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Insurance Coverage for Manufacturers With
Consumer or Product Liability ClaimsStrategies and Practical Guidance From Insured and Insurer Perspectives
Today’s faculty features:
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
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speakers. Please refer to the instructions emailed to registrants for additional information. If you
have any questions, please contact Customer Service at 1-800-926-7926 ext. 1.
WEDNESDAY, JUNE 5, 2019
Presenting a live 90-minute webinar with interactive Q&A
Alexander D. Hardiman, Partner, Pillsbury Winthrop Shaw Pittman, New York
Corey Worcester, Partner, Quinn Emanuel Urquhart & Sullivan, New York
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FOR LIVE EVENT ONLY
Insurance Coverage for Manufacturers With
Consumer or Product Liability Claims
A live, 90-minute CLE with interactive Q&A
June 5, 2019
Corey Worcester Alex HardimanQuinn Emanuel Urquhart & Sullivan, LLP Pillsbury Winthrop Shaw Pittman, LLP212-849-7471 212-858-1064coreyworcester@quinnemanuel.com alexander.hardiman@pillsburylaw.com
6
INTRODUCTION
• This presentation is divided into the following 6 sections:
– Section 1: Understanding the company’s coverage
– Section 2: Making a meaningful coverage assessment
– Section 3: Strategically using insurance coverage
– Section 4: Protecting the right to coverage
– Section 5: Balancing insurance requirements with customer relations
obligations
– Section 6: Final thoughts and practical considerations
• However, Q&A is encouraged!
7
I.
UNDERSTANDING THE COMPANY’S COVERAGE
8
EXECUTIVE SUMMARY
▪ Taking stock of all polices
• Is there insurance coverage?
• Why are historical insurance policies significant?
▪ Analyzing the coverage that each policy provides
• What kind of policy do you have?
• And what are the differences between occurrence and claims made policies?
▪ Determining what coverage is available
• How much risk is covered?
• What role do exclusions, endorsements, pro-rata allocation, "all sums" allocation, deductibles, and self-
insured retentions play?
▪ Ensuring that all policies are retained
• When to destroy . . . when to keep
• How to retain
9
TAKING STOCK OF ALL POLICIES: IS THERE INSURANCE
COVERAGE AT ALL?
▪ First question that a company has to ask when it thinks there might be a lawsuit is whether there is
insurance coverage for this particular risk?
▪ Products liability cases are routinely leading the lists that record total dollar amounts of jury verdicts.
It is no longer uncommon to see 8, 9, and 10 figure verdicts.
▪ Given that, companies must know their coverage. It is better to have someone else pay!
Lawsuits, Demands Insurance Policies
10
WHAT KIND OF POLICY DO YOU HAVE
▪ Multiple policies may provide coverage:
• Primary policies
– CGL
– D&O
– E&O
– EPL
– Cyber
– Specialty
• Excess policies
• Umbrella policies
• Indemnity agreements
11
A SIDE NOTE: WHY HISTORICAL POLICIES ARE SIGNIFICANT
▪ There are a lot of reasons historical policies are important: long-tail policies; renewals
that track earlier policies; occurrence based policies that are now very old
▪ Historical insurance policies often provide coverage even years after they were issued.
• There have been cases involving policies that were decades old and where no one who negotiated the
policy was still working for the company, the insurer, or the broker.
▪ Historical policies can be large value
• E.g. batch policies negotiated decades ago
▪ It is not uncommon for older policies to be lost, destroyed, or misplaced
• Mergers, personnel changes, office moves; cleaning out “old” file cabinets; server updates; fires; floods
– One client, ironically, lost their fire insurance policy in a fire.
• Can impact both the policy and the underwriting file
▪ The historical trend of policies is to close the barn door after the animals escape. Often,
older policies have fewer exclusions
12
ENSURING THAT ALL POLICIES ARE RETAINED
▪ Accordingly, DON’T LOSE OLD POLICIES!
• Put someone in charge of knowing where all insurance is
• Make sure it is accounted for in moves or IT updates
• Make sure that copies are backed up
▪ But what if you do lose them?
