My 2 cents on the Amarex settlement. Although I submitted

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Jake2212
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My 2 cents on the Amarex settlement. Although I submitted several posts on the Amarex arbitration in the summer of '23 and the fall of '22, I resisted suggestions to opine on the likely eventual recovery because I didn't know what I didn't know. With CYDY's press release today, I can offer a few thoughts (perhaps semi educated guesses) on what may have driven the end result.

The payment terms, 10 million immediately, and 2 additional million within a year, suggest a possible scenario where the 10 million comprises all or most of the policy limits on an Amarex malpractice insurance policy, and the 2 million is being contributed by NSF to make the deal happen in order to protect Amarex from bankruptcy and NSF from its own potential liability in the event the arbitrator would have awarded consequential or punitive damages and pierced NSF's corporate veil.

Like many others, I expected a settlement, but I was always very skeptical of predictions of $50-100 million recoveries because I couldn't imagine why Amarex would pay premiums for that much coverage when its standard service agreement, drafted by its own attorneys, contained a provision eliminaiting liability and damages for consequential (lost profits) and punitive damages. Under such circumstances, carrying $10 million of coverage might still have seemed needlessly excessive.

So why would Amarex have purchased $10 million of coverage if lost profits were off the table, why would its greedy insurance carrier agree to fork over the policy limits, and why would Amarex throw in $2 million more? Perhaps the answer is suggested by the holding in the Aldloo case, cited in my post #130113, Nov 3, 2022, in which the court held that a limitation of liability provision would not be enforceable, on grounds of public policy, if the involved conduct was willful, intentional, or grossly negligent.

I don't know if the arbitrator or an assigned mediator conducted the settlement negotiations here, but, based on quite a bit of past experience with high stakes mediations, I would expect the mediator/arbitrator dangled the enforcement of the limit of liability provision vs unenforceability on public policy grounds in front of the opposing attorneys as equally possible outcomes for them to consider. Consequential damages, assuming SA could overcome Amarex's contention that calculating lost profits would be speculative, would have likely well exceeded $100 million. But to actually collect such an award, SA would have had to pierce the corporate veil shielding NSF, no easy task. (I'm guessing that the arbitrator was also keeping the parties in doubt regarding his/her likely ruling the corporate veil issue.)

If my guesswork above is anywhere in the ball park, CYDY and SA were dealing with an upcoming hearing in November in which they would have had to prevail on the consequential damages issue to leverage the judgment proof Amerex's insurance coverage (probably $10 million, but certainly not much more than that), but then also prevail on the corporate veil issue against NSF to recover all its lost profits, i.e. >$100 million.

Under the circumstances that I have suggested, I would commend Dr Jay and SA for a job well done. In my opinion, they were in no position to role the dice on the consequential damages issue. Amarex had very little hope of winning on the $14 million it claimed to be due from CYDY, for obvious reasons, but the consequential damages limit of liability issue could have gone either way and the insurance policy probably had a provision excluding intentional acts from coverage -- so SA might have had to thread the needle to obtain a finding of gross negligence in order to fall within both the public policy exception barring enforcement of the limited liability provision and the applicable insurance coverage.

Finally, you might also wonder why Amarex's insurance carrier would agree to pay out the policy limits if Amerex (and the carrier) might have prevailed on the consequential damages limitation. If the policy limits were actually $10 million (and we'll probably never know), the carrier would likely not have willingly offered the whole $10 million to protect its insured. However, in that scenario, Amarex's lawyers, if they were competent, would have threatened the carrier with a bad faith failure to settle within policy limits lawsuit for exposing its insured to an arbitration award >$100 million if no settlement were to be reached and Amarex lost on the compensatory damages issue. If found liable for bad faith under such circumstances, the carrier would have eaten the whole award.

Bear in mind that everything I have written above has been based solely on the $12 million amount, how it will be paid, my limited understanding of controlling case law on the limitation of liability issue, and and my prior experience handling, settling, and trying complex litigation. That's not enough to make my conjecture reliable. But it is plausible, and I suspect it may help to explain why 12, though far less than the 100 anticipated by some (see closing sp today), was a good number under the circumstances.

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