Last week, in a coverage match hosted by the Eastern District of New York, the referee ordered insurers to advance defense costs to Eduardo Li, a former president of the Costa Rican soccer federation and a former official of the Federation Internationale de Football Association (FIFA), the governing body of international soccer. In 2015, the United States red-carded Li along with twenty-nine other figures in international soccer, charging them with participation in an international racketeering conspiracy. The prosecutors alleged more than twenty years of rampant corruption at the highest levels of FIFA, smearing the beautiful game with tales of bribery and money laundering as marketing and broadcast contracts were illicitly awarded for briefcases of cash passed under the table or financed through murky transactions.
Li tendered his request for advancement of defense costs under FIFA's $50 million D&O policy while he was detained in Switzerland pending extradition to the United States. The insurers quickly denied coverage based on a so-called "RICO exclusion" in the policy—an argument they later dropped—and their position that Li's indictment did not constitute an "investigative proceeding." They also disputed whether Li was an insured under the policy.
In his coverage action against the insurers Li kept a clean sheet before Judge Raymond J. Dearie, the same judge presiding over the criminal racketeering case, who denied the insurers' motion to dismiss and granted Li's request for a preliminary injunction requiring the insurers to advance his criminal defense costs. In granting the preliminary injunction, Judge Dearie explained that a policyholder's inability to timely receive defense costs under a professional liability policy constitutes irreparable harm. The Court also determined that Li made a sufficient showing that he would be entitled to advancement of costs under the policy's broad, world-wide coverage for defense, investigation, and extradition costs. The Court inferred the duty to contemporaneously advance costs from a policy provision stating that "[s]hould the question of any wrongful intent be at issue, cover shall be granted for the defence costs" but an insured person "found guilty of wrongful intent . . . will be obliged to reimburse the Insurer for all payments made on his or her behalf."
Judge Dearie rejected the insurers' arguments that the indictment and criminal trial are not investigations, observing that the policy broadly defines "investigation" to include "any formal hearing, examination or inquiry by an official body into the affairs of a company or outside entity, or an Insured Person of such entity" and that the duty to pay investigative costs is triggered when the Insured Person "is identified in writing by an investigating official body as a target of the hearing, examination, or inquiry." The Court also brushed aside the insurers' contentions that Li was not an insured under the policy and that the policy did not cover the government's allegations that Li acted for personal gain. Moreover, the Court held that the balance of hardships tipped strongly in favor of Li, who faced deprivation of chosen counsel at a critical time, and against the insurers, whose monetary loss in advancing costs was potentially reimbursable under the policy.
The Court also rejected the insurers' arguments that the coverage action should be dismissed on jurisdictional issues, holding that a forum selection clause in the policy was inapplicable because Li had not expressly subscribed to the clause. Moreover, the Court disallowed the insurers' forum non conveniens argument, finding that there were relevant witnesses and documents—Li, his co-defendants, the prosecutors, and a copy of the policy—in New York. The Court noted the strong local interest in ensuring that Li was adequately represented, and that his counsel was appropriately compensated, while he was facing serious criminal charges in New York.
This decision is good news for policyholders not only in its broad interpretation of defense coverage for investigative costs, but also for the Court's recognition of a duty to advance costs in a reimbursement provision that does not specifically reference advancement.
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