ATLANTA — In one of the final remnants of a Ponzi scheme orchestrated by Scott Rothstein, the U.S. Court of Appeals for the Eleventh Circuit has ruled that the insurance companies for a bank that was a part of the elaborate scam are exempt from paying out $25 million of a settlement between the bank and some of the victims.
According to the July 5 opinion, the case stemmed from the alleged conduct of certain executives of Gibraltar Private Bank and Trust Co., at which Rothstein's law firm, Rothstein Rosenfeldt Adler (RRA), maintained accounts. In 2010, Rothstein was sentenced to a 50-year prison term.
In its opinion, the appellate panel affirmed the trial court's dismissal of bad faith claims against the insurers.
Gibraltar and some of its executives were named as defendants in numerous suits seeking to recover for losses caused by Rothstein’s scheme. They requested that their insurance carriers, National Union Fire Insurance Co. of Pittsburgh and Twin City Fire Insurance Co., extend coverage under Gibraltar’s executive and organization liability insurance policies to a joint settlement of the claims.
When National Union and Twin City denied coverage, Gibraltar and its executives began settlement discussions without the insurance companies. The parties eventually reached a settlement, which included Gibraltar and the executives assigning their policy rights to the bankruptcy trustees of RRA and of other entities that lost money in the Ponzi scheme.
After the assignment, the trustees again unsuccessfully demanded coverage. The trustees then filed suit, asserting breach of contract and bad faith. National Union and Twin City moved to dismiss the action, arguing that coverage was barred by a “professional services exclusion” found in each of the policies.
The district court agreed, and granted the insurers’ motions. The trustees, however, filed an appeal.
According to the opinion, the insurers had maintained that the polices included a professional services exemption that stated that they "shall not be liable to make any payment for loss in connection with any claim made against any insured alleging, arising out of, based upon or attributable to the organization's or any Insured's performance of or failure to perform professional services for others..."
In their argument, the trustees maintained that the insurance policies should only bar coverage for the executives that were dealing directly with Rothstein's law firm.
The suit was dismissed two years ago on summary judgment, which stated that the trustees’ assertion was a contorted reading of the insurance policies’ language.