On November 24, 2008, Duke University and its affiliate, Duke University Health Systems, Inc. (“DUHS”; collectively with Duke University, “Duke”) filed a federal action alleging that Duke’s insurer had acted in bad faith and breached its contractual duty to advance and pay Duke’s defense costs, to indemnify Duke, and to pay settlements agreed to by Duke in connection with various claims and lawsuits arising from the indictment of three members of the Duke University 2005-2006 men’s lacrosse team (the “Duke Three”) on charges of sexual assault. Duke University et al. v. National Union Fire Ins. Co. of Pittsburgh, PA, Case No. 1:08:CV-0854 (M.D.N.C.). The charges were ultimately dismissed, and the Duke Three and others sought damages against Duke for its role in the investigation of, and response to, the lacrosse team incident.
The insurer counterclaimed for a declaratory judgment that it is not obligated to defend, indemnify, or contribute to the settlement on the grounds, among others, that Duke University allegedly assumed or admitted liability and entered into a settlement agreement and incurred legal fees in connection with the Duke Three claims without the insurer’s prior written consent. In addition, the insurer maintained that the claims against DUHS arose out of the performance or failure to perform medical services, and thus were excluded by the policy’s provisions. The insurer also filed a third-party complaint against Duke’s general liability insurer, seeking pro-rata contribution and equitable subrogation.