Every year we reporters and editors gather in our smokeless newsrooms to debate the top stories of the year and come up with endless "top 10" lists.

This year, on the business desk at least, there was no need for debate because there was really only one story: a financial crisis that crept in with the new year and then grew into a monster, dominating the presidential campaign, cocktail parties, newspaper front pages and this Web site.

The meltdown, which is rooted in the runaway loan practices of the housing boom years, has spread around the world and drawn comparisons with the Great Depression with its severe market downturn and accompanying financial panic. Millions are likely to lose their homes, jobs or both before it is all over, and retirement savings have been decimated for generations of investors. Even those who have not been directly affected can't help but be spooked, casting a cloud of uncertainty over the nation's critical retailing sector.

Many financial services companies and insurers are bracing for an increase in litigation next year, with the credit crisis and the collapse in the subprime-mortgage market leading the way as catalysts, according to a new survey.

Half of the financial companies surveyed said they expected litigation to increase next year, while only 6% said they expected a decrease in lawsuits.

Looking ahead to 2009, 22% of responding financial services companies said they were preparing for subprime-related actions or investigations, according to the survey, which was conducted by Houston-based international law firm Fulbright & Jaworski LLP. Thirteen percent of insurance companies responded the same way.

From the InsureReinsure blog of Edwards Angell Palmer & Dodge comes discussion of the elements necessary for rescission of a professional liability policy.

In an action for rescission of a professional liability policy, Maine’s highest court recently held that an insurer must prove both fraud and materiality as well as actual reliance.   In that case, Liberty Insurance Underwriters, Inc. v. Estate of Faulkner, Yor-07-180 (Me. Oct. 7, 2008), a attorney allegedly made misrepresentations in his 2003 application for a lawyer’s professional liability insurance policy when he responded “no” when asked  if he had “ever been disbarred or been the subject of reprimand, censure, sanction, or other disciplinary action” by the Bar.  In fact, the attorney had been the subject of a disciplinary action by the Grievance Commission of the Maine Board of Overseers of the Bar in 2002 pursuant to which he had been reprimanded for violating three rules of the Maine Bar.  After the  attorney died, several former clients made  claims against his estate for alleged breaches of professional responsibility.  In response to the claims, the insurer filed a declaratory judgment action seeking to rescind the policy based on the attorney’s misrepresentations.  The trial court  sought guidance from the Supreme Judicial Court (technically “reported questions” to the court)  on the issues, among others, of whether the insurer had to prove (1) that the misrepresentation was both fraudulent and material; and (2) that the insurer actually relied on the misrepresentation.

The high court analyzed Section 2411 of Maine’s Insurance Code  and  held that the statute requires an insurer to prove both fraud and materiality in an action for rescission of an insurance policy.  It also held that an insurer must show actual reliance in order to rescind a policy.

The court also held that Section 2411 permits  rescission of a renewed professional liability policy based on a misrepresentation in the original application for insurance.

Read the full story here on the InsureReinsure website.

Investors and prosecutors are asking a lot of questions about corporate America's greenhouse gas emissions and climate change risks, but risk managers are not facing nearly as much scrutiny from directors and officers liability insurers, according to experts.

While some D&O insurers ask a few questions about climate change risks during renewals, insurers generally have not decided how to underwrite such risks, brokers and insurers say.

But attorneys say a lack of attention so far from D&O insurers does not suggest that company executives have nothing to worry about. To date, only companies—rather than executives—have faced lawsuits alleging they failed to adequately disclose climate change risks, but that could change as investors and prosecutors more aggressively pursue that information, experts warn.

Read the full story here on the BusinessInsurance website.

As more details unfurl in the Bernard L. Madoff fraud case, so do the lawsuits. And the big accounting firms, which oversaw many of the feeder funds that funneled billions of dollars into what prosecutors describe as the largest Ponzi scheme ever perpetrated, are likely to be among the defendants.

Though Bernard L. Madoff Investment Securities itself was audited by small firms, questions are arising over how major firms like PricewaterhouseCoopers and KPMG overlooked several red flags related to the operations over a number of years. The big accounting firms are likely to face queries about why they gave their seal of accounting to the astoundingly steady positive returns booked by a fund manager whose investment strategy was nearly completely opaque.

One investor in a feeder fund, New York Law School, has already sued BDO Seidman, the auditor of one of its money managers, arguing that the firm failed to notice warning signs related to the $50 billion scandal.

Read the full story here on the New York Times website.

Stephen Del Percio has an interesting set of links from an article posted on the Green Real Estate Law Journal blog discussing liability issues in the residential sector.

You can check out the article here on the Green Real Estate Law Journal website.

