Bankruptcy Judge Denies Heller Request for Malpractice Policy

A bankruptcy judge has refused a request by Heller Ehrman to buy “tail” malpractice coverage to cover claims against the firm after its insurance expires April 15.

U.S. Bankruptcy Judge Dennis Montali of San Francisco sided with creditors who contended the $3.5 million needed to purchase the policy didn’t make economic sense, according to stories in the Recorder and the Daily Journal (sub. req.).

"The creditors have the call on the money, in my mind," Montali said, according to the Daily Journal account.

The policy has a $2 million deductible on each claim, and Montali concluded that amount would never be reached because the bankruptcy diluted creditors’ claims. The Recorder explains the reasoning with this example: “If all creditors are getting 10 percent of what they are owed, a malpractice plaintiff with a $10 million judgment would get $1 million and—even if Heller had racked up $750,000 in attorney fees defending the case—it still wouldn't trigger a payout from the insurance.”