• Search
• The broker
• The insurer
• Your law firm
• Insurance “archaeologists”
▪ Secondary evidence of insurance
• Varies state to state
• Sometimes difficult to prove; but sometimes possible
13
DIFFERENCE BETWEEN CLAIMS MADE AND OCCURRENCE
POLICIES
▪ Virtually all liability policies fall into one of two principle categories, claims made or
occurrence.
▪ “Claims Made” policies:
• A “claims made” policy covers claims made against the company while the policy is in effect.
• The upside is that it tends to be cheaper than occurrence based coverage
• The down side of a claims made policy is that coverage must be continued indefinitely to make sure that
you have coverage in the future for events that occurred in the past. Once the policy has lapsed you no
longer have coverage.
• Note also that claims made policies often have a retroactive date before which there is no coverage.
▪ Claims made policies cover you for any covered claim provided:
• The policy is in effect when the claim is made; or
• You renewed the policy from the time the incident occurred until the claim is made.
14
DIFFERENCE BETWEEN CLAIMS MADE AND OCCURRENCE
POLICIES, CONT’D.
▪ “Occurrence” policies:
• Occurrence policies cover companies for alleged acts that were unknown to the insured and that occurred
while the policy was in effect.
• The big difference from a claims made policy is that it does not matter if the coverage is in effect at the
time the claim is made.
• Generally, the policy doesn't specify when the occurrence must take place. So, an occurrence may happen
before or during the policy period as long as the injury occurs during the policy period
• Most medium sized and large business use occurrence coverage, because even if the policy is cancelled,
the company will still have coverage for events that occurred while the policy was in effect.
• This makes it easier to avoid gaps in coverage.
▪ Example: Company buys a policy in 2010. Terminates the policy 2015. In 2016, a supplier sues
the company for an incident that occurred in 2012. The company is covered because it had the
policy in 2012. It does not matter that the policy was terminated by the time the lawsuit was
brought.
15
DETERMINING WHAT COVERAGE IS AVAILABLE
▪ What coverage is available
▪ How much coverage is available?
▪ There are a lot of parts to a policy that factor into whether there is coverage and how
much:
• Have you looked at the exclusions?
• Endorsements?
• Pro-rata allocation?
• “All sums" allocation?
• Deductibles?
• Self-insured retentions?
16
II.
MAKING A MEANINGFUL COVERAGE ASSESSMENT
17
ANATOMY OF A CLAIM & COVERAGE ASSESSMENT
▪ Over the course of 20 years of selling of Product X, ABC Manufacturer
has had a small stream of mostly low-value consumer bodily injury
claims which it generally resolved for less than $1000 without
involvement of its insurers. Occasional higher value claims of $25,000-
$50,000
▪ In 2017, ABC Manufacturer is the subject of a presentation at a
plaintiffs’ bar conference and soon afterwards there is an explosion of
individual suits all over the country alleging personal injuries from
Product X as well as a mass tort action with 10,000 potential claimants
▪ The claimants injuries span a seven year period through 2018, with
claims continuing to be added
▪ Defense counsel’s initial assessment of damages exposure is anywhere
from $30MM to $60MM
18
$25,000,000
$100,000,000
ABC Manufacturer
General Liability
Coverage
2008-2018
$75,000,000
$70,000,000
10
/1/2
009
10
/1/2
010
10
/1/2
011
10
/1/2
012
10
/1/2
013
10
/1/2
014
10
/1/2
015
$1,000,000
$10,000,000
$50,000,000
$45,000,000
10
/1/2
008
$20,000,000
10
/1/2
016
11
/1/2
017
Policy Limit of 25M occ/agg
RSUI
Policy Limit of 25M occ/agg
RSUI
Policy Limit of 25M occ/agg
RSUI
Policy Limit of 25Mocc/agg
RSUI
Policy Limit of 25M occ/agg
RSUI
Policy Limit of 25M occ/agg
RSUI
Policy Limit of 25M occ/agg
Endurance
