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President's Insurance Backing Out, Making Jones Settlement Unlikely

By Peter Baker and Lorraine Adams
Washington Post Staff Writers
Wednesday, September 10 1997; Page A07

An out-of-court financial settlement in Paula Corbin Jones's sexual harassment lawsuit is increasingly unlikely because the insurance companies that have paid President Clinton's bills are pulling out of the case, representatives of both sides said yesterday.

Two insurance firms have borne the cost of Clinton's defense because of indemnity policies he bought years ago and would have financed any settlement to Jones had the two sides agreed on one. But technical changes in the case have prompted one of the companies to withdraw, and the other is poised to back out soon as well.

"If there is a final departure of insurance money, obviously that makes a settlement almost impossible," Robert S. Bennett, Clinton's chief attorney, said in a telephone interview yesterday from Australia where he is on vacation. "The president isn't going to pay any money [to Jones] out of his own pocket."

The loss of insurance coverage amounts to a costly blow to Clinton. Already saddled with more than $2.25 million in legal bills from the ongoing Whitewater investigation, he now faces the prospect of at least an additional $1 million in expenses to Bennett's firm over the next nine months for the harassment case. A legal defense trust established on his behalf has raised just a fraction of his obligations.

Moreover, absent a settlement, both sides in the case will begin gathering evidence in the next few months for the scheduled May trial. That process will open Clinton to an embarrassing range of questions that have been raised in the lawsuit, which alleges that he dropped his trousers and propositioned Jones in a Little Rock hotel room when he was governor of Arkansas.

Until now, Clinton's $1.5 million in legal bills in the Jones case has been paid by State Farm Insurance Cos. and Pacific Indemnity, a subsidiary of Chubb Group Insurance. Clinton was covered by personal liability umbrella policies commonly offered on a standard homeowner's policy.

The involvement of the firms has provoked heated debate over whether they were extending special treatment to Clinton in allowing him to choose his own lawyer and in accepting the president's late filing of his claim. But the companies began bailing out after the president's lawyers persuaded a court last month to dismiss a defamation claim in Jones's suit that was specifically covered.

State Farm disclosed Monday that it has now ended its financial support and Chubb has signaled that it plans to do so too. Clinton's lawyers are fighting what several specialists consider a long-shot battle to persuade Chubb to continue its coverage.

Lawyers for both sides were keenly aware of the financial ramifications of the Aug. 22 ruling and several people involved said settlement talks intensified in hopes of crafting a deal before the insurers backed out.

Those discussions collapsed last week amid bitter turmoil within the Jones camp. Although no formal offer was on the table, the two sides had discussed a settlement framework that would have paid her $700,000 and offered a general statement of regret by Clinton without an admission of misconduct.

Jones rejected the proposal and held out for a full apology, climaxing months of tension with her lawyers, Gilbert K. Davis and Joseph Cammarata, who then asked to quit the case because of conflicts with their client.

U.S. District Judge Susan Webber Wright, who is presiding over the suit in Little Rock, yesterday granted the motion by Davis and Cammarata to withdraw after an hour-long telephone conference call with them, Jones and Bennett on Monday night.

As for Clinton's upcoming legal bills, Bennett has offered to try the case without charge, but cannot do so according to lawyers familiar with federal ethics rules because his firm, Skadden, Arps, Slate, Meagher & Flom, does lobbying work, and free legal service would be akin to a conflict of interest. Instead, White House officials said yesterday that Clinton will have to wait until he leaves office to repay Bennett.

The existence of the liability coverage was first revealed in February 1996, a time when Clinton's legal defense fund was overwhelmed by mounting costs from the lengthy Whitewater probe. Clinton had complained that his legal bills were depleting his savings.

But at the time Clinton had the two policies covering him, which already had paid nearly $900,000 of Bennett's legal bills.

Chubb has never disclosed any details about its coverage of Clinton, which it said was in force when Jones alleges the harassment took place.

State Farm has given different dates for the inception of Clinton's policy. State Farm spokeswoman Mary Boone said yesterday that the correct date is February 1992 and she was not sure why other dates were given.

Normally, a policyholder is required to notify an insurance company of a lawsuit immediately. A copy of the standard State Farm liability policy in effect at the time shows that the policyholder was required to notify the company as soon as a lawsuit is filed. But Bennett has said he did not file his first claim under Clinton's policies until June 1995, although Jones filed her suit in May 1994.

Authorities in the field also question why the companies – which normally choose their own defense attorneys as a way of controlling costs – would agree to pay Bennett's fees, which exceed $400 an hour.

"Rest assured the typical State Farm customer doesn't get this kind of coverage," said Kathleen Furness, an attorney who has negotiated with insurance companies on behalf of sexual harassment defendants.

Boone said, "We pay fees dependent upon the type of lawsuit we're dealing with. We realized early on that this would go to the Supreme Court, and you can't hire an attorney that does fender-bender cases to argue before the Supreme Court."

By the summer of 1995, Bennett's legal bills surpassed $1 million. Around the same time, as Bennett later described it, a friend of Clinton's in the insurance business in Arkansas "happened to be looking at the first couple's insurance situation" and discovered that the Clintons had the personal liability umbrella coverage.

The type of coverage Clinton had is designed not only to pay for judgments or lawsuit settlements but also for the defense of that lawsuit. Clinton's policies each placed a $1 million cap on the amount that could be paid for a settlement or judgment. But it is uniform throughout the industry and in case law that there is no cap on the amount an insurance company must pay for a policyholder's defense.

In practice, there are limits, experts say. Companies routinely exempt certain kinds of behavior from coverage, and among them is sexual harassment, according to insurance authorities. Although Clinton's State Farm policy does not specifically exempt sexual harassment, it does exempt "intentional acts" and the courts have found that sexual harassment is what is called an intentional tort. Even insurance policies that do not specifically exempt sexual harassment are not obligated to pay for the defense in such cases, experts say.

In rare instances, sexual harassment does get covered. "The reason why they sometimes end up getting covered is the claim is drafted alleging other things that are not sexual harassment and those things are covered," said Destie Overpeck, a San Francisco attorney specializing in coverage disputes in sexual harassment cases. "A lot of policies have coverage for defamation because that's something you can accidentally do."

The courts have found that if a plaintiff alleges defamation, as Jones did, and also alleges sexual harassment, as Jones did, the insurance company has a duty to defend the entire lawsuit. Defamation was specifically listed as being covered by Clinton's State Farm policy but was thrown out by Judge Wright last month.

In cases involving high legal costs, insurance companies often push for a settlement before spending $5 million, for example, on a $1 million lawsuit, said Chris Guidette, a spokesman for Insurance Services Offices, a company that develops standardized policies for insurance carriers.

In the Jones case, State Farm and Chubb had already paid Bennett twice as much as the $700,000 that Jones originally asked for in her 1994 lawsuit.

© Copyright 1997 The Washington Post Company

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