An insurer wants out of a $1.5 million defense, accusing its own policyholder of flooding lawyers with AI-generated emails.
United States Liability Insurance Company filed a declaratory judgment action on February 17 in the United States District Court for the District of Nebraska against Retsel Corporation, the South Dakota company behind the Grand Gateway Hotel and Cheers Sports Lounge and Casino. At the center of the dispute is whether Retsel's conduct has so thoroughly breached its duty to cooperate that USLI should be freed from any obligation to defend or indemnify it.
The action grows out of a separate racial discrimination lawsuit - NDN Collective, Sunny Red Bear et. al. v. Retsel Corporation, Connie Uhre, Nicholas Uhre et. al. - currently pending in federal court in South Dakota. USLI has been defending Retsel under an Employment Practices Liability policy, subject to a strict reservation of rights that includes no coverage for attorney's fees awards or punitive damages. The insurer says it has spent more than $1.5 million on that defense so far.
Now it wants reimbursement - and permission to walk away.
USLI alleges that Retsel, on its own and through its individual members, officers, and stakeholders, failed to sufficiently cooperate with the insurer and with the defense counsel it retained on Retsel's behalf. According to the filing, Retsel made certain filings without the consent of its defense counsel, in conjunction with proper filings by defense counsel - filings the insurer says potentially compromise the defense and could increase its exposure for loss.
What gives this case a modern edge is the alleged role of artificial intelligence. USLI says Retsel deluged the insurer and defense counsel with hundreds of emails including instructions to file meritless motions in conjunction with those already filed by defense counsel. These emails and proposed filings, USLI alleges, relied heavily on open source AI and would violate American Bar Association ethical rules on the use of AI in court filings if submitted by attorneys. The filing describes them as propounding conspiracy theories about the judiciary and parties to the litigation.
The cost of managing all of this, USLI says, has not been small. Defense counsel allegedly incurred excessive time and expense in reviewing, considering, and responding to Retsel's communications, increasing the insurer's exposure for defense costs.
The policy's cooperation clause required the insured to cooperate on all claims, provide assistance and information as reasonably requested, and refrain from taking any action that could increase the insured's or the insurer's exposure for loss or defense costs. USLI alleges Retsel breached those obligations.
The insurer is now asking the court to declare that it owes no further duty to defend or indemnify Retsel and that it is entitled to reimbursement of defense costs it says were unnecessarily incurred. USLI has also demanded a jury trial.
No determination has been made on the merits.