Policy Limit of 25Mocc/agg
Endurance
Policy Limit of 25Mocc/agg
Ohio Casualty
Policy Limit of 25M occ/agg
AWAC
Policy Limit of 5M occ/agg
Federal [Chubb]
Policy Limit of 5M occ/agg
Federal [Chubb]
Policy Limit of 5M occ/agg
Federal [Chubb]
Policy Limit of 25Mocc/agg
Navigators
Policy Limit of 25M occ/agg
Navigators
Policy Limit of 25M occ/agg
Zurich
Policy Limit of 25Mocc/agg
Zurich
Policy Limit of 25Mocc/agg
Endurance
Policy Limit of 25M occ/agg
Endurance
Policy Limit of 25M occ/agg
AWAC
Policy Limit of 25M occ/agg
AWAC
Policy Limit of 25M occ/agg
AWAC
Policy Limit of 30M occ/agg
Zurich
Policy Limit of 25Mocc/agg
Endurance
Policy Limit of 25M occ/agg
Endurance
Policy Limit of 25M occ/agg
AWAC
Policy Limit of 25Mocc/agg
AWAC
Policy Limit of 25Mocc/agg
Zurich
Policy Limit of 25M occ/agg
Zurich
Policy Limit of 35M occ/agg
Zurich
Policy Limit of 35M occ/agg
Zurich
Policy Limit of 35M occ/agg
Zurich Policy Limit of 25Mocc/agg
Zurich
Policy Limit of 25M occ/agg
Zurich
Policy Limit of 25M
occ/agg
NationalUnion
Policy Limit of 25M
occ/agg
NationalUnion
Policy Limit of 25M
occ/agg
NationalUnion
Policy Limit of 15M
occ/agg
Peleus
Policy Limit of 20M occ/agg
Federal
Policy Limit of 10Mocc/agg
Federal
Policy Limit of 10Mocc/agg
Federal
Policy Limit of 10Mocc/agg
Federal
Policy Limit of 10M occ/agg
XL Specialty
Policy Limit of 1M occ, 2M agg
Federal
Policy Limit of 1M occ, 2M agg
Federal
Policy Limit of 1M occ, 2M agg
Federal
Policy Limit of 1M occ, 2M agg
Federal
Policy Limit of 1M occ, 2M agg
Twin City
Fire
Policy Limit of 1M occ, 2M agg
Twin City
Fire
Policy Limit of 1M occ, 2M agg
Twin City
Fire
Policy Limit of 1M occ, 2M agg
Twin City
Fire
Policy Limit of 1M occ, 2M agg
Twin City
Fire
Policy Limit of 1M occ, 2M agg
Twin City
Fire
19
ALL COVERAGE IS NOT CREATED EQUALLY
Primary Insurer
One YearFederal: 2011-2012
Six YearsTwin City: 2012-2018
Limits $1MM per occurrence $2M aggregate
$1MM per occurrence $2M aggregate
Retention $200K per occurrence$1MM aggregate
$350K per occurrence$2MM aggregate
Number of Occurrences for Product X Claims
One Occurrence Multiple Occurrences
Duty to Defend
Yes, at dollar one Yes, after retention
Allocation of Defense Costs
By percentage of claimants in policy period
Equal pro rata shares
Allocation of Indemnity
By percentage of claimants in policy period
By percentage of claimants in policy period
20
NUMBER OF OCCURRENCES
▪ Occurrence:
• “an accident, including continuous or repeated exposure to substantially
the same general harmful conditions”
▪ Are the bodily injuries or instances of property damage alleged by the
plaintiffs in each of claims caused by one overall “occurrence” or is
each of the plaintiffs’ respective injuries caused by a separate
“occurrence”?
▪ Single v. Multiple Occurrences Controls:
• Number of deductibles to be satisfied (each occurrence has a deductible)
• The amount of policy limits available (policies have a per occurrence limit,
so if multiple occurrences, then multiple limits available, subject to an
aggregate limit)
21
TRIGGER OF POLICIES
▪ Multiple policies may be triggered depending on when
bodily injury or property damage is deemed to take place –
if bodily injury or property damage is progressive and
occurs over several years, the policy limits of several
different policies may be available for coverage
▪ Courts have adopted different bodily injury and property
damage trigger theories, including injury taking place on
exposure to the injury causing event and injury taking
place at manifestation of the injury
▪ Varies widely by state, facts of the case and policy wording
22
III.
STRATEGICALLY USING INSURANCE COVERAGE
23
EXECUTIVE SUMMARY
▪ Timely notifications related to the claim
• How should counsel for a product manufacturer best approach the duty to notify
▪ Duty to cooperate
• How should counsel for a product manufacturer best approach the duty to cooperate?
