THE KEATING CASE : Court: Insurer Must Pay for Part of Keating’s Defense
An insurer that provided professional liability coverage to American Continental Corp. must pay to defend financier Charles H. Keating Jr. in civil suits brought by investors who bought the company’s now worthless bonds, a federal judge has ruled.
U.S. District Judge Stephen V. Wilson in Los Angeles ruled Tuesday that National Union Fire Insurance Co. of Pittsburgh would have to pay the court costs for Keating, former chairman of American Continental, and other company officers.
The opinion was the only good news Keating has received this week. On Tuesday, he was indicted on 42 counts of state securities fraud and other violations. Unable to come up with the $5-million bail, Keating is being held in Los Angeles County jail.
Wilson’s order won’t help Keating--who claims to be broke--pay for lawyers to defend him against the criminal charges.
And Wilson tempered the opinion by tacking on approval for an immediate appeal by National Union. Any higher court ruling on an appeal, Wilson said, would probably speed up resolution of the bondholders’ suit.
National Union’s attorneys declined to comment Wednesday, but American Continental attorney Larry Cox said he expects the insurance firm to appeal.
The bondholder suits stem from the sale of almost $200 million in high-risk bonds issued by American Continental, the former parent of Irvine-based Lincoln Savings & Loan. The bonds are nearly worthless after American Continental’s filing for bankruptcy last year, and Lincoln’s insolvency and seizure by federal regulators.
The investors maintain that Keating and others at American Continental and Lincoln misled them by representing the uninsured bonds as safe.
Pending the anticipated appeal, Wilson’s ruling makes up to $1 million available from National Union to cover defense costs in the suits--recently combined into one case in federal court in Phoenix--brought by hundreds of American Continental investors.
And it could make it easier for Keating and his co-defendants in that civil case to win up to $75 million in coverage from 30 other insurers to pay for any judgment or settlement in the lawsuits.
