Bankruptcy Trustee of Banyon Hedge Funds Sues Crime Insurance Carriers and Broker Over Refusal to Pay on Crime Insurance Claim With Respect to Scott Rothstein/RRA Ponzi Scheme

Hedge fund managers typically procure various categories of insurance coverage with respect to their activities, including directors and officers (D&O) insurance, errors and omissions insurance and crime insurance coverage.  See “Hedge Fund D&O Insurance: Purpose, Structure, Pricing, Covered Claims and Allocation of Premiums Among Funds and Management Entities,” Hedge Fund Law Report, Vol. 4, No. 41 (Nov. 17, 2011).  However, as in many categories of insurance, insurers sometimes resist paying claims made by hedge fund managers.  A defense to payment of claims typically asserted by insurers is that the insured, e.g., the hedge fund manager, made misrepresentations on the insurance application.  An example of this type of dispute is the recent litigation between Level Global, L.P. and XL Special Insurance Company.  See “New York District Court Orders Insurer XL to Advance Defense Costs to Level Global Under D&O Policy,” Hedge Fund Law Report, Vol. 5, No. 27 (Jul. 12, 2012).  Another dispute of this type was recently initiated when eight insurers refused to pay out on a claim for $70 million in crime insurance procured by a group of hedge fund managers.

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