Petters Claw Back – Professionals, Check Your Insurance!

Earlier this month, Doug Kelly, the Court-appointed receiver and bankruptcy trustee for the fallen enterprise of Tom Petters, announced that he plans to recover $1.745 Billion from investors and affiliates of Petters and his companies, through a series of “claw back” lawsuits. According to Kelley, he and his legal team have already filed 202 civil lawsuits in attempt to recover these funds.

Although claw back lawsuits are often settled before trial, some cases can be hotly contested depending on the parties involved and amount at stake. To the extent professional service providers – namely attorneys and accountants – are named in lawsuits, there may be issues involved that are greater than the underlying lawsuits. Specifically, Kelley has made clear that he fully intends to seek the recovery of fees paid by Petters and his companies to attorneys and accountants if the funds used to pay those fees were ill-gotten gains from his ponzi schemes. In doing so, Kelley hopes to recover those fees from whatever insurance policies existed at the time the services were provided. Given the potential amounts at issue, it will be no surprise when insurance companies begin finding exclusions or other grounds to deny coverage to those insurance providers. Depending on the facts and specific language of the policies, such denials may not always be appropriate. Therefore, to the extent an accountant or attorney is named in a lawsuit by Kelley, with the intend of recovering from said accountant or attorneys’ insurance policy, it is important that the appropriate steps be taken to maximize the ability of those accountants and attorneys to obtain defense costs and settlement funds from their insurance providers.

Read the Star Tribune report here.

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