An American International Group Inc. unit must contribute along with a Great American Insurance Co. unit to the defense of a real estate services unit of Berkshire Hathaway Inc., a federal appeals court said Monday, affirming a lower court.
In the underlying action, Houlihan Lawrence Inc., a subsidiary of Berkshire unit HomeServices of America Inc., was accused in a putative class action of engaging in corporate-wide dishonest and fraudulent practices in connection with the purchase and sale of real estate, where the entity represented both the buyer and the seller in the same transaction, according to court documents in Great American Insurance Co. v. AIG Specialty Insurance Co .
Great American is providing a defense to Houlihan with a reservation of rights, but AIG has said it has no obligation to defend or indemnify Houlihan under the Specialty Risk Protector policy it issued to HomeServices, either because its policy was issued before it became a insured subsidiary, or because the charges related to related acts that occurred before it became one.
Great American, which said it has incurred nearly $2 million in defense costs in the case, filed a lawsuit against AIG in U.S. District Court in New York seeking a declaration that AIG had a duty to defend and indemnify Houlihan.
The district court ruled in favor of Great American and was affirmed by a three-judge court panel. “AIG has failed to escape its duty to defend,”; the appeals court said.
“As a preliminary matter, AIG has a presumptive duty to defend because there is ‘a reasonable possibility of coverage,'” the ruling said, citing an earlier opinion and questioning whether there were related acts that would relieve the insurer of its obligation to provide coverage.
Attorneys in the case did not respond to requests for comment.