FIFA’s D&O Insurer Cannot Kick Defense Coverage
Time 3 Minute Read
Categories: D&O, Duty to Defend

Yesterday, a federal court found that FIFA’s D&O insurer is obligated to reimburse and advance legal costs for the defense of Eduardo Li, one of the defendants in the FIFA racketeering and fraud prosecution. Li v. Certain Underwriters at Lloyd’s, London, No. 15-cv-6099 (E.D.N.Y. Apr. 27, 2016). Li was the president of the Costa Rican soccer federation, an executive member of the soccer association for North and Central America (CONCACAF), and a member of FIFA standing committees. Along with other FIFA executives, he was indicted this past summer and charged with racketeering conspiracy, wire fraud conspiracy, and money laundering conspiracy.

Li sought coverage for the cost of his defense under a D&O policy issued to FIFA, which provided world-wide coverage. (Some of the legal costs were paid under a policy Chubb issued to CONCACAF before that policy’s $3 million limit exhausted.) FIFA’s D&O insurers denied coverage and Li sued the insurers. The court exercised jurisdiction over the matter, finding that it was incidental to the FIFA criminal proceedings before the court. Then, the court addressed three issues: (1) whether the forum-selection clause in the policy meant the case belonged in Switzerland; (2) whether New York was an appropriate forum; and (3) whether to grant a preliminary injunction requiring the insurers to pay for Li’s defense.

On the first and second issues, the court rejected the insurers’ argument that the case belonged in Switzerland and found that New York was an appropriate forum. The policy contained a forum-selection clause identifying Switzerland as the “place of Jurisdiction” for resolving disputes under the policy. The court noted that Li “did not subscribe specifically to” the forum selection clause. (Li was an additional insured under the policy, which was issued to FIFA.) Therefore, under Swiss law, Li was not bound by the forum-selection clause. And, based largely on the fact that the criminal case against Li was pending in the Eastern District of New York, the court determined that the Eastern District was also an appropriate place for Li’s suit against the insurers.

On the third issue, the court rejected the insurers’ arguments against a preliminary injunction. The court first found irreparable harm due to Li’s inability to obtain reimbursement for his ongoing legal costs. The court then concluded that Li showed a “clear and substantial likelihood of success on the merits.” It cited the policy’s “broad coverage . . . for defense, investigation, and extradition costs” and rejected the insurers’ arguments that Li was not an additional insured and that Li’s actions were for his personal gain and had nothing to do with his association with FIFA. Thus, the court granted the preliminary injunction and required the insurers “to immediately reimburse and advance to Li his legal costs incurred in connection with his indictment, extradition, and defense” in the FIFA racketeering and fraud prosecution.

As this decision shows, executives and businesses facing local or cross-border government inquiries and investigations should carefully examine their insurance policies to determine whether coverage may be available.1

1 Sources:  Practice Notes: Insurance coverage for FIFA-related Kickback Investigations; Cos. In FIFA-Related Investigations Should Check Insurance, Law360 June 5, 2015Li v. Certain Underwriters at Lloyd's, London et al., 1:15-cv-06099, U.S. Dist. Court for the E.D. of New York, Memorandum and Opinion (April 27, 2016); Escándalo de la FIFA y Cobertura de Seguros October 14, 2015

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    Patrick counsels clients on all aspects of insurance and reinsurance coverage. He assists clients in obtaining appropriate coverage and represents clients in resolving disputes over coverage, including in litigation and ...

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