Court costs could ruin Nortel execs

The courts are seeing a battle between the insurance company and directors of Nortel. While facing charges of security fraud the small comfort of having legal costs covered is not there.

Directors and Officers insurance coverage is the insurance answer for dealing with this type of situation. The problem is that the chief executive officer of Nortel, Frank Dunn and his chief financial officer, Doug Beatty find that their insurer is not responding favourably to the claim for their defense. The legal expenses could run into millions of dollars.

Chubb Insurance Company declared misrepresentations about class-action lawsuits that were launched by shareholders in 2001 and rescinded the directors and officers liability coverage in 2003. Dunn and Beatty were fired in 2004.

Dunn and Beatty find themselves with Chubb only prepared to pay 50% of the legal expenses for the defense in court with the Ontario Securities Commission. They also face the Securities and Exchange Commission in the United States against allegations of two accounting frauds.

There is an appeal before the Ontario Superior court in regards to an earlier decision which dismissed Dunn and Beatty's request for a greater reimbursement of their legal expenses. They asked for between 90-100%.

Defense counsel for Dunn and Beatty is arguing that the policy in place from 1999 to 2001 should cover almost all the legal expenses. The wordings apparently have a provision about wrongful acts being covered by a previous term of the policy.

Turner's Tips awaits the outcome of the decision and will update you as information is made available.