Wolf Block

A Philadelphia judge has denied preliminary objections of the insurance company for defunct Wolf Block in a coverage suit involving the firm’s decision not to make severance payments to a former partner after the firm dissolved.

Federal Insurance Co. argued it shouldn’t have to cover Wolf Block for a lawsuit stemming from its failure to pay a former partner severance payments after the policy period ended. But Wolf Block said it was its decision to stop those payments, made before the firm officially dissolved and before the policy period ended, that triggers coverage.

It would appear Philadelphia Court of Common Pleas Judge Pamela Pryor Dembe agreed, issuing a one-page order Aug. 5 denying the insurer’s preliminary objections.

The case was recently sent back to state court after a federal judge in the Eastern District of Pennsylvania ruled in favor of Wolf Block, finding there was no federal diversity jurisdiction given Federal Insurance is New Jersey-based and Wolf Block had New Jersey partners at the time of its dissolution.

Though before it, the federal court never ruled on the motion to dismiss in Wolf Block v. Federal Insurance and it was refiled as preliminary objections in state court.

Wolf Block sued Federal Insurance in the Philadelphia Court of Common Pleas over the insurer’s denial of coverage in the underlying case Budin v. Wolf Block. In Budin, a former partner sued the firm when it stopped paying him his severance payments post-dissolution. The Budin matter has since settled for undisclosed terms.

Wolf Block noted in court filings that its coverage period at issue was from Nov. 1, 2008, through Feb. 9, 2010. Federal Insurance has argued the act that led to the Budin suit being filed occurred at the end of February 2010 when Wolf Block first missed a payment to former partner Michael Budin post-dissolution. That date, Feb. 28, 2010, was after the policy period ended, Federal Insurance said in its federal court filings.

Wolf Block countered that it first put Federal Insurance on notice of the potential suit in June 2009. The firm said it often told the insurer that the alleged wrongful act occurred in 2009, shortly after the firm’s March 23, 2009, vote to dissolve.

“Wolf Block contends that the alleged wrongful act that triggers coverage under Federal’s policy is the Wolf Block wind-down committee’s decision not to make payments to Michael Budin and other former Wolf Block partners until payments to third-party creditors are made,” the firm said in its federal court filings. “Mr. Budin knew of this decision no later than April 14, 2009. Mr. Budin disagreed with it, retained counsel and sent a draft complaint to Wolf Block. Wolf Block in turn notified Federal about all of this and sent a copy of the complaint to Federal within the policy period.”

In the wake of the dissolution vote, Budin sought assurances from the wind-down committee that he would continue to receive his annual severance payments post-dissolution, Wolf Block said in the court filing. The decision not to pay Budin the severance payments was communicated to him via an email from Wolf Block’s counsel April 14, 2009. In response to Budin’s follow-up claims that he was equivalent to a third-party creditor and should continue to receive his payments, Wolf Block’s then-lawyer in Budin, Leslie Corwin of Greenberg Traurig’s New York office, responded that the firm disagreed and intended not to continue the payments, according to the response. Corwin is now with Blank Rome.

Wolf Block said in its response that it first told Federal Insurance about the possibility of suits from former and retired partners in early June 2009 and then more specifically about the Budin matter in July 2009. In the July letter to Federal Insurance, Wolf Block said it told the insurer about its decision not to continue payments to Budin in the future and the fact that Budin disagreed with that assessment. The firm also included the copy of Budin’s draft complaint in that correspondence, the firm said in its latest filing.

Wolf Block urged the federal court to reject Federal Insurance’s claim that Wolf Block could have changed its mind not to pay Budin before the Feb. 28, 2010, decision to withhold payment occurred.

“There is nothing in the policy that supports such an exclusion from coverage for claims where the insured ‘could have changed its mind’ after the policy expired,” Wolf Block said in its filing. “Indeed to allow such an interpretation would be repugnant to the very nature of claims-made insurance policies.”

Jodi L. Murland, counsel for Wolf Block, declined to comment on Dembe’s ruling. Stanley J. Lehman of Sherrard, German & Kelly in Pittsburgh represents Federal Insurance. He didn’t return a call seeking comment.

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