Aegis To Pay Adelphia Execs Legal Fees
NU Online News Service, March 26, 8:37 a.m. EST?A federal judge ruled that the directors-and-officers insurance carrier for the now-bankrupt Adelphia Communications could pay up to $1.5 million for defense costs to the five former executives fighting fraud charges in a New York court.[@@]
In granting summary judgment to the five defendants, issued late last week, Judge Michael Baylson, sitting in Philadelphia, ruled that the Bermuda-based insurer Associated Electric & Gas Insurance Services (Aegis) must pay the executives' defense costs, up to $300,000 to each executive. The judge also ruled that the company cannot rescind the policy until the courts decide it can do so.
The five executives are company founder John Rigas; his three sons, Timothy, James and Michael; and Peter Venetis, a former company executive. They are currently standing trial in New York on fraud charges, allegedly pocketing billions of dollars from what was once the fifth-largest cable television company in the country. The company was pushed into bankruptcy in 2002.
Mark Keenan, one of the attorneys representing Peter Venetis, applauded the decision this week, saying the court "laid down a very clear principle."
Aegis, which wrote the policy for the Coudersport, Pa.-based Adelphia, said it is the company's policy not to comment on ongoing litigation.
The insurer sought to rescind the policy sold to the executive and refused to advance defense costs. Aegis also asserted that even if the policies were not rescinded, coverage was still void by policy exclusions for fraud and prior knowledge.
Judge Baylson, sitting in the U.S. District Court for the Eastern District of Pennsylvania in Philadelphia, refuted Aegis' contention.
In a 32-page opinion he cited that there are "numerous cases that support the insured's contention that defense costs must be advanced pending the outcome of a rescission claim." He added that it is unfair to give an insurer the ability to "escape its duty to advance payment" merely because it asserts the prior knowledge exclusion, without any judicial decision.
As far as Pennsylvania is concerned, he said, it is "the approach of Pennsylvania law to apply insurance policies broadly, and in favor of the insured where there is ambiguity."
"Insurance carriers do not function as courts of law. If a carrier wants the unilateral right to refuse a payment called for in the policy, the policy should clearly state that right. This policy does not do so," he declared.
The insurer, however, could try to recoup those costs later if they can eventually rescind the policy, he said.
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