Like many companies, Pella is looking to cut expenses because of the economic downturn. But instead of laying off more workers, the Iowa manufacturer of windows and doors is instituting a four-day workweek for about a third of its 3,900 employees. Chris Simpson, a senior vice-president at the company, acknowledges it's an unconventional move. But Pella believes the economy could turn around faster than most people expect, and it doesn't want to be caught short of experienced workers. "Our contention is, consumer confidence will rebound," says Simpson. "If there's a [government] stimulus package of some kind, we think people are going to respond."

A few employers are following Pella's lead in shortening the workweek. They include steel companies such as AK Steel, the city of Atlanta, small newspapers, and hospitals. According to the U.S. Bureau of Labor Statistics, the number of employees who normally work full-time but now clock fewer than 35 hours a week because of poor business conditions has climbed 72%, to 2.57 million in November 2008, from 1.49 million in November 2007. "More companies are exploring alternatives to layoffs," says John A. Challenger, chief executive officer of the consulting firm Challenger, Gray & Christmas. "If they can keep people on until the business turns around, the company would be in much better shape to ramp up quickly."

In Atlanta, Mayor Shirley Franklin is cutting the hours and pay of 4,600 employees by 10% because the city is facing a $50 million budget shortfall. Franklin says that if she were to lay off more workers instead of slashing hours, "you'd have to eliminate major functions of the government. It's not just jobs we've saved, it's services."

A federal judge on Thursday gave preliminary approval to a $900 million-plus settlement that resolves a lawsuit pitting UnitedHealth Group shareholders against the insurer over its stock options.

Minnetonka, Minn.-based UnitedHealth has agreed to pay $895 million to settle the class-action case. Former UnitedHealth Chairman and Chief Executive William McGuire also agreed to pay $30 million toward the settlement and to return stock options representing more than 3 million shares.

Insurers in the Lloyd's of London market are bracing themselves for a string of claims stemming from this week's dramatic collapse of Bernard Madoff's fraudulent investment empire.

Directors of companies that put clients' money into Madoff's funds may become the target of lawsuits from investors, say market insiders.

Read the full story here on the London Daily Mail website.

An insurance company with a potential $25 million liability from a 2007 Houston office fire is claiming smoke that killed three people was "pollution" and surviving families shouldn't be compensated for their losses since the deaths were not caused directly by the actual flames.

Great American Insurance Company is arguing in a Houston federal court that the section of the insurance policy that excludes payments for pollution — like discharges or seepage that require cleanup — would also exclude payouts for damages, including deaths, caused by smoke, or pollution, that results from a fire.

"This is shocking. It's an extraordinary effort by an insurance company to avoid paying on a contract for insurance," said Randy Sorrels, who represents several family members in wrongful death lawsuits from the fire in a six-story atrium building on the North Loop.

Tom Baker, Professor of Law at University of Pennsylvania Law School (and host of "The Rise and Fall of Bill Lerach" video) has recently posted an essay on NELLCO.  An abstract follows, with a link to the site for the full article.

This essay explores how liability insurance mediates the boundary between torts and crime. Liability insurance sometimes separates these two legal fields, for example through the application of standard insurance contract provisions that exclude insurance coverage for some crimes that are also torts. Perhaps less obviously, liability insurance also can draw parts of the tort and criminal fields together. For example, professional liability insurance civilizes the criminal law experience for some crimes that are also torts by providing defendants with an insurance-paid criminal defense that provides more than ordinary means to contest the state’s accusations. The crime-tort separation in liability insurance cannot be explained by economic incentives, alone. Morality matters, too. The fact that liability insurance sometimes provides coverage for criminal defense costs suggests that liability insurance institutions could cover a broader swath of crime torts than they do, providing further support for the claim that consequentialist reasoning, alone, cannot explain the observed relationship between liability insurance, torts, and crime. The tort-crime separation reflects and reinforces a concept of liability insurance as protection for defendants, rather than as a fund for victims. In turn, this concept of insurance reflects and reinforces an understanding of tort claims as encounters between particular plaintiffs and defendants, rather than as a price setting or loss spreading insurance mechanism.

Tom Baker, "Liability Insurance at the Tort-Crime Boundary" (December 7, 2008). University of Pennsylvania Law School. Scholarship at Penn Law. Paper 255.

http://lsr.nellco.org/upenn/wps/papers/255

Shock waves from Bernard Madoff's alleged fraud spread globally on Monday, as charities, wealthy individuals and banks disclosed losses from the prominent Wall Street trader's investment management business.

Britain's HSBC Holdings Plc was the latest bank to join the growing list, saying it had exposure of around $1 billion, making it one of the biggest victims of the alleged $50 billion fraud.

Royal Bank of Scotland Group Plc and Man Group Plc in the United Kingdom, Japan's Nomura Holdings Inc and France's Natixis SA also said they were hit by the worldwide scandal.

