By Robert Loerzel
Certain words seem to strike horror in a jury pool. Words like...reinsurance.
"No one wants to sit as a juror," said Chicago lawyer Joseph T. McCullough IV, recalling a 2008 federal trial. "But I can tell you, when they heard it was a reinsurance case, the excuses they came up with were amazing. 'I have to take care of my dog. Who's going to feed my dog?'"
Can you blame those people? The subject matter of that trial in the U.S. District Court for the Southern District of New York sounded pretty tedious. The jurors would have to decide whether one insurance company (the giant firm AIG) owed money to another insurance company (AXA, a French-owned multinational conglomerate).
Who would want to spend three weeks sitting in a courtroom going over the intricate details of insurance law? And reinsurance - what is that, anyway?
"When we started the case, we had several jurors who had their eyes closed," McCullough said.
If anyone can make this seemingly dry topic interesting, it's McCullough. He sounded downright enthusiastic as he discussed reinsurance law during an interview. But reinsurance isn't the only thing that he's known for.
Quick to laugh in conversation, McCullough also has a reputation among his colleagues as something of a karaoke fanatic, and he has fostered a collegial atmosphere at the firms where he has worked. Not to mention his interest in international law - something he's possessed since his earliest days as a lawyer.
McCullough, who is now a partner at Freeborn & Peters, was with Lovells at the time of the AXA v. AIG trial. In that case, his challenge was to make it both interesting and understandable to those people in the jury box, who knew little, if anything, about reinsurance.
"We made it a whodunit," said McCullough, who began to sound excited all over again as he remembered the trial. "We turned a very complex matter into something that was relatively simple: It was a fraud case. It was an egregious fraud scheme by AIG - basically to unload unprofitable business onto unsuspecting reinsurers abroad."
That was what McCullough's client claimed. McCullough represented the Germany reinsurance company Albingia, which is part of AXA.
In the simplest of terms, reinsurance is what happens when one insurance company buys insurance from another company. It's insurance on top of insurance - a way of spreading out the risks.
In this case, AIG bought reinsurance from AXA. And then, when AIG ended up owing millions of dollars in insurance claims, it sent the bill to AXA.
AXA sued - accusing AIG of concealing and falsifying information during the original deal.
"We had smoking-gun documents," McCullough said. "There was a document written by a senior executive of AIG in New York - a handwritten document which said, essentially, 'Reinsurers are stupid.' "
Reinsurance cases usually go to arbitration, so it was highly unusual for this case to go to a jury trial. It was the first time that McCullough, 54, had ever had the chance to make a closing argument in front of a jury, despite his many years of experience in reinsurance litigation.
McCullough laid out the facts of the case in chronological order - contrasting the promises AIG was making with the company's behind-the-scenes maneuvers.
"We created a chart and walked the jury through the time line," McCullough said. "We said, 'Here is what was promised, and here is what AXA was assured.' And below the line: 'Here is what was really happening.' "
"He was very enthusiastic," said Michael Turiano, head of reinsurance claims at AXA Liabilities Managers Inc., who watched the closing arguments.
"He really talked. He knew the case backwards and forwards. He was like a little kid at Christmastime. In contrast, the other lawyers were very cut-and-dry. Joe did add a little excitement - if you could use that word with reinsurance."
"He was fantastic," said Joe Cyr, a partner at Lovells who tried the case with McCullough. "The last five minutes of his summation probably had a significant impact on the jury."
The jurors who'd looked bored at the beginning of the trial seemed to be captivated now, McCullough said.
"They were on the edge of their chairs, taking notes," he said. "They got it."
After deliberating for several hours, the jurors returned to the courtroom with a victory for McCullough and his client. They ordered AIG to pay AXA $34.4 million, including $5.8 million in punitive damages.
That case is now on appeal, and it remains to be seen whether McCullough's triumph will be allowed to stand. The 2nd U.S. Circuit Court of Appeals vacated the $34 million judgment in August, finding that the statute of limitations had expired. McCullough is petitioning for a rehearing.
"It's clearly wrong," he said. "The law does not support what the 2nd Circuit said."
Regardless of how the appeal comes out, Turiano said he couldn't be more pleased with how McCullough has represented AXA.
"Joe is a no-nonsense straight-shooter," Turiano said. "He prepares very well. He brings forth an honest opinion of what is happening. He's not looking just to build a file for hourly charges."
From Flemish to reinsurance
McCullough, a native of Canton, Ohio, began his legal career with an unconventional educational path.
