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Insurers Ordered to Pay Attorney Fees of FIFA Official

May 4, 2016 | Posted in : Coverage of Fees, Defense Fees / Costs

A recent New York Law Journal story, “Judge Ordered to Pay Legal Fees of FIFA Official,” reports that insurers have been ordered to pay the legal fees of a FIFA official arrested in a wide-ranging criminal corruption case, likely opening the door for other FIFA officers and their attorneys to tap the $50 million policy for legal fees.

Eastern District Judge Raymond Dearie granted Eduardo Li's preliminary injunction motion to require insurers to pay his fees, totaling hundreds of thousands of dollars, under an insurance policy sold to the Federation Internationale de Football Association, or FIFA, international soccer's governing body.

"Because the insurers have refused to advance any defense costs to Li," the judge said in Li v. Certain Underwriters at Lloyd's London 15-cv-0609, "Li faces an actual and imminent injury and has established irreparable harm."

Dearie, who is also presiding over the FIFA criminal case, added, "The stability of the attorney-client relationship during this critical time cannot be overstated.  The strong local interest in seeing that litigants before this court are appropriately represented, officers are appropriately compensated, and that criminal matters are not unnecessarily hindered cannot be ignored."

Li and about 40 other defendants have been charged with racketeering, wire fraud or money laundering conspiracies, among other offences, for an alleged scheme to enrich themselves through the corruption of international soccer.

Li, a FIFA executive committee member-elect, is accused of using his position to obtain bribes and kickbacks.  He was extradited, arraigned in the Eastern District, and detained in Brooklyn until his release on bail in March.

Last summer, Li notified insurers, which had provided a directors-and-officers liability policy, of his indictment.  He requested payment under the policy, which has a $50 million limit, for the cost of his defense.  The policy provides world-wide coverage for costs incurred to defend any actual or alleged wrongful acts, investigation costs and reasonable legal fees related to extradition proceedings.

In August, the insurers, including certain underwriters at Lloyd's London and Axis Specialty Europe Se, denied obligation to pay.  They argued that coverage was barred by an exclusion in the policy for any damages tied to the Racketeer Influenced and Corrupt Organizations Act, or RICO.

Li filed suit in Brooklyn state Supreme Court to enforce the policy; the insurers had the suit placed in the Eastern District.  Li is represented by Robin Cohen and Burt Garson, principals at McKool Smith, in the insurance coverage case and Samuel Rosenthal, partner at Squire Patton Boggs, in the criminal case.

In March 10 court papers in the insurance case, Rosenthal said Li has "incurred legal fees of hundreds of thousands of dollars, which remain unpaid."  Given the length and complexity of the allegations in the FIFA indictment naming many defendants, Rosenthal said, "Li will be severely hampered in his ability to defend himself without additional funds."  He also said another policy under a different insurer has already been exhausted.

But the defendant insurers argued that Li's insurance suit should be dismissed under a forum selection clause in the policy, which provides for a Swiss place of jurisdiction and the application of Swiss law for any disputes.

In his ruling, Dearie said the circumstances in this case warrant exercising ancillary jurisdiction over Li's coverage dispute.  An ancillary proceeding is needed, he said, "to ensure that this insurance dispute does not interfere with a fair and efficient trial for Li and his many co-defendants."

Dearie also said Li is not subject to the forum selection clause under the applicable Swiss law because he did not sign it or agree to the provision.  Li's choice to bring suit in this district was legitimate and otherwise appropriate and there are relevant witnesses and documents already in this forum, including Li, his codefendants and prosecutors, the judge noted.

In granting Li's preliminary injunction motion, Dearie said Li has shown that he faces irreparable harm, that he is likely to succeed on the merits, and that the hardships tip in his favor.

Two Southern District courts have held that the failure to receive defense costs under a professional liability policy constitutes an immediate and direct injury, Dearie said, citing XL Specialty Insurance Co. v. Level Global Investors L.P., 874 F.Supp.2d 263, 272 (2012) and In re WorldCom, Inc. Securities Litigation, 354 F.Supp.2d 455, 463 (2005).

The judge said Li has established a clear and substantial likelihood of success on the merits.  "The policy provides broad coverage to an insured for defense, investigation, and extradition costs," he said.

Dearie said it is equally clear that the insurers are obliged to pay Li's legal costs at the time they are incurred and on an ongoing basis.

The insurers asked the court to interpret certain ambiguous provisions of the policy—"interpretations that the court finds to be strained and unconvincing," the judge said.

Finally, Dearie noted that insurers abandoned their initial and "meritless" ground for denial of coverage, the exclusion from coverage for claims related to the RICO Act.

"If no injunction is issued, Li will never receive the benefit of his bargain, likely be deprived of his chosen counsel at this critical time, and sustain a conviction he might otherwise have avoided, while the insurers, in any event, are relieved of their obligation to advance funds pending a final resolution," he said.  "If, on the other hand, an injunction is issued, the insurers face only monetary loss which may be recouped as provided in the policy."

Cohen, Li's attorney in the coverage dispute, said in an interview that the decision could potentially have an impact on individuals who are similarly situated to Li, who are insured under the policy and did not explicitly agree to being bound by the Swiss forum selection clause.