NU Online News Service, Oct. 15, 10:23 a.m. EDT

Lloyd's and Arch Specialty Insurance Co. do not have to cover the legal expenses of Texas financier R. Allen Stanford, a federal judge has ruled.

According to court documents from the U.S. District Court in Houston, Judge Nancy F. Atlas has ruled the insurers "have met their burden to show a substantial likelihood that the preponderance of the evidence would demonstrate that the money laundering exclusion applies," and the insurers do not have to provide coverage for defense costs.

Mr. Stanford is accused of bilking investors of $7 billion in an alleged Ponzi scheme. He and several executives of his Stanford Financial Group Co. were indicted last year in Houston on charges of fraud, conspiracy, bribery and other charges.

Mr. Stanford was seeking coverage under his company's directors & officers policy. According to court records, the insurers did provide litigation defense costs at first, but retroactively denied coverage and sought reimbursement in Aug. 2009--when James M. Davis, the financial group's chief financial officer, reached a plea agreement in which he admitted to knowing about a scheme to defraud investors. The scheme included the use of wire facilities and mail, court records show.

In March the U.S. 5th Circuit Court of Appeals in New Orleans upheld a lower court ruling that the insurers had to pay the legal expenses, but sent the case to the district court for further consideration.

Mr. Stanford is being held without bail while awaiting trial.

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Litigation