A federal appeals court ruled Thursday that the main insurance carrier that covered Charles H. Keating Jr. and other directors and officers of his financial empire did not have to defend them against the maelstrom of civil lawsuits stemming from the 1989 collapse of Lincoln Savings & Loan.
But the decision comes too late for National Union Fire Insurance Co. of Pittsburgh.
It may have no way to recoup more than $15 million that it is believed to have spent defending Keating and his associates at the Irvine thrift and its parent company, American Continental Corp. in Phoenix. That amount includes $5 million it spent to settle the cases last year.
The U.S. 9th Circuit Court of Appeals Thursday reversed a lower court ruling that had forced National Union to continue paying legal defense bills.
Keating had contended that a provision in his companies' policies with National Union required the insurer to defend them in matters involving unfair competition. U.S. District Judge Stephen V. Wilson construed the provision to mean that the insurer had to defend against securities fraud allegations as well.
But in an unrelated case last year, the California Supreme Court limited its broad reading of such insurance clauses, and the 9th Circuit relied on that ruling to reverse Wilson's decision.
National Union, however, had paid Keating's defense costs until the fall of 1991. Lawyers in the case said the insurer was paying $500,000 a month in legal bills for Keating and the others over much of the 2 1/2 years it maintained coverage, stopping after it paid its policy limits of $5 million to settle the case.