreement. But the trial and Superior courts both found Budin left the firm before ever signing that agreement and in June 2012, the Supreme Court declined to take Wolf Block’s appeal on the issue. Since that time the parties have continued to argue on the merits of the litigation, with Judge Mark I. Bernstein denying the firm’s summary judgment motion Nov. 20. The settlement notice soon followed just weeks before the Dec. 13 trial in the matter was set to begin.

Calls to the attorneys for Budin and Wolf Block in the Budin matter were not returned and details of the settlement have not been made public.

In Federal Insurance Co.’s motion to dismiss Wolf Block’s lawsuit against it, the insurer said the policy period at issue was from Nov. 1, 2008, to Feb. 9, 2010. The insurer said the policy clearly provides coverage for wrongful acts committed or attempted before or during the policy period. Federal Insurance said it can’t be liable for acts that took place after the period ended. The company pointed to the fact that Budin sued after he wasn’t paid the severance payment owed him Feb. 28, 2010, more than two weeks after the policy period ended.

Federal Insurance is represented in the action by James R. Hankle and Karen Y. Bonvalot of Sherrard, German & Kelly in Pittsburgh. Hankle did not return a call for comment.

In denying the firm’s coverage claim, Wolf Block alleged in its complaint, Federal Insurance breached the terms of the fiduciary liability coverage section of its executive protection portfolio policy, which was intended to indemnify the firm for the cost of litigation related to its pension and health plans.

The policy, according to the complaint, provides that Federal Insurance “‘shall pay, on behalf of the insureds, loss on account of any fiduciary claim first made against the insureds during the policy period, or if exercised, during the extended reporting period, for a wrongful act committed, attempted or allegedly committed or attempted before or during the policy period by such insureds, or by any person for whose wrongful acts the insureds are legally responsible.’”

According to the complaint, Federal Insurance denied the firm’s claim on the grounds that the separation agreement detailing Budin’s severance payments did not constitute a sponsored plan and that Budin had not alleged any wrongful acts as defined by the policy.

But the firm disagreed and alleged in its complaint that Federal Insurance’s refusal to cover its claim resulted in the firm’s counsel in the Budin case, Greenberg Traurig, reducing its role and leaving the bulk of the defense work to Wolf Block’s in-house counsel.

In Budin, Wolf Block was represented by Leslie Corwin of Greenberg Traurig’s New York office and Charles Rombeau of the firm’s Philadelphia office. Jodi Murland has served as in-house counsel to Wolf Block on a number of litigation matters the firm is still involved with.

According to the Oct. 22 complaint in Federal Insurance, Budin was 59 when he left Wolf Block and therefore was not yet eligible to receive his pension under the firm’s partnership agreement, which would have allowed him to receive $15,656 per year for 15 years.

However, the firm said in the complaint that it had agreed under the terms of the separation agreement and memorandum of understanding to pay Budin or, following his death, his estate a total severance of $399,690 over a 15-year period.

“Thus, separation agreement and memorandum of understanding in conjunction with the pension/retirement benefits provisions in the partnership agreement, is capable of interpretation as a pension benefit plan sponsored by Wolf Block for the benefit of Budin and his estate and spouse within the meaning of the policy,” the firm said in the complaint.

But, according to the complaint, when Budin filed suit and Wolf Block submitted its claim for coverage to Federal Insurance, the insurer disagreed with that interpretation.

In March 2010, according to the complaint, Federal Insurance had approved Greenberg Traurig as defense counsel in the Budin action. But, after about two years, Greenberg Traurig still had not been paid for its work on the matter and informed Wolf Block that it was considering withdrawing as counsel.

Eventually, the complaint said, Wolf Block and Greenberg Traurig reached an agreement where Greenberg Traurig would remain in the case as counsel of record but would leave the bulk of the substantive legal work to Wolf Block’s in-house attorneys.

As a result, the complaint alleged, Wolf Block has “incurred significant defense costs.”

Calls to Murland and Rombeau were not returned.

Gina Passarella can be contacted at 215-557-2494 or at gpassarella@alm.com. Follow her on Twitter @GPassarellaTLI.