Judge Puts 2 Insurers on the Hook for Defense Costs for Stanford, 3 Execs

Senior U.S. District Judge David Hittner of Houston on Tuesday issued a preliminary injunction that orders two insurance companies to advance defense costs to Stanford Financial Group executives facing criminal charges and civil litigation. In a 42-page order, Hittner ruled that Certain Underwriters at Lloyd's of London and Arch Specialty Insurance Cos. are prohibited from withholding "all 'costs, charges and expenses'" already incurred by the defendants and that will be incurred in the future in United States v. Robert Allen Stanford, et al., a criminal case pending in Hittner's court, and in Securities and Exchange Commission v. Stanford International Bank Ltd., et al., a civil case which is pending before U.S. District Judge David Godbey of the Northern District of Texas. Hittner gave the insurance companies 10 days to pay all invoices already submitted by defense attorneys for the criminal case in his court and the SEC civil suit in Godbey's court.

Allen Stanford and three other Stanford Financial Group defendants -- Laura Pendergest-Holt, Gilberto Lopez Jr. and Mark Kuhrt -- filed the coverage suit after the underwriters in November 2009 issued denial letters that retroactively denied them coverage under directors and officers' policies.

In the order, Hittner found the Stanford plaintiffs "met their burden of persuasion with respect to all four prerequisites of a preliminary injunction."

Lee Shidlofsky, a partner in Visser Shidlofsky who represents the Stanford plaintiffs in the coverage suit, Laura Pendergest-Holt, et al, v. Certain Underwriters at Lloyd's of London, et al., says "this is what we wanted." He notes, however, that defense attorneys for the insurers told him they will appeal the order to the 5th U.S. Circuit Court of Appeals.

Neal Lane, a partner in Akin Gump Strauss Hauer & Feld in San Antonio who represents the insurance company defendants, did not immediately return a telephone message seeking comment.

Stanford, who is in custody, and the other three defendants, who are out on bond, have each pleaded not guilty to the criminal charges against them and have denied the allegations in the civil suit. The executives were indicted in June on fraud and obstruction charges in connection with an alleged conspiracy to defraud investors who bought about $7 billion in certificates of deposit sold through the Stanford International Bank Ltd. They pleaded not guilty to the charges in June, and Hittner set the trial for January 2011.