Three Cups of Insurance Litigation

Tea

December 30, 2012; Source: Bozeman Daily Chronicle

The Central Asia Institute (CAI), founded by Three Cups of Tea author Greg Mortenson, is suing its insurance company, Philadelphia Indemnity Insurance Company, claiming that it has failed to pay legal fees that it argues should be covered under its insurance policy. CAI and Mortenson incurred the legal fees in relation to an investigation by Montana state officials and a class action lawsuit against CAI and Mortenson based on allegations (which NPQ has written about on several occasions in the past) of fraud, conspiracy and racketeering stemming from Mortenson’s books.

The lawsuit alleges that Philadelphia Indemnity has paid less than six percent of its legal fees despite CAI’s best efforts to secure the entire amount. The insurance company claims that the amount it has paid is similar to amounts it has paid to other Montana-based nonprofit clients. CAI and Mortenson assert that their legal situation is exceptional and requires extensive support from both local and national legal counsel.

Nonprofit experts encourage nonprofits to carry insurance coverage such as directors and officers (D&O) liability and general liability policies. Some experts go further and also recommend bonding of key employees. However, just because a nonprofit is insured does not mean that it and its officers are completely protected from financial liability. It’s not uncommon for policies to exclude from coverage criminal acts, gross negligence, or willful failure to exercise proper governance duties.

CAI’s story is a valuable reminder that nonprofit organizations need to allocate resources for insurance coverage, that not all insurance covers all incidents and claims, and that crisis-related litigation is especially expensive and long lasting. –Michael Wyland

About

Michael Wyland

Michael L. Wyland, CSL, has more than thirty years of experience in corporate and government public policy, management, and administration. An expert on nonprofit governance and public policy issues, he has been featured and quoted extensively in media including The Wall Street Journal, The New York Times, CNN, Fox News, Washington Post, The Chronicle of Philanthropy, and The Nonprofit Quarterly. He currently serves as an editorial advisory board member and contributor to The Nonprofit Quarterly, with more than 100 articles published since 2012. Michael is a partner in the consulting firm of Sumption & Wyland. Founded in 1990, the firm provides board governance consulting, public speaking and training, and executive coaching to nonprofit organizations. Sumption & Wyland has assisted more than 200 nonprofits with strategic planning services from pre-retreat research to staff-level implementation assistance and effectiveness monitoring. Speaking topics include board-CEO partnerships, nonprofit executive transition issues, and overviews of the nonprofit sector of the US economy. Michael was born in Washington, DC and raised in the Northern Virginia suburbs. Prior to co-founding Sumption & Wyland, Michael managed the computer operations for an independent oil & gas investor in Dallas, Texas and served as a staff assistant to a U.S. Representative. During his college years, he spent one summer working at the US Department of Labor and one summer working at the US Department of Justice. His past volunteer service includes various leadership positions at the local, state, and national level with the Young Republicans. He has been the secretary and president of a condominium homeowners association and the treasurer of a professional association serving computing professionals. He served as a Trustee and Vice President of Sertoma Foundation, and has been elected president of his local Sertoma club twice. In 2014, Michael was elected Chair of the South Dakota Commission for National and Community Service (Serve SD), on which he has served since its founding in 2011. He is currently working as a senior advisor to establish a national charity dedicated to the elimination of prejudice, expanding the scope and reach of the 120-year old Pi Lamba Phi fraternal organization. Michael's writing for NPQ often addresses healthcare policy and governance, scandals involving nonprofits, and the governance and policy implications of nonprofit stories in the news. He was widely quoted and cited for his work analyzing the governance issues related to the Jerry Sandusky/Penn State/Second Mile scandal in 2011. More recently, he has written more than 30 pieces for NPQ relating to the IRS scandal. In addition, he presented a paper at the national 2014 ARNOVA Conference about the IRS scandal and its implications for regulation of political activity by nonprofit organizations. Michael lives in Sioux Falls, SD with his wife, Margaret Sumption, and their dog. They have one adult son. In his leisure time, he likes to read histories and biographies, play golf, cook, and be a companion to his wife.

  • Mark Bradley

    http://www.washingtonpost.com/business/insurance-company-to-pay-12m-to-three-cups-authors-charity-in-settlement-over-legal-costs/2013/11/08/17fc8248-483f-11e3-95a9-3f15b5618ba8_print.html

    Insurance Company to pay $1.2M to ‘Three Cups of Tea’ author’s charity in settlement over legal costs
    By Associated Press
    November 7, 2014

    HELENA, Mont. — An insurance company will pay $1.2 million to a charity co-founded by “Three Cups of Tea” author Greg Mortenson in a settlement over the legal costs of a lawsuit and an investigation into Mortenson and the Central Asia Institute, attorneys involved in the settlement said.

    The settlement, if approved, will mark an end to more than two years of legal troubles for Mortenson after “60 Minutes” and author Jon Krakauer published reports that alleged Mortenson fabricated parts of his best-selling books and mismanaged the Central Asia Institute.

    After those reports, then-Montana Attorney General Steve Bullock launched an investigation into the charity. A settlement required Mortenson to repay $1 million and made fundamental changes to the institute’s structure.

    Four readers then filed a lawsuit that claimed Mortenson, co-author David Oliver Relin, publisher Penguin and the Central Asia Institute were involved in a fraud conspiracy by Mortenson lying in his best-selling “Three Cups of Tea” to boost sales and donations to the charity.

    “Three Cups of Tea” and the sequel, “Stones Into Schools,” recount how Mortenson started building schools in Pakistan and Afghanistan. “Three Cups of Tea” has sold about 4 million copies since being published in 2006.

    A district judge threw out the lawsuit, and the 9th U.S. Circuit Court of Appeals upheld the ruling.

    Along the way, Mortenson and the Central Asia Institute racked up approximately $1.8 million in legal fees defending themselves in the investigation and the lawsuit.

    The charity sued Philadelphia Indemnity Insurance Co., saying the insurer was obligated to pay for all of its defense costs, but offered to reimburse the institute 35 percent and Mortenson 25 percent of their defense fees in the lawsuit.

    The insurer offered to reimburse 20 percent of Mortenson’s costs and all of the Central Asia Institute’s costs for the state investigation, according to the complaint.

    The insurance company said in court filings that certain allegations against Mortenson don’t fall within the policy, including the publication of material that the insured person or company knows is false.

    The $1.2 million settlement was hammered out in a private mediation conference held Wednesday before U.S. Magistrate Judge Jeremiah Lynch in Missoula, said attorney John Morrison of Helena and Billings attorney Carey Matovich.

    Matovich represented the Central Asia Institute, and Morrison represented a law firm that defended Mortenson in the investigation and in the lawsuit.

    The settlement still must be approved by U.S. District Judge Dana Christensen. The judge has given the sides until Dec. 6 to file dismissal papers.

    Philadelphia Indemnity Insurance attorney Brian Harrison declined to comment Friday, saying the settlement was confidential.

    Mortenson declined to comment.

    Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.