The Upper Deck Company, LLC v. American International Specialty Lines Insurance Company

This appeal arises out of an insurance policy that The Upper Deck Corporation (“Upper Deck”), purchased from American International Specialty Lines Insurance Company (“AISLIC”). The policy insured a tax strategy that KPMG, an accounting firm, developed for Upper Deck. The IRS investigated the tax strategy and determined that it constituted an improper tax shelter. Upper Deck then settled with the IRS for $80 million in back taxes and interest, and with the California Franchise Tax Board for $17 million in back taxes and interest.

After AISLIC rejected Upper Deck’s claim that the policy covered the loss incurred as a result of the settlement, Upper Deck and its Chief Executive Officer, Richard McWilliam, filed a complaint in the United States District Court for the Southern District of California seeking, inter alia, a declaratory judgment that the policy issued by AISLIC covered the loss. Subsequently, the district court granted AISLIC’s motion to compel arbitration.

A three-member panel of arbitrators held that Upper Deck and McWilliam were not entitled to coverage because Upper Deck had abandoned the tax strategy that AISLIC had insured. The district court confirmed the…