Judge Says Lloyd's Must Defend Allen Stanford in Alleged $7B Scheme, Under D&O Policies
Accused of operating a $7 billion Ponzi scheme under the guise of running his Texas-based investment company, billionaire R. Allen Stanford has been fighting to force renowned insurer Lloyd’s of London to defend him and other executives on related criminal charges.
Today, in a ruling by a federal judge in Houston in an apparent declaratory judgment case, he won the battle. Despite its arguments that the company’s directors and officers coverage was voided by corporate wrongdoing, Senior U.S. District Judge David Hittner ruled Lloyd’s has a duty to defend Stanford and other executives, according to Bloomberg.
He ordered Lloyd’s to pay criminal defense lawyers’ bills for their prior work within 10 days, and then continue paying the ongoing defense costs for Stanford and other executives, reports the Houston Chronicle.
“(Lloyd’s) position is absurd because these circumstances are precisely why corporations procure D&O insurance on behalf of their directors and officers,” writes Hittner in a 42-page opinion. “Indeed it would contravene the very purpose of the policies—as well as the language itself—to require (the accused) to prove their innocence before being entitled to fund for their defense.”
Starting in August, when former chief financial officer James Davis pleaded guilty to a role in the claimed Ponzi scheme, Lloyd’s underwriters determined that no further defense was required because Stanford and his colleagues had participated in money laundering, the newspaper explains. However, Davis did not plead guilty to any such charge, nor has there been any such court finding concerning Stanford or his colleagues. (As Lloyd’s pointed out, Stanford and two co-defendants have asserted their right to remain silent in a hearing concerning questioned payments.)
Although Stanford, who is being held without bail pending a trial early next year, has denied all allegations of wrongdoing, “basically, underwriters sought to convict their own insureds,” Stanford defense attorney Lee Shidlofsky tells Bloomberg in an e-mail, in reaction to Hittner’s ruling. “And by doing so, underwriters undermined the very essence of the protections afforded by a D&O policy.”
Lloyd’s is represented by partner Neel Lane of Akin Gump Strauss Hauer & Feld. He declined the news agency’s request for comment, citing law firm policy on pending litigation. In a court filing earlier this month, however, he argued that the insurance contract did not provide for coverage under these factual circumstances and hence Lloyd’s had no duty to defend Stanford executives.
Earlier coverage:
ABAJournal.com (June 2009): “Judge Revokes $500K Bail for Billionaire R. Allen Stanford”
ABAJournal.com (July 2009): “DeGuerin Out, Patton Boggs In as Stanford’s Defense Counsel in $7B Case”
ABAJournal.com (Sept. 2009): “Judge Appoints Public Defender for Billionaire R. Allen Stanford”
