Risk & Compliance

Rigas Family Wins Funds from Insurers

Court rules that five former Adelphia executives are due to receive D&O insurance to defend themselves in civil cases.
Stephen TaubMarch 24, 2004

A federal judge awarded $300,000 each to five former executives of Adelphia Communications involved in civil lawsuits, ruling that an insurer cannot unilaterally rescind a directors’ and officers’ liability policy, according to The Legal Intelligencer.

“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,” wrote U.S. District Judge Michael M. Baylson in his 32-page opinion, according to the paper.

The five former Adelphia executives affected by the decision are founder John Rigas, three of his sons — Timothy, Michael and James — and Peter L. Venetis.

John, Timothy, and Michael Rigas, as well as former executive Michael Mulcahey, are currently on trial in New York, fighting criminal charges of fraud and conspiracy for allegedly looting the cable company of millions of dollars. Venetis and James Rigas are defendants in civil suits but have not been charged with any crime.

Last month another judge ordered Adelphia to pay $12.8 million in legal costs to help Rigas and his two sons involved in the criminal case, in addition to $15 million that the company had released in August.

The dispute over the D&O insurance policy was filed in Philadelphia by AEGIS, as primary insurer, as well as Federal Insurance Co. and Greenwich Insurance Co. as excess carriers.

Lawyers for the former executives argued that the language of the policies called for immediate payment of civil defense costs, according to the Intelligencer. At a minimum, they said, the language is ambiguous on the issue, and Pennsylvania law requires that an ambiguous policy be construed for the benefit of the insureds.

Lawyers for the three carriers argued that the policies were rescinded even before the declaratory judgment suit was filed, enabling them to take unilateral action without any judicial determination, explained the paper.

Judge Baylson found that the rescission was never completed because the insurers have not yet returned the premiums they were paid.