In 1981, after a year at Northwestern University School of Law, he went to Belgium, where he studied European Community law on a fellowship at Ghent University - taking classes in Flemish. McCullough already learned German, a similar language, and he immersed himself in a Flemish program the summer before taking law classes. McCullough, who laughed as he recounted his European educational adventures, clearly enjoys a good challenge.
"Basically, I got my L.L.M. before I got my J.D.," McCullough said. "I wanted to study international law and was extremely interested in antitrust."
And besides, he added, "I love studying in Europe."
After returning to Chicago and finishing up his law degree at Northwestern, McCullough joined Sidley Austin, planning to focus on antitrust litigation. But McCullough's career took a different turn one day, when he ran into a partner at the office.
"He said, 'Do you know what reinsurance is?' I said, 'Not really, but I probably could guess.' He said, 'Good. You know more than I do.' "
The partner handed McCullough a research memo for a client. McCullough began learning everything he could about reinsurance. And before long, it was his specialty.
"Suddenly I was the Sidley reinsurance king," he said.
Reinsurance deals often involve companies in different countries. With his passion for international law, McCullough was eager to make reinsurance his focus. But his interest went beyond an excuse for travel. He said he enjoys the intellectual challenge of handling these complex issues. And he sees himself as fighting for justice.
"Companies outside of the United States are perplexed and somewhat frightened by the legal system here," McCullough said. "How could they get justice? It's very gratifying to take people through a very complex system and give them courage to stand up for their rights, rather than being bullied into a settlement."
As McCullough explains it, one of the key concepts of reinsurance litigation is the "duty of utmost good faith."
When an insurance company gets reinsurance coverage, it must reveal all relevant information. Without that information, the reinsurance company would not be able to decide whether the risk is worth taking.
"It's the only way that the industry works," McCullough said. "It's very international. With these far-flung companies around the world, going on-site and investigating just takes too much time. And it's too expensive. So the whole industry is based on the duty of utmost good faith. All material facts to the risk should be volunteered to the reinsurer."
When McCullough gets involved, his job is often to prove that an insurance company didn't actually volunteer all of the information it should have.
"I see the bad things," he said. "Sometimes insurance companies, in their zeal to get reinsurance at a very good price, won't tell all the facts. Or they will distort the facts."
The British experience
After 12 years at Sidley Austin, McCullough left to open a Chicago office for the British firm Lovells.
"Having an international law firm that could serve my client base anywhere was a big plus," he said.
McCullough loved the collegial culture inside Lovells. As the U.S. managing partner, McCullough tried to bring the English firm's attitude to the Chicago office.
"We did a tea every Thursday," he said. "We'd bring scones, finger sandwiches and a pot of cream. People would come in for, say, 45 minutes. You couldn't talk about business. It was for people to just come in and talk."
Cyr, who was a partner at Lovells and now works at Hogan Lovells in New York, said McCullough created "a very, very positive spirit" at the firm's American offices.
"He genuinely cared about the other lawyers and the members of the staff," Cyr said. "When you work with somebody, you pick up on that."
"It was teamwork," McCullough said. "If people feel that they're a part of it, you get more enthusiasm and effort."
One of the ways McCullough shows his enthusiasm is by singing karaoke - and encouraging clients and colleagues to do the same. He got hooked on karaoke when he was at Sidley. It started out as a way of schmoozing with business people in Japan.
"When you go to karaoke, the formality drops," he said. "And I became friends with the various companies."
Whenever McCullough would visit Japan, the business people there would plead with him to sing "The Lion Sleeps Tonight."
"If you know that song, it's falsetto," McCullough said. "And I can sing it. I'm a tenor, and I practice in the shower."
Ever since, McCullough has taken his fellow lawyers out to karaoke bars and encouraged karaoke singing at law-firm festivities.
But as much as McCullough was enjoying himself at Lovells, the long work hours and frequent business trips took a toll on his family life.
"At Lovells, when we opened in '95, I was there all the time," he said. "I was there every day late, every weekend. I did not see my children. It was not a good life."
McCullough and his wife had nine children, who now range from 8 to 29 years old, including eight adopted children of various ethnic heritages.
"They're a great group," McCullough said. "They get along well. The interesting thing is they're colorblind. For me personally, it was a real lesson in life. The world should be colorblind."
Now divorced (and engaged to be married again), McCullough shares custody of his school-age children, seeing them every other week. He said his current job at Freeborn & Peters gives him the time to see his children and experience life outside of the office, even while he continues to work hard at the firm.
"I did not want to do that again, to sacrifice so much personally," he said.
