In the lead-up to Sam Bankman-Fried's trial in Manhattan, a lawsuit has been filed in U.S. District Court in Northern California by the former FTX CEO's attorneys against Continental Casualty Insurance Company. The lawsuit alleges that the insurance company provided coverage for directors and officers (D&Os) of Paper Bird and its subsidiary, FTX Trading.
Bankman-Fried filed the lawsuit in his individual capacity. The complaint states that Continental Casualty served as the provider of Paper Bird's "second-tier excess policy on the D&O insurance tower." Directors and officers (D&O) insurance is designed to protect company executives from personal financial losses in the event of legal action. These policies are often structured in layers, where higher-level policies come into play when the lower-level policies reach their limits.
According to the lawsuit, the primary layer of D&O insurance provided Bankman-Fried with $10 million to cover his defense against legal actions from two insurance companies. Continental Casualty Insurance's policy was intended to provide an additional $5 million in coverage. This policy requires ongoing payments and covers the costs associated with defending against criminal charges, with the exception of "fraud, criminality, and similar conduct." Importantly, the policy does not include a clawback clause.
The lawsuit asserts that Bankman-Fried's defense costs were paid by the two primary D&O insurance providers for Paper Bird, Beazley and QBE, in accordance with the terms of their policies. Bankman-Fried is seeking payment from Continental Casualty Insurance Company for his defense costs and damages, including court fees, in accordance with the contractual obligations of their policy.
The third layer of D&O insurance in the Paper Bird policy tower, provided by Hiscox Syndicates, is also the subject of legal action. Hiscox has initiated inquiry proceedings against Paper Bird and numerous insured individuals, including Bankman-Fried. Such inquiry actions require involved parties to resolve their disputes through legal proceedings.
The Hiscox policy, which began with $15 million in base coverage, is expected to face a $5 million claim according to a complaint filed on August 9 in Northern California District Court. Hiscox asserts that the inquiry is necessary to ensure the equitable distribution of policy funds. The complaint names twenty individuals, all of whom are described as having connections to FTX, sometimes by title (such as "head of department"). Paper Bird fully owns FTX Ventures and holds an 89% stake in FTX Trading, as reported by the Financial Times. FTX Trading is identified as "the underlying company" in FTX's legal disclaimer. Paper Bird is wholly owned by Bankman-Fried.
Bankman-Fried is seeking to recover D&O insurance payments under policies issued to West Realm Shires, commonly known as FTX US. This effort faced opposition from FTX lawyers and a committee of creditors and was blocked by the U.S. Bankruptcy Court in Delaware.
