Top officials at WorldCom will have to cover their own legal bills if they are convicted of crimes related to the firm’s $9 billion accounting scandal.
WorldCom on Friday asked the U.S. Bankruptcy Court for the Southern District of New York to approve a settlement agreement it has reached with the National Union Fire Insurance Company of Pittsburgh, the company that handles the legal liability insurance policy for the Clinton-based telecommunications giant’s directors and officers.
D&O insurance policies are designed to provide corporate officials with legal services needed when companies are sued. According to the filing, WorldCom is facing 44 lawsuits from shareholders and bond holders related to its $9 billion in fraudulent accounting.
National Union claims WorldCom violated its policy by mis-reporting its financial results, a condition the insurance company says voids the remaining insurance policy.
A settlement between WorldCom and National Union would give directors and officers at WorldCom legal support, but directors and officers who are convicted of criminal wrongdoing would be denied service.
Those terms will mean the four WorldCom officers who have already pleaded guilty will not receive any legal support from the company.
The Bankruptcy Court is set to hear arguments on the settlement on Nov. 26.
In other WorldCom news Friday, the company expanded its July 21 Chapter 11 bankruptcy filing to include another 43 subsidiaries including 1-800-COLLECT.
The company claimed the subsidiaries are all inactive, and Chief Financial Officer John Dubel called the filing a formality.
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