Just as the jury selection for the trial of the embattled former FTX CEO, Sam Bankman-Fried, was drawing to its close, a different kind of legal battle emerged. A lawsuit initiated by Bankman-Fried against the Continental Casualty insurance company has surfaced, citing the failure of the insurance firm to cover the defense costs under a directors and officers (D&O) insurance policy provided by them.
D&O insurance is designed to protect company executives from personal losses in the event of a lawsuit directed at them. In today’s lawsuit-happy world, such a safety net is practically essential. An intriguing feature of D&O insurance is its layered structure. A policy at one layer kicks in when its preceding layer has reached its limit.
According to the lawsuit, the primary D&O coverage provided protection of $10 million for Bankman-Fried’s defense from two insurers. Continental Casualty’s policy, serving as the second layer, was designed to furnish $5 million. The policy was expected to cover Bankman-Fried’s defense costs on an ongoing basis, even against criminal charges, regardless of a clause excluding “fraudulent, criminal, and similar acts.”
On one hand, it appears that Bankman-Fried did receive the agreed $10 million from the first layer of insurance, and is now pressing for Continental Casualty to fulfill their alleged contractual obligation. On the other hand, the insurance provider’s refusal to pay seems to suggest some doubts about the validity of the claim or perhaps the workings of the policy itself. Could there be a misinterpretation of the policy terms? Or is the insurer reneging on their contractual duties?
Adding complexity to the insurance drama is the third layer of the metaphorical tower, provided by Hiscox Syndicates, which is also under legal scrutiny. The insurer foresees claims to be made for its $5 million coverage after the exhaustion of $15 million in underlying coverage. Amidst all these controversies, it reinforces the need for unambiguous insurance policies and fairness in their application.
While the former FTX CEO navigates through these lawsuits and the trial, a palpable tension hangs over the insurance industry and the world of blockchain companies. The outcome of this complex melodrama is sure to have dramatic implications for the broader perception of D&O insurance and its role within the nascent blockchain and crypto organizations.
Source: Cointelegraph
