McCormick Foundation OK to sue over insurance advice blamed for hefty legal bills after Tribune bankruptcy

By Dan Churney | Apr 4, 2016

Steve Cukrov /

A state appeals panel has ruled two former major shareholders in the Tribune Company, who are in litigation with creditors, can continue to press their malpractice suit against a prominent Chicago insurance broker for allegedly giving bum advice to change insurance companies, which put the ex-shareholders on the hook for legal costs instead of their insurer.

The March 31 opinion was authored by Illinois Second District Appellate Court Justice Susan Hutchinson, with concurrence from justices Ann Jorgensen and Donald Hudson. The opinion reversed a lower court dismissal of a suit brought by the Robert R. McCormick Foundation and the Cantigny Foundation against Arthur J. Gallagher Risk Management Services.

In 2013 in DuPage County Circuit Court, the foundations filed action against Gallagher Risk for malpractice. The foundations were at one time the second-largest shareholders of the Tribune Company, which owned a number of major media outlets, including the Chicago Tribune, WGN television and radio, and the Los Angeles Times, as well as the Chicago Cubs. Gallagher Risk is a Chicago-based insurance broker that operates worldwide.

The foundations alleged Gallagher wrongly advised the foundations in 2010 to drop their $25 million liability policy with Chubb Insurance and replace it with a policy from Chartis Insurance. According to the foundations, Gallagher told them their coverage with Chartis would be the same, but at a reduced premium.

The foundations went ahead and switched to Chartis. Shortly after, three groups of creditors lodged suits in U.S. District Court for Southern New York against the foundations. The creditors contended they were shafted as a result of the 2007 leveraged buyout of the Tribune Company, which, followed by the country’s 2007-08 financial crisis, caused the Tribune to go bankrupt in December 2008.

These creditors were trying get back some of their money from the foundations, by alleging the foundations breached their fiduciary duty in the buyout, in that as “controlling shareholders” they forced the Tribune Company to agree to a “sham transaction” that was financially ruinous.

The foundations asked Chartis, per the policy, to pay for their legal defense. However, Chartis refused, claiming the foundations were accused in the suits of breaching laws regulating securities, and there was a clause in the policy that denied coverage for such suits. As a result, the foundations said they have paid their own legal defense costs in the three suits – costs which one of their attorneys described as “substantial.”

The foundations then sued Gallagher Risk, alleging Gallagher’s erroneous advice made the foundations, rather than Chartis, foot the courtroom bill. Gallagher responded the foundations would still be liable for the bill if they had stayed with Chubb, because the Chubb policy also had an exclusion for suits involving allegations of securities violations.

DuPage County Circuit Judge Kenneth Popejoy agreed with Gallagher, dismissing the foundations’ suit. The foundations appealed, arguing the securities clause only precludes coverage for claims involving the manipulation of stock prices – of which the foundations are not accused. Gallagher countered the clause is more general, barring coverage for litigation arising in connection with the sale of stock.

Appellate Justice Hutchinson concluded the clause is “ambiguous” and subject to “more than one reasonable interpretation.” Hutchinson pointed out “controlling principles are well settled” that in the case of an ambiguous policy clause, “we are obligated to choose the interpretation that favors coverage.”

Having decided the clause is ambiguous, Hutchinson went on to note the reasoning advanced by the foundations is more plausible than Gallagher’s. With this reasoning in mind, Hutchinson said Chubb’s policy clause would not bar coverage.

Hutchinson and her fellow justices overturned the DuPage County dismissal, reinstating the case in circuit court.

The three creditor suits against the foundations were dismissed, but have been appealed.

The Robert R. McCormick Foundation and the Cantigny Foundation are represented by the Chicago firm of Shook, Hardy and Bacon. Arthur J. Gallagher Risk Management Services is defended by Forde Law Offices, of Chicago.

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Organizations in this Story

Arthur J. Gallagher & Co Chicago Cubs Baseball Club, Inc. Chicago Tribune Forde Law Offices, LLP Robert R. McCormick Foundation Shook Hardy & Bacon LLP

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