Coverage Woes Plague Bankman-Fried Fraud Trial, FTX Suits

D&O Management and Liability Insurance attorney Thomas Bentz was interviewed by Law360 about the ongoing dispute regarding liability insurance coverage for those involved with FTX. Earlier this month, FTX founder Sam Bankman-Fried sued the insurer, alleging it failed to cover his defense costs. Later, Daniel Friedberg, FTX's former chief regulatory officer and general counsel, asked to join a California federal lawsuit over coverage under a directors and officers (D&O) policy, saying he has unfairly received nothing. Friedberg contends that because the total costs will exceed the policy limit, California's principles of equitable allocation are triggered, meaning the remaining funds should be distributed based on the relative exposure faced by each insured. Mr. Bentz commented that equitable allocation is a particularly contentious area in D&O disputes, as the decision on how to allocate funds rests with the court.

"Multiple people are trying to get their bite of the apple before the policy is gone, and it's really up to the judge to decide if or how that's going to happen," he said.

Ultimately, Mr. Bentz added, the issues in cases like these often go beyond the financial.

"These are individuals who are in crisis mode, right? They're being sued. Their personal assets are potentially at risk. Jail time could be, potentially, an issue," he said. "Chicken Little is here where the sky is falling: You don't want to have a fight with your insurance carrier, too, in that situation."

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