Dealing with conflicts
McCullough said he was growing frustrated with Lovells for another reason. As the firm grew larger and gained clients, he ran into more and more conflicts. He was forced to turn down litigation because it involved companies represented by someone else at Lovells.
"Probably two out of every three cases that clients would bring to me, I would have to turn away," McCullough said. "Really, it's a painful thing when your clients come to you and say, 'We'd love for you to handle this huge case,' . and then you have to say, 'I'm sorry. I can't do that.'"
McCullough decided to leave Lovells after the London-based law firm announced in January that it was merging with Hogan & Hartson, becoming Hogan Lovells.
Hogan's clients included AIG and a few other large insurance companies McCullough had litigated against. He was reluctant to work at a firm that represented these adversaries.
"For me personally, the AIG conflict was the worst," McCullough said. "They were my most common adversary. They were the biggest producer of business for me as a nonclient."
So McCullough began seeking a position elsewhere, but he ran into a problem during his job hunt. Just about every time he looked at a law firm, he discovered it was doing work for AIG or another insurance company that he was litigating against.
"In Chicago, probably 98 percent of the best firms had those companies as clients," McCullough said. "AIG is huge. ... These big companies, they sprinkle [business] around. When it comes to lawyers, it causes conflict issues."
McCullough found the solution when a headhunter approached him with the idea of working at Freeborn & Peters, a Chicago firm with around 120 attorneys. McCullough said he heard two words he'd been waiting to hear throughout his whole job search: "No conflicts."
Freeborn & Peters doesn't do any work with AIG or the other insurance companies McCullough was litigating against.
"Strategically, long ago, we decided to shy away from direct coverage and insurance reimbursement work - for a lot of reasons," said Michael A. Moynihan, managing partner at Freeborn & Peters. One reason, he said, is that legal work for insurance companies pays less than most other business litigation (although the billing rates are higher for reinsurance companies).
As a result, McCullough was in the clear to continue working for reinsurance clients, such as AXA, if he came to work for Freeborn & Peters. And the law firm was eager to have him.
"He's a very well-known name in his area of the law, a well-respected guy," Moynihan said.
The difficulties McCullough faced in his job search are a telling sign of all the conflicts that law firms have with insurance companies, Moynihan said.
"This is a case study of that, if you ask me," he said. "Here's this guy, and he's a top-three practitioner in this area of the law. Interviewing with some household names . and at the end of the day, his decision was guided by two things: absence of conflicts and culture. That says a lot about us."
When McCullough switched law firms this July, AXA and other major clients decided to follow him.
"I've noticed especially in the last 10 or 15 years that clients don't hire law firms like they used to," McCullough says. "They hire individuals. They don't care if you're with a big law firm. If you have a name in your practice area and you get results and word gets around, it doesn't really matter where you are."
That was true for AXA.
"I do place a lot of faith in the individual attorney, not the law firm," AXA's Turiano said. "You need to have an attorney you can trust. If he tells you it's raining out, you believe him that it's raining out. . When Joe moved, there was no doubt that AXA would move with him because of his reputation and what he's done. And just because of Joe."
A place to be yourself
Beyond the lack of conflicts, Freeborn & Peters also attracted McCullough because of its office culture. He said there's a sense of collegiality and teamwork in the firm, which reminds him of the atmosphere at the old Lovells.
"You've got to like where you work," McCullough said. "A lot of law firms are internally competitive. People close their doors, put their nose down. Partners meetings are not truly partners meeting. You're really an employee, not a partner. More and more law firms are that way. It's a business. One thing that I enjoyed about Lovells - and which I love about this firm - is that you're truly a partner. People care about you."
McCullough said he sees the same sort of spirit now at Freeborn & Peters.
"One of the things that attracted me to Freeborn is that every Wednesday there's a lawyer lunch," he said. "I like that. You just come in, and you get to know people as people."
McCullough's partners are getting to know all about him - including his passion for karaoke.
"He talks incessantly about karaoke," Moynihan said, laughing. "We have a Friday afternoon happy hour at the firm. At the end of the week, people can stop by and socialize. So we brought a karaoke machine to the last happy hour and that went over pretty well. It was sort of disturbing to see the abject lack of talent at singing among my colleagues, but it was fun nonetheless."
Beyond an enthusiasm for karaoke, McCullough is bringing a new area of business to Freeborn & Peters. The firm hasn't handled reinsurance litigation until now.
"It's very obvious that he has a great grasp of this very complicated area of the law," Moynihan said. "He's been very busy since he got here. We're already talking about needing to hire more [lawyers in] his subgroup. Everything he promised - in terms of what he was, what kind of business he'd been doing, how he would be as a team leader - has turned out to be true."