Decision is for the Plaintiff. In a bench trial, the court found in favor of Acacia Research and CombiMatrix, awarding $35,635,822.66 in damages. The award included $21,464,484.20 for actual damages incurred in excess of the policy retention; $10,288,656.30 in prejudgment interest; $310,492.99 for the present value of future royalties paid; $3,550,157.52 in attorney fees; and $22,031.65 in costs.

Plaintiffs Acacia Research Corp. and CombiMatrix Corp. reportedly had a Directors, Officers and Corporate Insurance Policy with National Union Fire Insurance Co. of Pittsburgh, PA.
In 2000, CombiMatrix and an officer-director were sued and immediately tendered the case to National Union. National Union allegedly acknowledged the receipt, but thereafter failed to take any action or respond to CombiMatrix or Acacia Research until after the case settled in 2002. National Union reportedly never took a coverage position until it denied coverage in 2003. As a result, Acacia Research and CombiMatrix were required to pay defense costs and settle the underlying case at their own expense.
Acacia Research and CombiMatrix sued National Union, alleging that the defendant breached the insurance policy and violated the covenant of good faith and fair dealing by failing to investigate the claim, failing to respond to the plaintiff, failing to appoint an adjuster to monitor the case, and refusing to pay their defense and indemnity costs in the lawsuit.
At trial, National Union reportedly failed to explain why it assigned an adjuster for the first three months of the claim, but thereafter did nothing on the file for more than 15 months, while Acacia Research and CombiMatrix had to defend and settle the lawsuit, according to plaintiff's counsel.
According to defense counsel, National Union issued a non-duty-to-defend D&O loss reimbursement policy to the plaintiffs. The lawyer reported the policy had a $150,000 self-insured retention. National Union received notice from Acacia Research and CombiMatrix in December 2000 of the underlying breach of contract/trade secret misappropriation lawsuit against the plaintiffs and its director. National Union acknowledged notice of the suit and subsequently issued a reservation of rights letter in March 2001, counsel reported. The plaintiffs continued to litigate the underlying lawsuit and entered into the $20 million-plus settlement without notifying National Union or seeking its consent, counsel said. The lawyer reported that, after receiving notice of the settlement from the plaintiffs in November 2002, National Union investigated the claim and ultimately denied coverage a year later based on the plaintiffs' alleged violation of the consent-to-settle provision in the policy and certain applicable policy terms and exclusions which barred coverage for the claims asserted in the underlying lawsuit.
National Union contended at trial that its contractual duty to reimburse the plaintiffs for covered "loss" (as defined by the policy) did not arise until Acacia Research first established that it had satisfied the $150,000 self-insured retention. As a result, any failure by National Union to timely communicate with the plaintiffs during the self-insured retention period could not as a matter of law result in any breach of contractual obligation owed under the policy.
National Union disputed the plaintiffs' theory that a non-duty-to-defend D & O loss reimbursement policy--which contains an express allocation provision regarding covered and non-covered fees and costs--is subject to a "potential for coverage" standard applicable to duty-to-defend liability policies for purposes of evaluating the scope and extent of National Union's reimbursement obligations, defense counsel reported. Counsel claimed that, given the plaintiffs' decision to incur approximately $2 million in defense costs in excess of the self-insured retention and enter into a multi-million dollar settlement agreement without notifying National Union or seeking its consent, National Union further contended that the policy's consent-to-settle provision should be enforced to bar coverage for the plaintiffs' claim.
National Union also argued that the limited-entity reimbursement coverage afforded under the policy did not cover the plaintiffs' separately incurred defense costs and/or contributions toward the underlying settlement. Additionally, counsel reported that the plaintiffs' issuance of common stock and payment of royalties did not constitute covered "loss" under the policy or applicable law.
Defense claims handling expert Edward J. McKinnon testified that National Union's claims handling conduct was consistent with industry custom and practice for the handling of non-duty-to-defend D & O insurance claims. McKinnon also testified that National Union acted appropriately in reserving its rights and waiting for the plaintiffs to provide it with information and documentation showing exhaustion of the self-insured retention, which, according to defense counsel, the plaintiffs failed to do prior to January 2003. In addition, McKinnon testified that the plaintiffs were obligated to notify National Union prior to entering into the underlying settlement in the lawsuit, which the plaintiffs allegedly failed to do.
Defense counsel reported that the court previously denied National Union's motion for summary judgment based on the applicability of the prior-pending litigation exclusion to bar coverage for the lawsuit.
With respect to the plaintiffs' claim for extra-contractual damages, National Union argued that its claims handling conduct was reasonable under the circumstances, and that no "bad faith" damages could be awarded based on communication deficiencies with the plaintiffs during the period it was "self-insured [prior to the exhaustion of the $150,000 retention amount]." According to defense counsel, the "genuine dispute" doctrine applied to bar any award of extra-contractual damages, given the legitimate factual and legal disputes between the parties regarding the applicability of the consent-to-settle provision, the prior-pending litigation exclusion and issues relating to whether the alleged wrongful acts of the plaintiffs' officer-director (the party sued in the initial lawsuit) occurred in his capacity as an officer-director for the plaintiffs.
National Union also argued that there was no basis for awarding punitive damages.