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If the eight British and European insurers sued by Britney Spears don't know the reputation of the star performer's New York lead attorney, they probably don't want to--unless it's to encourage them to significantly buttress their defenses.

When Risk &Insurance® asked John M. Callagy, chairman of Kelley, Drye & Warren LLP, if his firm regularly did work for the plaintiffs, Britney Touring Inc. and Britney Spears herself, he said no.

"I was asked because I've handled cases involving insurance issues," Callagy answered matter-of-factly.

For example, he noted, he represented JPMorgan Chase & Co. in a lawsuit brought against 11 insurance companies that refused to pay out on surety bonds guaranteeing certain complex financial deals the bank arranged with bankrupt energy trader Enron Corp.

In a settlement on the eve of a jury trial, JPMorgan Chase was a surprise big winner; it was awarded about $650 million of the $1 billion or so in surety-bond guarantees.

The list of insurers was a veritable "Who's Who" of some of the largest U.S.-based insurance companies, including CNA, Traveler's, Chubb, St. Paul, Safeco, Allianz's Fireman's Fund, Hartford Financial Services Group, Lumberman's Mutual Casualty and Liberty. But even accounting for Callagy's track record, industry insiders familiar with the Spears lawsuit are sharply divided over the world-famous singer's prospects in the case.

Spears is suing the insurers because they rejected a claim in excess of $9.8 million she filed against the defendants after injuring her knee during a video shoot that took place during the U.S. portion of her 82-stop"Onyx Hotel Tour."

The lawsuit, filed in state Supreme Court in Manhattan, says Spears and her company paid more than $1.3 million in premiums to insure the $9.8-million coverage of her tour planned for Europe, Canada and the United States.

Court documents state that after Spears cancelled the tour with 30 shows left on the schedule, seven of the insurance companies refused to pay. Axa SA, France's biggest insurer, didn't respond at all, the court documents say.

The insurers have argued that during a pretour medical examination on Feb. 5, 2004, Spears failed to tell them about a pre-existing left-knee injury and surgery she had sustained less than five years earlier.

Spears' lawsuit admits that the star singer and dancer underwent "minor orthopedic surgery" on her left knee in March 1999, four years and 11 months earlier, but that the prior injury was widely known and that her failure to disclose it in advance of the latest tour was "an innocent omission" that was not material to the defendants' decision to provide coverage or to the scope of the coverage provided.

Indeed, says the complaint, "four years earlier, in February of 2000, Spears procured similar contingency insurance from some of the very same defendants for her 'Spring 2000 Tour' of the United States ... and disclosed her 1999 knee injury to the insurers in an identical medical questionnaire."

Further, the complaint states, "With full knowledge of the fact that Spears had suffered a knee injury only a year earlier and provided with the details of the surgery, the insurers under the 2000 Policy removed any exclusions for pre-existing medical conditions" from that policy.

Also, according to the "Hotel Onyx Tour" court documents, the complaint says that Spears' new injury was on the other side of the knee.

The 23-year-old star injured her left knee last June 8 in Queens, New York while filming her "Outrageous" video. She underwent surgery on June 11 and cancelled the balance of her tour on June 15. She then filed a claim with the insurance companies. The coverage covered "abandonment, postponement and cancellation of performances," which reportedly were insured at an average of $380,000 per show.

Three of the insurance companies named in the case are Lloyd's syndicates. They include Liberty Syndicate Management Inc., Beazley Furlonge Ltd. and Talbot Underwriting Ltd. Other insurers named in the case are Sydney-based QBE Insurance Group Ltd., Swiss Reinsurance Co., Glenn Allen, an employee of Virginia-based Markel Corp., Germany's Munich Re, and Axa SA.

And where did the case stand in mid-March? "None of the insurers has answered the complaint," says Callagy, "but it's still pretty early."

Meanwhile, however, some insurance industry insiders believe there's more at work under the surface charges and denials.

"Hubris," says one veteran insurance industry executive. "These insurers don't want to admit that they made what, in retrospect, was obviously a very big miscalculation in not heeding the information about Britney's knee troubles clearly outlined in the policy for the previous tour. So now they're going to fight this and hope they win, more to save face than for the sake of the money."

And so, as the insurance world awaits new developments, the Spears case continues to generate a lot of buzz in insurance industry circles. Yes, Spears should have acknowledged a previous injury as part of an insurance policy covering her 2004 tour. But, others argue, it may well have truly been an innocent mistake. Then, too, there's the nettlesome information in the "Tour 2000" policy that strongly suggests that at least some of the insurers this time around probably knew the score, but chose, for whatever reason, to ignore the lyrics.

STEVE YAHN, a former editor and publisher, contributes frequently to Risk & Insurance®.

April 15, 2005

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