Court: Insurer Must Pay Tyco CEO’s Legal Costs for Now

A Chubb Insurance subsidiary that provided liability for the executives of Tyco International must pay the legal bills of that company’s former chief executive officer, L. Dennis Kozlowski, who is on trial charged with corporate fraud.

The New York Supreme Court, First Appellate Division, has upheld a June ruling by a lower court judge that Federal Insurance Co. is legally obligated to cover the legal costs, at least until the charges have been litigated. The court did qualified its order to indicate that Federal might later recoup any costs associated with charges that were not covered under the liability policy.

“Federal must pay all defense costs as incurred, subject to recoupment when Kozlowski’s liabilities, if any, are determined,” the ruling stated.

The 5-0 decision stated that “plaintiff’s obligations with respect to the criminal proceeding and the securities action are limited to defense costs incurred, subject to apportionment and reimbursement for the cost of the defense of non-covered claims…”

The insurer, represented by Attorney David Hensler of the Washington, D.C. law firm, Hogan & Hartson LLP, had argued that Federal did not have to pay for legal costs associated with all of the criminal charges according to a personal profit exclusion and because, the insurer claimed, Kozlowski lied about the company’s finances in his insurance application.

The case is Federal Insurance Company v L. Dennis Kozlowski, Tyco International Ltd., et al.

Kozlowski was represented by Attorney William G. Passannante of the New York office of Anderson Kill & Olick, P.C.

Kozlowski is in the middle of a retrial on charges he stole millions from Tyco through questionable loans and bonuses and that he helped inflate the company’s stock value. An earlier trial ended in a mistrial.

Tyco is in the electronics and medical supplies business.