Former FTX CEO, Sam Bankman-Fried, Files Lawsuit against Insurance Company for Unpaid Defense Costs
Summary:
Sam Bankman-Fried, the former CEO of FTX, has filed a lawsuit against Continental Casualty insurance company for not paying his defense costs in an ongoing trial. He claims they are contractually obligated to cover these expenses through secondary directors and officers (D&O) insurance. The primary insurance providers have complied with the payment terms. Additionally, the third layer of D&O coverage, provided by Hiscox Syndicates, is under legal scrutiny as conflicts arise among the insured.
In Manhattan, although final touches were being put to Sam Bankman-Fried's impending trial, his attorneys were busy filing a lawsuit against Continental Casualty insurance company at the Northern California District Court. Allegedly, Continental Casualty had been providing Paper Bird’s and its subsidiary FTX Trading’s directors and officers (D&O) insurance. The lawsuit was filed by Bankman-Fried personally, claiming that Continental Casualty is a secondary provider in the metaphorical "insurance tower" of D&O for Paper Bird. D&O insurance shields the directors and officers of a company against personal financial loss in case they're sued. Considering the lawsuit, it notes that two insurers provided a primary coverage of $10 million for Bankman-Fried's legal defense, and Continental Casualty’s policy was meant to provide an additional $5 million. The policy required payments on an ongoing basis, with expenses including defense against criminal charges, even with an exclusion clause for “fraudulent, criminal, and similar acts.” Notably, the policy had no clawback stipulation.
Interestingly, the lawsuit highlights that Bankman-Fried's defense costs had been paid by Paper Bird’s primary D&O policy providers, Beazley, and QBE, in accordance with the policy terms. Consequently, Bankman-Fried is insistent that Continental Casualty must also pay his defense costs per its contractual obligations, inclusive of the court costs.
There's another key player involved in the D&O 'insurance tower' - Hiscox Syndicates, responsible for providing the third layer. Currently, Hiscox is part of an ongoing court suit, having filed an interpleader complaint against Paper Bird and a multitude of insured people, including Bankman-Fried. The function of the interpleader action is to oblige the parties in a legal proceeding to litigate their claims amongst each other. In line with this complaint, launched on Aug 9 at the Northern California District Court, Hiscox's policy becomes applicable after the first $15 million. This complaint indicates that the company anticipate claims worth $5 million to be made under their policy and ensures fair allocation of policy funds via interpleading. Hiscox's complaint includes 20 people, who all have ties to FTX, many times in a professional capacity.
As per The Financial Times, Paper Bird, solely owned by Bankman-Fried, also completely owns FTX Ventures and 89% of FTX Trading, often referred to as “the foundation company identified in FTX’s legal disclaimers.” However, Bankman-Fried's attempt to collect D&O insurance payments under a policy issued to something known more widely as FTX US was met with resistance from FTX lawyers, the creditors’ committee, and blocked by the U.S. Bankruptcy Court for the District of Delaware.
Published At
10/3/2023 6:15:00 PM
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