CHICAGO (CN) - Underwriters at Lloyd's of London who insured Milberg LLP sued the Sedgwick LLP law firm, claiming Sedgwick dithered for so long that Lloyd's had to make payouts to former Milberg partners who pleaded guilty to racketeering.
Certain underwriters at Lloyd's, London, an insurance exchange, and nine related syndicates sued Sedgwick LLP in Cook County Court, alleging malpractice.
Lloyd's claims that Sedgwick "allow[ed] the statute of limitations to lapse on plaintiffs' claims against another law firm and its partners, Milberg LLP, who had defrauded plaintiffs into issuing them professional liability insurance. At no time during the seven years defendant represented plaintiffs did defendant advise plaintiffs of the risk of a time bar or take any steps to protect and preserve plaintiffs' right against Milberg, whose partners were engaged in a secret criminal enterprise before and after they induced plaintiffs to issue them insurance."
Milberg, formerly known as Milberg Weiss, dominated securities class actions for a decade. Between 1995 and 2005, the firm handled 43 percent of shareholder class action settlements, forcing companies to pay a total of $45 billion, and collected $1.7 billion in legal fees and expenses, Bloomberg News reported in 2008.
But that year, the firm's co-founder, Melvyn Weiss, and three other attorneys pleaded guilty to paying kickbacks to class action plaintiffs. Weiss was sentenced to 2 years in prison and fined $10 million.
His law firm settled with federal prosecutors for $75, according to the Wall Street Journal.
Lloyd's claims that as early as 2002, "Milberg received two subpoenas from a grand jury convened in Los Angeles, California. The California subpoenas sought documents in connection with the alleged fee-sharing conspiracy. ...
"Underwriters retained Sedgwick at that time to represent their interests in connection with Milberg's claim for coverage. Sedgwick advised Milberg that Underwriters refused to accept Milberg's notification of the grand jury subpoenas as a notice of a claim within the meaning of the policy," according to the complaint.
Milberg's counsel asked Lloyd's to reconsider, and "pursuant to Sedgwick's recommendation, Underwriters proposed to Milberg an interim funding agreement, pursuant to which Underwriters agreed to pay 20 percent of the fees Milberg incurred in the grand jury investigation after November 1, 2002, subject to a cap of $500,000," the complaint states.
It adds: "At no time did Sedgwick ever advise Underwriters of the need for a tolling agreement with Milberg in order to suspend the running of the statute of limitations on Underwriters' rescission and fraud claims against Milberg in connection with the firm's nondisclosures and misrepresentations concerning its fee-sharing scheme and related conflicts of interest."
Lloyd's says it went to federal court in 2008, seeking rescission of policies based on the federal indictment against Weiss and others, but the claim was dismissed as time-barred.
"Defendant represented plaintiffs in connection with the Milberg partners' claims for insurance coverage after the criminal investigation into their activities became public," the complaint states. "Rather than investigate whether the accusations against Milberg were true and would afford plaintiffs ground to invalidate the insurance they had issued Milberg and its partners, defendant spent five-and-a-half years merely summarizing stories in the press and publicly available documents for plaintiffs. In doing so, defendant allowed the statute of limitations on plaintiffs' rescission and fraud claims against Milberg and the Milberg partners to expire on January 31, 2007 without warning plaintiffs of, or protecting plaintiffs from, the time bar. As a direct result of defendant's inaction, plaintiffs were forced to pay Milberg and its partners - several of whom are now convicted felons - substantial sums of money in insurance claims.
"Notwithstanding its abject failure to protect plaintiffs' interests, defendant collected more than $130,000 of legal fees from plaintiffs and plaintiffs' co-insurers. Plaintiffs now seek to be made whole with respect to payments they made to the felons who defrauded them, as well as related costs. Due to defendant's professional negligence, the only remedy left to plaintiffs is this action for legal malpractice against defendant," the complaint states.
Lloyd's seeks restitution of all defense payments made on behalf of Milberg, legal costs paid to Sedgwick for negligent legal service, and legal costs paid to Ropes & Gray to unsuccessfully prosecute Lloyd's rescission case.
It is represented by Stephen O'Donnell with Steptoe & Johnson.
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