When it comes to bailouts of American business, Barney Frank and the Congress may be just getting started. Nearly two trillion tax dollars have been shoveled into the hole that Wall Street dug and people wonder where the bottom is.

As correspondent Scott Pelley reports, it turns out the abyss is deeper than most people think because there is a second mortgage shock heading for the economy. In the executive suites of Wall Street and Washington, you're beginning to hear alarm about a new wave of mortgages with strange names that are about to become all too familiar. If you thought sub-primes were insanely reckless wait until you hear what's coming.

See the full video from CBS 60 Minutes by clicking here.

Bernard Madoff, founder and president of a New York firm that invested funds for wealthy individuals, hedge funds and other institutions, was charged with operating what he told employees was a long-running $50 billion Ponzi scheme in what may be one of the largest frauds in history.

Madoff, 70, head of Bernard L. Madoff Investment Securities LLC, was arrested today at 8:30 a.m. by the FBI and appeared before U.S. Magistrate Judge Douglas Eaton in Manhattan federal court. Charged in a criminal complaint with a single count of securities fraud, he was released on $10 million bond guaranteed by his wife and secured by his apartment. Madoff, wearing a white-striped shirt, dark-colored pants and no tie, looked down as he left the courtroom with his wife, declining to comment.

“It’s all just one big lie,” Madoff told his employees on Dec. 10, according to the government. The firm, Madoff allegedly said to them, is “basically, a giant Ponzi scheme.”

Madoff faces as much as 20 years in prison and a $5 million fine if convicted. His New York-based firm was the 23rd largest market maker on Nasdaq in October, handling a daily average of about 50 million shares a day, exchange data show. It specialized in handling orders from online brokers in some of the largest U.S. companies, including General Electric Co. and Citigroup Inc.

Even deleted e-mail messages are public records if they deal with official business, the Ohio Supreme Court ruled yesterday.

In a unanimous ruling, justices ordered commissioners in Seneca County to scour their computer hard drives for e-mail messages requested by a Toledo newspaper last year that had been deleted.

In September, the Ohio Supreme Court denied a Columbus lawyer's request for thousands of messages from two state representatives. Justices did not address the question of whether the lawmakers would need to produce e-mail and text messages from their private accounts that dealt with public business.

In its ruling yesterday, the Supreme Court said e-mail messages dealing with government business are public records regardless of whether they come from a public or private account.

The court also said deleting messages doesn't automatically take them out of the public realm, as long as they can be retrieved. The Seneca County board of commissioners didn't say that the messages couldn't be recovered.

The Blade sought messages that dealt with the possible demolition of an historic courthouse in Tiffin.

Two of the three Seneca County commissioners produced no e-mail messages on the topic, while a third had substantial gaps in the dates of messages, according to evidence presented in the case.

Justice Paul E. Pfeifer, who wrote the Supreme Court's opinion, noted that the commissioners couldn't be ordered to produce records that don't exist -- but the e-mails do exist, if only deep in the recesses of computer drives.

Read the article on the Columbus Dispatch website.

American International Group, once the world's largest insurer, owes around $10 billion to other financial services firms for trades that have gone sour, the Wall Street Journal reported in its online edition on Tuesday.

The report, citing people familiar with the matter, says the trades have not been explicitly disclosed before, and are not covered by terms of a current $150 billion U.S. government rescue package.

The government's rescue package was meant to save AIG from collapse, but the Wall Street Journal report says the newly discovered trades raise further questions about how the insurer will raise money to pay the debts.

Federal authorities arrested Illinois Gov. Rod Blagojevich Tuesday on charges that he brazenly conspired to sell or trade the Senate seat left vacant by President-elect Barack Obama to the highest bidder.

Blagojevich also was charged with illegally threatening to withhold state assistance to Tribune Co., the owner of the Chicago Tribune, in the sale of Wrigley Field, according to a federal criminal complaint. In return for state assistance, Blagojevich allegedly wanted members of the paper's editorial board who had been critical of him fired.

A 76-page FBI affidavit said the 51-year-old Democratic governor was intercepted on court-authorized wiretaps over the last month conspiring to sell or trade the vacant Senate seat for personal benefits for himself and his wife, Patti.

"I'm going to keep this Senate option for me a real possibility, you know, and therefore I can drive a hard bargain," Blagojevich allegedly said later that day, according to the affidavit, which also quoted him as saying in a remark punctuated by profanity that the seat was "a valuable thing — you just don't give it away for nothing."

An extensive new complaint in a lawsuit against Citigroup charges that the banking giant misled investors about the size and risk of its housing-market wagers, raising questions about how early the bank knew it faced serious trouble from the assets that have plagued its balance sheet and stock price.