▪ Deciding when to settle the claim
▪ Exerting control over litigation
• How should counsel address potential conflicts of interest between a manufacturer and its insurer?
▪ Affirmative claims?
24
RISKS OF UNTIMELY NOTICE
▪ Failing to give timely notice causes a host of expensive problems.
▪ All of them are avoidable
Out-of-Pocket Judgments
Out-of-Pocket Settlements
Out-of-PocketAttorney’s Fees
and Costs
25
PROMPT NOTICE IS THE BEST PRACTICE
▪ Notice requirements vary by policy type and by jurisdiction
▪ Insurer may claim prejudice based on late notice
▪ Late notice can be a basis for coverage to be denied
26
NOTICE AND COVERAGE UNDER CLAIMS MADE POLICIES
Retroactive period Outside policy periodPolicy in effect
Claim First Made
Covered if Insurer isNotified During the Policy Period
• Service of a lawsuit• Notice of arbitration• Counterclaims/crossclaims• Written demand?• Wells letter?• Subpoena?
Covered Wrongful ActTook Place, but Insured Was Unaware
27
NOTICE AND COVERAGE UNDER OCCURRENCE POLICIES
Outside policy periodPolicy in effect
Covered Incident Occurs Claim Made
Covered if Insurer is Notified as Soonas Practicable, No Actual Prejudice
28
DUTY TO COOPERATE
▪ Most liability policies have a provision stating that the insured has a duty to cooperate with the insurer with respect to
the investigation and/or defense of a claim.
▪ Generally, this is not an issue. Insureds are aligned with insurers and the insurer’s requests for information are not
onerous.
▪ Occasionally, however, the interests are not aligned. Problems can develop in both directions:
• Has the insured fulfilled its duty to cooperate such that the insurer must provide insurance
• Has the insurers conduct excused the insured from any further duty to cooperate. The question generally will turn on
whether the insurer had enough information to evaluate the claim.
▪ One situation where the question arises often is settlement without consent
• Were there meritorious defenses that would preclude liability? How strong?
• Did the insurance company have a full opportunity to evaluate the claim?
▪ Providing the insurer with requested information
• There is always a risk in not providing the insurance carrier with requested information
• Many policyholders react badly to information requests, particularly where a reservation of rights has been issued.
• Many policies have a “reasonableness” requirement
▪ However, many (but not all) states require the insurer to show a “plus factor” such as repeated requests, prejudice from
the failure to cooperate, or that the failure was material. So, the choice of law in the policy could be important.
29
DECIDING WHETHER TO RESOLVE A CLAIM WITHOUT THE
INSURERS PERMISSION
▪ Tricky situation: Insurer has reserved rights, but agreed to defend
• Very common in situations involving large claims
▪ State specific, so you need to be careful and talk the issue through with your lawyers
▪ Some courts have held that while coverage is in doubt, the insured has the right to protect
itself.
• But, the insurer may well be upset and even if you prevail, it could be costly to do so.
▪ N.B. for attorneys: The Model Rules of Professional Conduct place the decision about
whether to settle squarely with the client, i.e. the insured.
• Attorneys who are part of an insurance panel are often tempted to side with the insurer over their client,
the insured. The Model Rules make clear that they cannot do so.
• From the attorneys’ perspective, does the insured’s consent to the policy act as consent to let the insurer
handle settlements?
• Can the insured change its mind? What if it does not revoke the policy?
30
EXERTING CONTROL OVER CLAIMS
▪ Generally speaking, if the insurer offers an unqualified defense, they have the right to
select counsel and control the litigation.
▪ However, if the defense is qualified, then the insured has the right to select its own
counsel and seek payment for fees if there is coverage.
▪ Often, in large cases, the selection of counsel is made jointly.
▪ Keep in mind that the insurer has many control devices:
• Settlement
– Attendance at mediations (not always desirable)
• Defense
– Litigation guidelines
– Fee audits
– Staff counsel
• Selection of counsel
• Cooperation clause
31
COVERAGE FOR AFFIRMATIVE CLAIMS
▪ Argument: The affirmative complaint is part of the defense strategy and should be covered in
connection with the defense.
▪ The prosecution of the affirmative claims will be inextricably intertwined with the defense of the
action.
