Laura Pendergest-Holt, et al. v. Certain Underwriters at Lloyd's of London and Arch Specialty Ins. Co.

Standford Financial D&O Insurers Off the Hook :: District Court's October 13, 2010 Order in Stanford Financial D&O Coverage Litigation


Ruling in Stanford Financial D&O Coverage Litigation :: October 13, 2010. Following a four-day hearing in late August, federal district court judge Nancy Atlas ruled that the D&O insurers for R. Allen Stanford and two other former Stanford Financial executives were not required to continue paying defense costs in the pending criminal prosecution or in the civil suit brought against the executives by the Securities Exchange Commission. Amid evidentiary maneuvering of epic proportions, the court determined that the insurers met their burden of showing that they could demonstrate by a preponderance of the evidence that a substantial likelihood exists that the former executives “in fact” engaged in money laundering as defined in the policies. Based on this determination, the court concluded that the money laundering exclusion “applies to justify Underwriters’ denial of coverage at this time.” (Op., 9) Repeatedly emphasizing the narrow scope of her ruling, the court added that her “findings and conclusions” are not findings of fact and conclusions of law for purposes of the pending criminal and SEC litigation against the insureds. The opinion does not reach the issue of whether any defendant engaged in criminal conduct. Rather, “[t]he ruling is limited to analysis of conduct found by a preponderance of the evidence on a necessarily restricted record and without reliance of any inferences that could be drawn from Stanford’s invocation of his Fifth Amendment privilege against self-incrimination.” (Op., 42)

Persuaded that the insureds would not prevail on issues anticipated for appeal, the court determined a stay would cause irreparable harm to Underwriters, who would likely not recoup any funds if the money laundering exclusion is ultimately found to apply. The court also recognized the interests of other Stanford Financial directors and officers, some of whom are not subject to the money laundering exclusion, who are also insured under the same eroding policies.

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Reference Info:Decision | Federal, 5th Circuit, Texas | United States

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