SBF has coverage for directors and officers through FTX Trading‘s parent company, Paper Bird, but now that two companies have paid out $10 million, the third in line is refusing to pay, according to the lawsuit.
As the final preparations for Sam Bankman-Fried’s trial were being made in Manhattan, his counsel filed a lawsuit against the Continental Casualty insurance company in the District Court of Northern California.
This corporation allegedly provides directors and officers (D&O) insurance to Paper Bird and its subsidiary FTX Trading. Bankman-Fried, as an individual, submitted the lawsuit.
The lawsuit asserts that Continental Casualty provides Paper Bird’s “second-layer excess policy in the D&O insurance tower.”
D&O insurance protects the directors and officers of a company against personal financial loss if they are sued.
Such coverage can be organized into a symbolic tower of policies, where a policy on a given stratum takes effect when the policy beneath it reaches its limit.
According to the lawsuit, the principal layer of D&O coverage for Bankman-Fried’s defense provided $10 million from two insurers, and Continental Casualty’s policy was intended to provide $5 million.
The policy required that payments be made on an ongoing basis.
It covered the cost of defending against criminal charges despite an exclusion for “fraudulent, criminal, and similar acts.”
The policy did not include a clawback clause.
Beazley and QBE, the two primary D&O policy providers for Paper Bird, paid his defense costs under the policy’s provisions, as stated in the lawsuit.
Bankman-Fried requests that Continental Casualty pay his contractually obligated defense costs, as well as damages and court costs, per the terms of their agreement.
Hiscox Syndicates’ provision of the third stratum of the D&O tower for Paper Bird is also the subject of legal action.
Hiscox has filed a Complaint for Interpleader against Paper Bird and an extensive list of insured parties, which includes Bankman-Fried.
An interpleader action compels the parties to litigate their claims in a legal proceeding.
According to this complaint, filed on August 9 in the District Court for Northern California, the Hiscox policy takes effect after the $15 million in underlying coverage.
The complaint stated that Hiscox anticipated claims for $5 million in coverage under its policy, and interpleading was required to assure equitable distribution of policy funds.
In the Hiscox complaint, twenty individuals were named.
They were all described as having connections to FTX, sometimes by job title (head of a department).
According to The Financial Times, Paper Bird owned 89% of FTX Trading and was the sole proprietor of FTX Ventures.
The news source referred to FTX Trading as “the foundation company identified in FTX’s legal disclaimers.” Bankman-Fried owned Paper Bird in its entirety.
Bankman-Fried sought to collect D&O insurance payments under a policy issued to West Realm Shires, more commonly known as FTX US.
This effort was opposed by FTX attorneys and the creditors’ committee, and the U.S. District Court blocked it for the District of Delaware.