▪ As such, any additional cost to bring the affirmative complaint will be minimal aside from the drafting
of the complaint itself.
▪ Written and deposition discovery on the affirmative and defensive claims will be duplicative and
inextricably intertwined because the factual and legal arguments will be the same.
▪ Ultimately, bringing affirmative claims will decrease the liability and potential exposure
• Creates pressure to negotiate early and favorable settlement
32
COVERAGE OF THE AFFIRMATIVE CLAIMS
▪ The affirmative claims are reasonable and necessary to limit or defeat liability.
• The California Supreme Court in Aerojet-Gen. Corp. v. Transp. Indem. Co., 17 Cal. 4th 38 (1997), established a three-part test to
determine the fees and costs an insurer must pay in fulfilling its defense obligations, finding that a broad range of work may
be reasonably and necessarily defensive and reimbursable by the insured:
– First, the [fee or expense] must be conducted within the temporal limits of the insurer’s duty to defend, i.e., between
tender of the defense and conclusion of the action. Second, the [affirmative claims] must amount to a reasonable and
necessary effort to avoid or at least minimize liability. Third and final, the [fee or expense associated with the
affirmative claims] must be reasonable and necessary for that purpose. Id. at 61.
– The Aerojet Court held that the if the work conducted amounted to “a reasonable and necessary effort to avoid or at
least minimize liability” then it should be included as reimbursable Defense Costs under the insurance policy. Id.
▪ Even if defense costs serve a dual purpose for both the defense and prosecution of
claims, provided such fees and costs are reasonable and necessary to the insured’s
defense, then the insurer must pay them as defense expenses.
• See, e.g., State v. Pacific Indem. Co., 63 Cal. App. 4th 1535, 1548049 (1998) (defense costs included tasks
involved in prosecuting that were inextricably linked to those involved in defending counterclaims); KLA-
Tencor Corp. v. Travelers Indem. Co., 2004 U.S. Dist LEXIS 15376 *23 (N.D. Cal. August 4, 2004) (same)
• Courts have found that when affirmative claims are “defensive” in nature, meaning they are filed to limit a defendant’s
potential liability, such claims are encompassed by the duty to defend. See, e.g,, Safeguard Scientifics, Inc. v. Liberty Mutual Ins.
Co., 766 F. Supp. 324 (ED PA 1991); TIG Ins. Co. v. Nobel Learning Communities, Inc., 2002 WL 1340332 at *1 (E.D. Pa June 18,
2002).
33
IV.
PROTECTING THE RIGHT TO COVERAGE
34
EVALUATE, DOCUMENT AND RESPOND
▪ Independently evaluate coverage denials and reservations of rights
• Risk managers and brokers may be willing to accept an insurer’s position without the benefit of legal
analysis of the contract
▪ Be Proactive with Reservations of Rights
• Insist upon a prompt coverage determination
• Dispute all stated reservations on coverage
• Look for conflicts of interest that may entitle the policyholder to independent counsel
▪ Document everything that happens with respect to a claim
• Make a record of insurer delays, shifting positions and other potentially improper conduct
• Respond promptly to every insurer
▪ Comply with all reasonable insurer requests
• Comply with all information requests unless outrageous
▪ Set up agreed protocols
• Monthly status reports
• Open access to counsel
• Defense invoices provided to insurers as soon as received
35
SETTLEMENT OF THE UNDERLYING CASE
▪ Lay the groundwork months ahead of any mediation• Before mediation date is even set, prepare insurers with:
– Defense counsel liability analysis
– Third party expert damages exposure analysis
– Comparative settlement and verdict information
– Meet in person with all potentially implicated insurers as a group to iron out coverage issues and
settlement concerns
▪ Involve the insurers in the selection of the mediator and
mediation date
▪ Don’t request settlement authority the day before
▪ Engage the mediator where needed to assist with insurer
cooperation
▪ Leverage settlement demands within policy limits
▪ Prepare for a dual track mediation
36
SETTLEMENT OF THE COVERAGE CLAIM
▪ Insurers like to first negotiate the lowest possible payment
and then the broadest possible release
▪ Negotiate releases and indemnifications first so you know
what you are giving up before agreeing on a payment
amount:• Claim release?
• Occurrence or site release?
• Policy buyback?
• Indemnity clauses?
