Business organizations frequently purchase directors and officers (D&O) liability insurance. Such policies compensate the organization or individual directors or officers in the event of a loss suffered due to legal action such as civil litigation. In other words, if someone sues a company’s board of directors and wins, the company’s D&O policy will pay for the judgment and the directors’ legal costs.
International Law, Policy Language Supports Ex-Official’s Claim
D&O policies may also pay for a director or officer’s legal costs to defend against criminal prosecution. Recently a New York court addressed the applicability of a D&O policy in a high-profile corruption case. The plaintiff in this lawsuit is a Costa Rican national who previously served as an officer and executive committee member of FIFA, the international body that governs soccer’s World Cup. Last year a federal jury in Brooklyn indicted the plaintiff and several dozen other FIFA officials on charges of racketeering and conspiracy. More specifically, the plaintiff has been accused of accepting bribes in connection with his role as FIFA’s representative for the Americas.
The plaintiff was covered by a $3 million D&O liability policy that was exhausted in the course of the criminal investigation. There is a second D&O policy held by FIFA. Among other things, this policy covers the costs of defending against all “investigative proceedings” that are initiate under “criminal law.” When the insurer refused to pay for the plaintiff’s legal costs, he filed suit in Brooklyn Supreme Court. The insurer transferred the case to federal court and promptly moved to dismiss.
On April 27, U.S. District Judge Raymond J. Dearie denied the motion to dismiss and issued a preliminary injunction ordering the insurer to pay the plaintiff’s ongoing legal bills under the D&O policy. Judge Dearie first rejected the insurer’s claim this case was subject to Swiss law. Although there was a clause in the policy designating Switzerland as the forum for resolving any disputes, the judge said that under international law—which overrules Swiss law in this case—the plaintiff’s claims were properly tried in New York.
Turning to the merits of the case, Judge Dearie held the plaintiff “made a clear showing that the Insurers are required to pay the legal costs of his defense, investigation, and extradition.” The insurer tried to argue that the plaintiff’s criminal indictment for racketeering did not fall within the policy’s definition of an “investigative proceeding.” In other words, the insurer claimed the policy only covered the plaintiff’s costs with respect to the pre-indictment investigation, not his forthcoming trial. But the judge rejected that argument, noting the policy itself refers to “any formal hearing,” which would include a trial.
The insurer further argued the plaintiff was not covered under the policy because his alleged receipt of bribes “have nothing to do with his association with FIFA.” Rather, they were an purported act made for “personal gain.” Judge Dearie did not see it that way. Not only was there no language in the insurance policy making such a distinction, the government’s indictment expressly associated the plaintiff’s alleged crimes with his official role at FIFA.