ABC Sued By Insurance Company Over "Pink Slime" Settlement

AIG is resisting reimbursement of $25 million by arguing that the broadcaster had an obligation to go to outside counsel before running its controversial reporting.
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ABC would surely love to puts its "pink slime" nightmare in the rearview window. This summer, the Disney-owned broadcast network traveled to the heart of Trump country to defend its 2012 reporting about the beef sold to consumers. In the middle of trial, ABC settled with Beef Products Inc., but the litigation isn't quite over. In fact, thanks to an insurance dispute, we're learning more about what happened both five years ago and about the settlement itself.

On Thursday, AIG Specialty Insurance Company sued The Walt Disney Co., ABC and correspondent Jim Avila. The insurer seeks a declaration that it doesn't have to cover the BPI settlement.

BPI claimed in its defamation lawsuit that a series of reports had tarnished its reputation in the market by stating or implying that lean finely textured beef (LFTB), which critics have dubbed "pink slime," is unsafe, not nutritious and not really beef nor meat. The case brought the possibility of up to $5.7 billion in damages.

In a securities filing, Disney would reveal that it paid $177 million to settle the case, though by the looks of the court papers, the settlement was likely worth at least $50 million more than that.

Disney had insurance policies with Swizz Re, Illinois Union Insurance Company and Beazley that provided up to $50 million in coverage. There doesn't appear to be any controversy with any of these insurers.

Instead, it's the $25 million in excess coverage from AIG that's in dispute. Disney has already made a move to compel arbitration, but AIG insists that that the arbitration option went out the window upon mediation. So AIG is now in New York court with its arguments.

AIG acknowledges that the policy covers defamation claims, but alleges that a "carve-out" applies when ABC defames with "actual malice" unless the network obtained an advance written opinion from outside counsel concluding that whatever was to be said was legal.

"The reason for this is obvious," states AIG's complaint. "If an insured consults outside counsel concerning potentially defamatory statements prior to making them, the insured will be less likely to engage in conduct that gives rise to liability. In order to incentivize insureds to consult with counsel, the CSIC policy provides coverage to an insured that consults with counsel even if the counsel's advice ultimately proves incorrect. On the other hand, if an insured publishes defamatory content about a public figure with actual malice without having consulted outside counsel (or against the advice of outside counsel), then the insured bears the responsibility for his reckless conduct."

This essentially means that ABC is now back in court over whether its reporting was reckless. The stakes may only be $25 million this time rather than $5.7 billion, but nevertheless, the newest "pink slime" dispute raises an important question about what news organizations must do to immunize themselves from legally hazardous reports about public figures. That is, assuming other news outlets have similar insurance policies.

The complaint that AIG has filed is filled with redaction, so not everything is entirely clear, but it does appear from AIG's lawsuit that Disney/ABC is raising the argument that consulting with outside counsel is unnecessary so long as the conclusion is drawn of no malice. According to AIG, the news organization is contending that the proper standard is what's "commercially reasonable."

AIG rejects this.

Writes the Kasowitz attorneys representing the insurer, "If Defendants believed the terms of the Defamation Carve-out were commercially unreasonable, the time to raise that concern was at the time Defendants were negotiating the Policy."

A Disney spokesperson comments, "Rather than honor the terms of the insurance policy it sold us, AIG has chosen instead to evade those terms and attack its customer. We will vigorously pursue our right to recover.”