Three Cups of Insurance Litigation


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

  • Mark Bradley

    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.

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