A federal judge has ordered AIG Specialty Insurance Co. into arbitration with The Walt Disney Co. in a dispute about a $25 million liability policy held by the ABC television network, which Disney owns.

Disney wants to tap ABC’s  insurance to partially offset its payout to Dakota Dunes, SD-based Beef Products Inc. (BPI). The payout is part of an out-of-court settlement in a defamation lawsuit BPI filed against the television network’s news division and reporter Jim Avila.

Neither Disney nor BPI disclosed details of the settlement, but Disney’s financial filings with Securities and Exchange Commission show the payout might have been as much as $177 million.

BPI filed the civil action after ABC’s 2012 news reports about lean finely textured beef, which repeatedly called the product “pink slime.” The parties settled midway through a jury trial in June in South Dakota’s state court.

Disney and AIG engaged in non-binding mediation until about Sept. 1 without agreement. After that, Disney asked the U.S. District Court for the Central District of California to compel AIG to proceed with arbitration. AIG countered with a 257-page complaint in the Supreme Court for New York State.

AIG claims the ABC defendants are not eligible to make claims against the policy for any malicious act, error or omission. U.S. District Court Judge George H. Wu ordered both parties into arbitration at JAMS Los Angeles, a well known commercial dispute resolution service.

In the New York state court, AIG wants a decision to end arbitration and a ruling that the policy is not required to pay any part of the settlement.

In the confidential out-of-court agreement, BPI and ABC Television settled what could have been a $1.9 billion defamation lawsuit. The case gained national attention, as had the news reports that spawned it.

New York Times reporter Michael Moss was the first news person to report the phrase “pink slime.”

After a 2009 New York Times article quoted a USDA official who referred to BPI’s lean finely textured beef (LFTB) as “pink slime,” numerous other news outlets repeated the phrase.

The ABC legal team pointed to those other reports, contending BPI’s demise was well underway before ABC aired its news stories in 2012. McDonald’s, Burger King and Taco Bell stopped using LFTB in 2011. They had been BPI’s three largest purchasers.

However, BPI’s civil lawsuit claimed ABC News’ use of the term “pink slime” constituted defamation, partly because of the number of times the network and reporter Avila used the two-word phrase. BPI’s legal team counted more than 350 occasions on which ABC used the phrase during a 27-day period in 2012.

Ultimately, three BPI closed three processing plants. Hundreds of its employees lost their jobs. BPI sued under South Dakota’s agriculture defamation law, which provides for triple damages. A dozen other agricultural states have similar statutes.

Before the settlement, the jury had only heard from BPI’s witnesses, causing Avila to express regrets that the proceedings ended before he could tell his side of the story.

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