Decisions in Tax, Insurance Cases, Plus Application of Whistleblower-Protection Provision to Nonprofits

The Seventh Circuit decided an employment matter, a case involving breach of an insurance contract, and Tax Court's determination of settlement payments and incurred litigation costs for deduction purposes.

In Luster v. Allstate Ins. Co., No. 09-2483, the court faced a challenge to the district court's grant of summary judgment in favor of an insurance company in an attorney's action for breach arising from the insurer's refusal to cover extensive fire damage to the attorney's deceased client, that had occurred while the home was unoccupied for more than four years, and had remained unoccupied until the client's  death.  In reversing the summary judgment, the court remanded the case in determining that the plaintiff was entitled to a hearing on whether an exclusion applies as the district court's decision was based not on cancellation but on the hazard exclusion.

WellPoint, Inc. v. Comm'r of Internal Revenue, No. 09-3163, involved an appeal of the decision of the Tax Court that plaintiff could not deduct from its taxable income, either the amount it paid to the states in its settlement or the legal expenses incurred in defending the case.  The underlying litigation against the plaintiff by three states arose from its acquisition of nonprofit companies some years ago and allegedly used the assets for its purposes as a for-profit company.  In affirming the Tax Court's judgment, the court held that under the application of the "origina of the claim" doctrine, costs incurred in defending the lawsuit were capital expenditures and not ordinary and necessary business expenses.

Fleszar v. U.S. Dep't of Labor, No. 09-2423, involved a plaintiff's petition for review a decision by the Administrative Review Board declining to investigate her allegation that her termination from employment by the American Medical Association violated the whistleblower-provision, section 806 of the Sarbanes-Oxley Act.  In affirming the decision, the court denied plaintiff's petition and held that the AMA, a nonprofit membership association that does not issue stock, is not covered under the Act. 

Related Resources:

• Full text of  Luster v. Allstate Ins. Co
• Full text of WellPoint, Inc. v. Comm'r of Internal Revenue
• Full text of Fleszar v. U.S. Dep't of Labor