Lloyd’s Must Pay Alleged Swindler Stanford’s Legal Fees, Court Says

A federal appeals court said Monday insurer Lloyd’s of London must pay claims related to alleged swindler Allen Stanford’s defense.

Stanford, his former chief investment officer Laura Holt, and former accounting executives Gilbert Lopez and Mark Kuhrt sued Lloyd’s after the firm stopped providing coverage under a directors and officers policy last year, citing a money laundering exclusion.

But U.S. District Judge David Hittner in Houston ruled in January that Lloyd’s must pay costs and expenses that had been submitted by Stanford and his attorneys. Lloyd’s appealed that decision to the U.S. Court of Appeals for the Fifth Circuit in New Orleans.

The appeals court Monday upheld Hittner’s ruling but also sent the case back to the district court for additional arguments on the coverage question. Lloyd’s must pay in the meantime, the court said in a 24-page ruling.

“The underwriters are enjoined from refusing to advance defense costs as provided for in the D&O policy unless and until a court ‘determines in fact’ by clear and convincing evidence …” that money laundering occurred, the ruling said.

Stanford, Holt, Lopez, and Kuhrt face criminal and civil charges for for defrauding investors in a $7 billion Ponzi scheme centered around certificates of deposit issued by Stanford’s Antiguan bank.

They have denied any wrongdoing. Stanford, 59, is waiting in a Houston jail for his January 2011 trial.

The case is Laura Pendergest-Holt, R. Allen Stanford, Gilbert Lopez and Mark Kuhrt v Certain Underwriters at Lloyd’s of London and Arch Specialty Insurance Co, U.S. Court of Appeals for the Fifth Circuit, No. 10-20069.

(Reporting by Anna Driver in Houston; Editing by Richard Chang)