Just two days before his criminal trial started this week in federal court in New York, FTX Trading founder Sam Bankman-Fried filed suit in federal court in California against his excess insurance company seeking payment of legal costs.

The suit filed against CNA unit Continental Casualty Co. claims that the insurer has improperly refused to cover his legal costs under a directors and officers (D&O) excess insurance policy issued to parent company Paper Bird and its subsidiary, FTX.

Bankman-Fried has been charged with defrauding investors out of billions of dollars through his FTX cryptocurrency exchange, which went bankrupt in 2022. Prosecutors say that from 2019 until 2022, he used monies from the exchange’s customers’ to fund his hedge fund and buy real estate. He also made political donations, according to prosecutors.

Bankman-Fried has pleaded not guilty.

In addition to the criminal trial in New York, Bankman-Fried faces a second trial in March 2024, and he is further involved in more than a dozen civil and regulatory actions relating to FTX, proceedings he maintains are also covered by the policy.

The California insurance complaint alleges that CNA has “refused to comply with its contractual mandate and failed to pay” legal costs on a current basis, after the $10 million of primary coverage had been exhausted and despite numerous requests by Bankman-Fried.

Bankman-Fried Was ‘Math Nerd’ Who Overlooked Risk Management

The CNA policy is a second-layer excess policy in the D&O insurance tower that was in effect from August 4, 2022, until August 4, 2023. The CNA policy provides a $5 million limit of liability, which attaches upon exhaustion of the $10 million in aggregate limits of the underlying insurance. The $10 million in underlying coverage was provided by Beazley with $5 million of primary coverage and QBE Insurance with a $5 million first-layer excess policy.

Bankman-Fried said he has sought reimbursement of his defense costs from all three insurers and submitted requests to CNA after the Beazley and QBE limits were reached.

He said Beazley implemented a process under which it reviewed invoices submitted by the insureds, evaluated coverage of those invoices, and made payments until the covered defense costs exceeded the remaining aggregate policy limit, at which point Beazley paid out each insured’s covered defense costs proportionally up to Beazley’s limit of liability.

The complaint says QBE subsequently employed a similar procedure for paying out defense cost claims under its first-layer excess policy.

The CNA excess policy, with a premium of $288,800, incorporates all terms, conditions, and limitations of the $5 million primary policy issued by Beazley. However, the complaint alleges, CNA has not complied with its policy. The policy mandates that defense costs must be paid on a current basis, or no less than once every 60 days, even if doing so would exhaust the limit of liability that would otherwise be available for indemnity or defense cost claims in the future.

The CNA policy contains exclusions based on fraudulent, criminal, and similar acts, but the policy expressly carves out defense costs from those exclusions, according to the complaint.

CNA declined to comment on the lawsuit.

This article was previously published by Insurance Journal.