In 2015, the U.S. Justice Department charged more than 40 defendants in a wide-ranging corruption case centered on international soccer. Most of these defendants were officials connected with soccer’s international governing body, FIFA. One of those defendants is Eduardo Li, an elected member of FIFA’s executive committee, and president of the Costa Rican Football Federation. The indictment alleges that Li participated in a racketeering conspiracy, violating the federal RICO statute. Other charges against Li include wire conspiracy, wire fraud, and money laundering. The indictment alleges that the various defendants participated in a criminal scheme that involved accepting over $150 million in bribes and kickbacks in exchange for doling out lucrative television deals, clothing sponsorship contracts, and host country selection for the World Cup.
FIFA maintained a $50 million directors and officers liability policy with Lloyds and Axis Specialty Europe SE. After the indictment, Li sent a letter to the insurers requesting payment under the policy for his defense in the criminal action. The insurers denied Li’s claim, asserting an exclusion in the policy that there was no coverage with respect to claims alleging RICO violations. The D&O policy also included a criminal defense costs limitation that provided coverage only if criminal “investigative proceedings” are initiated against an insured. After the denial, Li moved by order to show cause in federal court for a preliminary injunction requiring the insurer’s to pay for his defense in the criminal action.
The insurers argued that Li did not constitute an “insured person” because the D&O policy only provided coverage for those that acted in a “managerial or supervisory capacity,” and Li never served as a FIFA executive committee member (he was elected to the committee but never served on it). The insurers also asserted that the defense cost limitation applies because the US indictment based on RICO violations does not constitute “investigative proceedings.” Interestingly, the insurers abandoned any argument based on its original denial position citing the RICO exclusion.
On April 27, 2016, Judge Raymond J. Dearie in Eastern District Court granted Li’s request for an injunction, and required the insurers to provide him with a defense in the criminal action. Judge Dearie happens to preside over the criminal action against the FIFA defendants. The court found that the policy definition for “investigation” includes any formal hearing, and that this “presumably encompasses an indictment and criminal trial.” The court also rejected the notion that Li was not entitled to coverage as an “insured person” because he never served on FIFA’s executive committee. The court examined the D&O policy and held that nowhere did it limit coverage only to FIFA committee members who acted in a managerial or supervisory capacity. Rather, coverage applied to all FIFA chairmen and executives or “any person acting in a comparable function.”
Judging from the court’s decision it would appear that the insurers’ coverage arguments were tenuous at best. However, the main thrust of the insurers’ challenge to Li’s injunction was premised on jurisdictional grounds. The insurers challenged whether Judge Dearie even had jurisdiction over the coverage dispute due to the policy’s forum selection clause requiring a Swiss place of jurisdiction and the application of Swiss law. Again Judge Dearie rejected any jurisdictional arguments. Since Judge Dearie presides over the criminal matter, he asserted that his court had ancillary jurisdiction over the coverage dispute and that he could rule on the merits of the case.
Even if the insurers could not make the most cogent coverage arguments, they took the appropriate measures by attempting to limit coverage. There are potentially 40 or more “insured persons” seeking a defense. The court may also have been persuaded by Li’s difficult financial positon. Li was being defended under a policy by Chubb, but the policy was exhausted shortly after Li sought the injunction. The insurers are not at a complete loss through because a willful acts exclusion in the policy may allow them to claw back any money they pay out. And there’s certainly enough evidence to indicate that Li willfully participated in the corrupt scheme at FIFA; he once boasted: “There’s no Arab sheikh who can buy tickets to the kind of events us leaders of world football have access to.”
Thanks to Dan Beatty for his contribution to this post. If you have any questions about this post, please email Brian Gibbons at Brian Gibbons for additional information.