A Manhattan judge has ruled that Tyco International's insurance firm must pay legal fees for L. Dennis Kozlowski, the former chief executive officer who is on trial for allegedly helping loot Tyco of $600 million.
State Supreme Court Justice Helen Freedman ruled that Federal Insurance Co., which provided liability insurance for Kozlowski and other Tyco officials, must pay the costs of his state criminal trial as well as the federal actions pending against him.
Kozlowski, 57, and Mark H. Swartz, 43, Tyco's former chief financial officer, are in the sixth month of trial in Manhattan charged with a total between them of 32 counts of grand larceny, falsifying business records and violating state business laws.
The two are accused of stealing $170 million from Tyco by hiding unauthorized pay and bonuses and by abusing loan programs. They also are accused of making $430 million by inflating the value of Tyco stock by lying about the company's finances.
In February 2003, Kozlowski notified Federal of the civil and criminal cases against him and demanded that the insurer pay his defense costs. Federal responded by canceling the liability policies and returning Tyco's premiums.
Federal claimed that Kozlowski, Tyco's CEO from January 1992 until June 2002, had misstated material information about Tyco's finances and other matters in his insurance application. The insurance company initiated the lawsuit, the judge said, seeking to void coverage for Tyco officers.
Kozlowski said the alleged false statements about Tyco were in filings with the federal Securities and Exchange Commission, and that a "severability" clause in the policies bars Federal from imputing the statements to him.
In a 12-page decision made public Tuesday, the judge found that until Federal can cite a legal ruling that shows Kozlowski did something wrong, the insurance company has no basis for voiding Tyco's policies.
However, Freedman said, if Federal ultimately prevails and the policies are declared void, the insurer may be able to recover money paid for Kozlowski's defense.
Philippe A. Zimmerman, Kozlowski's lawyer in the insurance case, had no comment.
Christopher Wren, a lawyer for Federal, also had no comment.
A lawyer familiar with the Federal Insurance case but who would only comment anonymously said he believed Kozlowski's legal fees would be millions of dollars.
The lawyer also said only Kozlowski filed the motion against Federal, but the judge's decision should apply to the two other defendants who remain in the case. They are Swartz, who is on trial with Kozlowski, and Frank E. Walsh Jr.
Walsh, a former Tyco board members, pleaded guilty last year to felony charges of taking an unauthorized $20 million fee from Tyco and paid the money back.
Meanwhile, Justice Martin Shulman, who is overseeing the Manhattan district attorney's asset forfeiture lawsuit against Kozlowski, has allowed the defendant's frozen funds to be tapped for living expenses and legal fees.
Tyco, which has about 270,000 employees and $36 billion in annual revenue, makes electronics and medical supplies and owns the ADT home security business. Nominally based in Bermuda, its operations headquarters are in West Windsor, N.J.