The suit is one of many resulting from the scheme orchestrated by Rothstein and others at the defunct Rothstein Rosenfeldt Adler and the Banyon Income Fund, the Fort Lauderdale hedge fund Rothstein controlled that was a feeder fraud for the fund.

Rothstein was sentenced to 50 years in prison in 2010, and several of his colleagues and associates — including his wife — also went to prison. Multiple civil lawsuits in assorted courts also sprang from the collapse of the investment scheme.

Several suits were aimed at Gibraltar, which is described in the Eleventh Circuit case as having cooperated with Rothstein to "give birth to and to perpetuate the life of his Ponzi scheme." The suit said the bank let Rothstein "plug the hole of substantial recurring account balance deficits through regular extensions of credit" involving significant overdrafts.

Bank fined $4M for its role in Ponzi scheme

The Coral Gables bank was subsequently fined $4 million for its role in the Rothstein affair.

In 2012 the bankruptcy trustees for some of the plaintiffs suing Gibraltar and some of its officers reached a tentative settlement for $50 million, and the bank called upon the insurers to tender their policy limits: $15 million in primary coverage carried by National Union and $10 million excess coverage carried by Twin City.

The insurers denied coverage. The bank and its executives — facing litigation in which the "resulting damages would likely be far in excess of $50 million" — agreed to have a judgment for that sum entered against it. Then the bank assigned the trustees the right to collect on the insurance policies.

Bank trustees sued insurers

In 2013, the trustees sued the insurers in federal court in Florida's Southern District. They claimed breach of contract, statutory and common law bad faith. They also sued the broker that provided the policies, Aon Risk Services Inc. of Massachusetts, for failure to procure coverage and breach of fiduciary duty.

Related: No insurance coverage for largest credit union failure in U.S. history

The insurers argued that the policies contained a "professional services" exemption stipulating that they "shall not be liable to make any payment for loss in connection with any claim made against any insured alleging, arising out of, based upon, or attributable to the organization's or any Insured's performance of or failure to perform professional services for others, or any act(s), error(s) or omission(s) relating thereto."

The trustees argued that the insurance policies should be read to bar coverage only for those executives who had dealt directly with Rothstein's firm, and not to other executives.

In 2015, Judge Kathleen Williams dismissed the suit on summary judgment, characterizing the trustees' position as a "contorted reading" of the policies' language.

A "plain reading" of the professional services exclusion demonstrates that it is "not limited in its application to each insured's performance; instead, it jointly bars coverage for all insureds for any Claim arising out of any insured's performance or failure to perform professional services."

In a published opinion released on July 5, Judge Adalberto Jordan — with the concurrence of Circuit Judge Julies Carnes and Judge Harvey Schlesinger of Florida's Middle District, sitting by designation — agreed with Williams.

Policy language 'relatively straightforward'

"The terms of the policies are relatively straightforward," Jordan wrote. The trustees "contend that the exclusion should be read severally, and therefore barring coverage only as to the claims against those insured executives who directly provided professional services to [Rothstein Rosenfeldt Adler]. Under their reading, the district court erred because claims against executives who were merely responsible for internal managerial banking functions, like complying with federal reporting regulations, are not exempt from coverage."

The trial properly observed that the phrase "any insured," wrote Jordan, "'unambiguously expresses a contractual intent to create joint obligations.'"

While another case cited by the trustees involved a policy that contained a severability clause for an insured who committed an excluded act, the policies in question contain no such clause, he said.

"And that difference in policy language is fatal to the trustees' argument," Jordan wrote, affirming Williams' order.

Greg Land is a reporter for the Daily Reporter, an ALM Media property. He can be reached at [email protected].