A federal judge in California has ruled that an insurance unit of American International Group must pay a technology company more than $32 million in dispute over directors and officers liability coverage.
U.S. District Court Judge Phillip Gutierrez, in Los Angeles, ordered New York-based AIG's National Union Fire Insurance Company of Pittsburgh to pay CombiMatrix Corporation $32.1 million to cover settlement costs, defense costs and prejudgment interest. The judgment of payment was filed yesterday.
According to court papers, CombiMatrix, a technology company, and its chief technology officer, David Montgomery, were sued by Nanogen Inc. over patent infringement in 2000. After 19 months of litigation, CombiMatrix decided it could not afford the defense costs and settled with the San Diego medical research company in 2002.
As part of the settlement, CombiMatrix admitted no wrongdoing and transferred no patent rights to Nanogen. CombiMatrix paid $1 million and royalties on several Nanogen patents.
CombiMatrix filed notice of claim under its D&O policy at the beginning of the litigation and subsequently sought coverage for its legal fees under the policy.
Three years after the claim was filed, National Union rejected the claim.
After less than one month of trial, Judge Gutierrez ruled that the insurer acted in "bad faith," saying the claim's adjuster "approached the review in a manner that revealed a steadfast determination to deny coverage."
In his finding, filed Feb. 8, Judge Gutierrez said the insurer "improperly and unreasonably withheld benefits due to [CombiMatrix] under the policy," and that the defendant could recover above the limits of the policy because of the litigation.
In a statement, CombiMatrix said it would seek to recover attorney's fees and costs incurred in the litigation in addition to the judgment award.
An AIG spokesman said the company does not comment on ongoing litigation but does plan to appeal this ruling.
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