Several days after he was found guilty of one of the biggest financial frauds on record, FTX founder Sam Bankman-Fried dropped an insurance coverage lawsuit against excess insurance company Continental Casualty Co.
Shortly before his trial began in early October, Bankman-Fried filed the suit in U.S. District Court for the Northern District of California against the unit of CNA, claiming that it had improperly refused to provide legal costs allegedly covered by a directors and officers policy.
On Nov. 6 a nondescript, one-line court filing served as notice of dismissal of the suit, with prejudice – meaning Bankman-Fried can’t file the same claim with the court. Bankman-Fried was found guilty Nov. 2 of defrauding investors out of billions of dollars through his FTX cryptocurrency exchange, which went bankrupt in 2022.
Similarly, Daniel Friedberg, who said he held various executive roles at FTX entities, separately filed a notice of dismissal. Friedberg earlier filed a motion to intervene in the suit because he claimed to have received none of the $20 million in coverage from the D&O coverage tower.
The Continental Casualty policy is a second-layer excess policy in the D&O insurance tower in effect from August 4, 2022, until August 4, 2023, providing a $5 million limit of liability, which attaches upon exhaustion of the $10 million in aggregate limits of the underlying insurance. The $10 million in underlying coverage was provided by Beazley and QBE Insurance – $5 million of primary coverage and $5 million of first-layer excess, respectively. Hiscox provided the last layer of $5 million and had deposited it with the court.
According to court filings, the CNA subsidiary had paid out nearly $900,000 but then stopped sending payments. The reason for this remains unknown. Kevin M. LaCroix, executive vice president at RT ProExec, a division of RT Specialty, in a recent D&O Diary blog post said the coverage dispute raised some interesting questions related to the distribution of D&O coverage to multiple insureds.
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