Risk Management

Tyco D&O Insurer Must Pay Kozlowski’s Costs

Chubb Group carrier will have to pay for the former chairman's defense in New York and New Hampshire cases.
Stephen TaubMarch 11, 2004

A New York Supreme Court judge recently supplied former Tyco International chairman Dennis Kozlowski’s with a bit of good news — and saddled Federal Insurance Company with the potential for more than six months’ worth of legal fees.

Supreme Court Justice Helen Freedman last Friday ordered the insurer, which provided Kozlowski with liability coverage for “wrongful acts,” to pick up the tab for his defense costs, according to Reuters. Kozlowski has been on trial for nearly six months for allegedly looting $600 million from the conglomerate.

The judge reportedly said, however, that Federal, part of The Chubb Group, could recover its costs if it can prove its claim that misrepresentations took place. The action occurred in the middle of a softening market for directors’ and officers’ liability insurance.

The stakes, indeed, are high. Kozlowski’s defense tab figures to run into the millions, given the length of the trial and his high-powered legal team.

Under the judge’s ruling, Kozlowski will be able to receive money from the insurance company to help pay his legal fees incurred in the Manhattan criminal case and when he defends federal securities fraud charges filed against him in New Hampshire. The insurer would also be required to defend him in consolidated federal cases filed under the Employee Retirement Income Security Act by Tyco employees in New Hampshire, according to the New York Law Journal.

Federal Insurance issued liability insured policies to Tyco that covered Kozlowski, former CFO Mark Swartz, who is on trial along with Kozlowski, and the rest of Tyco’s board from March 1999 to March 2003, according to Reuters.

Some former Tyco directors have reportedly testified that the board did not approve millions of dollars in bonuses and forgiven loans that Kozlowski and Swartz received. In response, Federal rescinded the insurance policies on the grounds Kozlowski had misrepresented Tyco’s finances and other matters in the application for insurance, according to Reuters, which reported that Federal wouldn’t comment on the matter. Kozlowski insisted last year that Federal pay his defense costs.