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Judge: Stanford may use insurance funds for defense

Posted on Jan 29, 2010 by Sergio Ulloa ()  | Tags: Liability Insurance, Lloyds of London, R. Allen Stanford

In Houston on Tuesday 26th January, U.S. District Judge David Hittner ruled against Lloyd's underwriters and in favor of R. Allen Stanford. This means that Mr. Stanford can now use the Lloyd's of London insurance policies covering his companies' directors and officers to pay lawyers to defend him against upcoming criminal charges. Stanford is currently being held without bail, a trial has been scheduled for January 2011. He's charged with defrauding investors in a $7 billion Ponzi scheme involving certificates of deposit and could be imprisoned for decades. Lloyd's underwriters had denied coverage in November, saying the policy was voided by the August guilty plea of James M. Davis, who had been chief financial officer for Stanford Financial.

[caption id="attachment_144" align="alignleft" width="199" caption="Stanford before & after his arrest"]R. Allen Stanford Before and After his arrest.[/caption]

Stanford had sued to force Lloyd's to pay his defense costs. Joining Stanford in the insurance suit were three criminal case co-defendants including former Stanford Financial Group Co. investment chief Laura Pendergest-Holt, and former accounting executives Gilbert Lopez and Mark Kuhrt.

The position taken by Lloyd's "is absurd because these circumstances are precisely why corporations procure D&O insurance on behalf of their directors and officers," Hittner wrote in his 42-page opinion. "Indeed, it would contravene the very purpose of the policies -- as well as the policy language itself -- to require (the accused) to prove their innocence before being entitled to funds for their defense."

Stanford's attorneys said the position taken by Lloyd's effectively required him and his co-defendants to prove their innocence to the underwriters prior to receiving indemnity against legal fees.

Dan Cogdell, an attorney for Pendergest-Holt, said in an e-mail that he and his client were "relieved" by the decision. "The judge's order now allows us to properly defend our clients without fear of going into bankruptcy," Cogdell said.

Insurance Products Mentioned:

D&O insurance - Directors and Officers liability Insurance Liability insurance payable to the directors and officers of a company, or to the organization(s) itself, to cover damages or defense costs in the event they suffer such losses as a result of a lawsuit for alleged wrongful acts while acting in their capacity as directors and officers for the organization. Such coverage can extend to defense costs arising out of criminal and regulatory investigations/trials as well; in fact, often civil and criminal actions are brought against directors/officers simultaneously.

Insurance companies mentioned:

Lloyd's Lloyd's is the world's leading specialist insurance market and occupies fifth place in terms of global reinsurance premium income, and is the second largest surplus lines insurer in the US. In 2009, 74 syndicates are underwriting insurance at Lloyd's, covering all classes of business from more than 200 countries and territories worldwide. Lloyd's is regulated by the Financial Service Authority.

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