A recent Insurance Journal story, “Judge to Insurer: Pay Legal Fees in Pending Insider Trading Fraud Case” reports that a federal judge in New York order an insurance company to keep paying the attorney fees of several former hedge fund managers and traders caught up in an insider trading investigation.  U.S. District Court Judge Paul Engelmayer said irreparable harm could be done to the employees of Global Investors, if XL Specialty Insurance did not keep paying attorney fees for their defense.  But the judge said he would give XL enough time to appeal his decision of the insurer wanted.

In March, XL sued Level Global, claiming if did not have to pay the attorney fees for employees implicated in the insider trading ring because a former analyst for the now-closed hedge fund had been secretly cooperating with federal authorities.  XL is arguing that since the cooperating witness, Spyridon Adondakis, knew he had committed fraud at the time the insurance policy was signed, any changes stemming from or related to his crime aren’t covered by the policy.

Level Global lawyers argue that the fund’s general counsel, who signed the policy application, didn’t know about the crime and did not learn of it after making a reasonable inquiry among Level Global’s employees into possible facts or circumstances that could lead to charges.  They also argue that since the attorney fees XL has been paying are not for Adondakis himself, and only Adondakis is actually a convicted criminal, the exemption shouldn’t apply.

As part of its policy, XL agreed to cover $10 million in claims for Level Global.  It has paid out all but $2.7 million in claims so far, and Level Global spent an amount equivalent to the remaining balance before it received word of XL’s suit.  The case is XL Specialty Insurance Company v. Level Global Investors.