Laying out its arguments in detail over 500 pages, including a variety of charts, graphs, and tables, the lawsuit accuses Citi of "shamelessly fraudulent schemes" to hide the risk the company was taking on as it bought, repackaged, and sold mortgage debt and related securities. Among other allegations, the lawsuit says Citigroup ignored market indexes when pricing some securities, using instead a variety of methods that the company had called unreliable in valuation guides.

Read the full story here on the BusinessWeek website.

Congress and the White House inched toward a financial rescue of the Big Three auto makers, negotiating legislation that would give the U.S. government a substantial ownership stake in the industry and a central role in its restructuring.

Under terms of the draft legislation, which continued to evolve Monday evening, the government would receive warrants for stock equivalent to at least 20% of the loans any company receives. The company also would have to agree to limits on executive compensation and dividend payments, much like those contained in the government's $700 billion rescue of the financial industry.

A New York judge refused to dismiss breach of fiduciary duty charges against American International Group Inc's former chairman, Maurice Greenberg.

Supreme Court Justice Charles Ramos said AIG was entitled to present its case against Greenberg, former AIG Chief Financial Officer Howard Smith and others, Business Insurance reported Friday.

The charges stem from a dispute over a block of AIG shares worth about $20 billion in 2005 that was used to finance an employee compensation plan at AIG. Starr International Co. Inc., which Greenberg controls, owns the shares, the report said.

"Ultimately, whether Greenberg and Smith properly discharged their duties of loyalty to AIG while simultaneously serving as SICO directors will require a fact-intensive assessment of their conduct, not properly disposed of at the pre-answer stage," Ramos said.

With AIG receiving billions in federal bailout funds, "it's curious that AIG is using litigation to try to expand the bonus pool for its top executives," Greenberg's attorney Chris Duffy said in a statement.

A company spokesman said AIG was "pleased with the court's decision."

"The use of technology is interwoven into the agency procedures and practices. It is more often the failure or lack of use of the technology that leads to the agency finding themselves in the unfortunate position of being unable to provide a strong defense against a[n] [errors and omissions] claim, "says Sabrena Sally, CPCU, senior vice president of commercial insurance with Westport Insurance Corporation, a subsidiary of Swiss Re, one of the largest writers of insurance agents' errors and omissions coverage.

Sally talked with Insurance Journal recently about the additional errors and omissions exposures created by the use, misuse and lack of use of current technology by agents; providing great insight into the exposures analyzed during the underwriting process related to insurance agency technology.

Read the full article here on the MyNewMarkets.Com website.

African-American cafeteria workers employed by a London-based catering company serving the Comcast Center have filed a $200 million lawsuit alleging supervisors practiced "Jim Crow segregation" and used racist and demeaning slurs.

The 11 current and former employees of the Compass Group filed the suit in federal court yesterday against Compass, two Compass employees and two related companies.

"Our clients have been called names such as 'chim-chim,' 'monkey,' 'gorilla' and 'the N-word,' " Kenneth P. Thompson, an attorney for the plaintiffs, said yesterday at a news conference outside the Comcast skyscraper at 17th Street and JFK Boulevard.

Only four of the employees still work there. One employee said he felt forced to quit because of the racial slurs, and the other workers were fired after complaining of mistreatment, said Thompson, of the New York firm Thompson, Wigdor & Gilly LLP.

Thompson also accused the catering firm of practicing "Jim Crow segregation" when it provided private catering service such as during the Democratic Governors Association meeting at the Comcast Center in July. He said black employees were "forced to work in the back by the kitchen or were excluded from staffing these events entirely.”

Read the full story here on the Philadelphia Daily News website.

General Motors' board was meeting on Dec. 1 to review a plan that management hopes will persuade Congress to lend the company about $12 billion in public funds. Collectively, Detroit wants $25 billion in bridge loans. The plan includes moves that will cut executive pay, narrow the cost gap vs. Japanese carmakers, and review several of its brands for sale or cuts.

Sources say GM will tell Congress that it plans to reopen the labor agreement to negotiate a deal with the United Auto Workers that would narrow that cost gap. GM will also make a case that it is pushing hard to improve the fuel economy of its lineup. And it is looking at different strategic options for as many as four brands—Saab, Saturn, Hummer, and Pontiac. If any of them go away, namely Saturn or Pontiac, it would be done by slowly phasing them out over several years.

Read the full story here on the BusinessWeek website.

The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.

"Expect fallout, expect foreclosures, expect horror stories," California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, about one year before the housing implosion cost her a job.

Bowing to aggressive lobbying -- along with assurances from banks that the troubled mortgages were OK -- regulators delayed action for nearly one year. By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way.

Read the full story here on CNN.Com.