▪ How does settlement for less than policy limits with one
insurer affect the availability insurance next up in the
chain?• Exhaustion
• Settlement Contribution Strategy
37
RACE TO THE COURTHOUSE
Choice of forum can mean joyous victory or depressing defeat. A wrong selection and it’s enemy territory: a
jurisdiction where the prevailing law, available remedies, courtroom procedures, and juror attitudes are inimical to your
client. A correct choice and, as Don Corleone once said, “They will fear you.”
Gita F. Rothschild, “Forum Shopping,” 24 Litigation 40 (ABS Section of Litigation, Spring
1998).
38
EVALUATE CHOICE OF LAW AND FORUM AT THE OUTSET
▪ Analyze the importance of choice-of-law and forum at the outset of the
claim and before the claim reaches an impasse
▪ Insurance policies are interpreted under state law
▪ Many standard form provisions have been interpreted differently from
state to state, with critically different results:
• All Sums
• Pro Rata
• Policy Exclusions
• Availability of Bad Faith
▪ Be ready to file at the first indication that claim will not be resolved
▪ Say no to choice of law and forum selection clauses in your policies
39
WHAT STATE?
▪ State of incorporation of policyholder
▪ State of incorporation of insurance company
▪ Principal place of business of policyholder
▪ Principal place of business of insurance company
▪ Where the insurance policy was executed
▪ Where the underlying event took place
40
CHOICE OF STATE DETERMINES:
▪ Choice of Law Analysis Used:
• State “where the policy was made”; or
• State with the “most significant relationship” to the dispute
▪ Procedural Rules to be Applied
• Statute of limitations
• Attorneys’ fees
• Court rules
▪ What court?
• State or Federal?
• Judges
• Jury Catchment Area
41
V.
BALANCING INSURANCE REQUIREMENTS WITH CUSTOMER
RELATIONS OBLIGATIONS
42
EXECUTIVE SUMMARY
▪ Determining whether a customer complaint is a claim
▪ How can counsel help protect the manufacturer’s relationship with its customers and
suppliers?
43
DETERMINING WHETHER A CUSTOMER COMPLAINT IS A CLAIM
▪ A frequently recurring issue is when a complaint (informally, not a legal complaint) rises
to the issue of a claim about which the insurance company needs to be notified.
▪ Often, a company does not want to get cross-wise with a recurring customer over an issue
that can be resolved amicably, but does not want to lose insurance coverage if the issue
cannot be resolved.
• Ultimately, this may be a business decision, but it is a risky one.
▪ Courts apply different standards:
• Old rule (still in effect in some places): If the notice period is missed, the contract is breached and the
insurer does not need to provide coverage.
• Modern Rule A: There is a rebuttable presumption that the insurer was prejudiced by the lack of notice,
but the insured has the chance to rebut the presumption
• Modern Rule B: Multifactored test of which prejudice is just one factor.
• It is important to know the standard in the jurisdiction governing your policy
44
PROTECTING A RELATIONSHIP WITH CUSTOMERS OR SUPPLIERS
▪ Is litigation even necessary?
▪ When to settle?
▪ Tenor of the litigation (working with counsel)?
• Working against plaintiffs
• Working with/against co-defendants
• Do we need to salt the earth?
▪ How strong is the claim against the insured?
▪ Insurers could consider whether they can do more, especially when the market is
crowded and the insured has options
45
VI.
FINAL THOUGHTS AND PRACTICAL CONSIDERATIONS
46
COVERAGE COUNSEL, BROKERS & BAD FAITH
▪ Use of coverage counsel
• Early, early, early
• Consider carefully if and when coverage counsel engages directly with insurers
▪ Use of Brokers
• Brokers increasingly performing claims advocacy functions
• Carefully managed roles for broker claims advocate and coverage counsel can be effective
• Be careful of privilege and remember they may be witnesses
▪ Bad Faith
• Can be powerful leverage to achieve a favorable resolution
• Careful consideration of if and when to raise bad faith accusations
47
THANK YOU
Corey Worcester Alex Hardiman
Quinn Emanuel Urquhart & Sullivan, LLP Pillsbury Winthrop Shaw Pittman, LLP
212-849-7471 212-858-1064
coreyworcester@quinnemanuel.com alexander.hardiman@pillsburylaw.com
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