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The Markel unit does not need to defend a solid hit with dispel



A Markel Corp. unit need not continue to defend a company in connection with its former CEO’s embezzlement, a federal appeals court ruled in overturning a lower court decision.

Paul Donisthorpe, former CEO of Albuquerque, New Mexico-based Desert State Life Management, which served as a trustee for disabled individuals, ran an embezzlement scheme in which he intentionally misappropriated and diverted more than $4.9 million of the firm’s client funds for his own use. , according to Friday’s ruling by the 10th US Circuit Court of Appeals in Denver i Evanston Insurance Co. v. Desert State Life Management et al.

Regulators declared Desert State financially unsound in March 201

7, and in August 2017 Christopher Moya was named its receiver, according to the ruling.

Mr. Donisthorpe pleaded guilty to wire fraud and money laundering in November 2017. He was sentenced to 12 years in prison and ordered to pay $6.8 million in restitution and a $4.8 million judgment.

Three former clients sued Desert State, Mr. Donisthorpe, his ex-wife, a director and others, and demanded back pay, and their cases were consolidated into a class action.

Mr. Moya asked Desert State’s professional liability insurer, Markel unit Evanston Insurance, to defend and indemnify Desert State.

Evanston responded by sending a disclaimer letter to Mr. Moya, then refunded the premiums paid under the policy and made an offer to rescind the coverage, which Desert State did not accept.

In July 2018, Evanston sued Desert State and others in U.S. District Court in Albuquerque seeking to rescind the policy and obtain a declaration that the class action plaintiffs were not entitled to coverage under the policy and that Evanston had no duty to defend against claims that arose. from Mr. Donisthorpe’s criminal conduct.

The district court decided that the insurance insured Mr. Moya and the director for the claims filed against them.

It was overturned by a unanimous three-judge appeals court panel, which ruled that the lower court had erred in failing to apply a policy exclusion that barred coverage for any claims arising from misappropriation or commingling of funds.

Two of the judges affirmed the lower court in ruling that Evanston was not entitled to the policy’s rescission because it had not requested it immediately, and one of the judges dissented on this issue.

The case was remanded for further processing.

Attorneys did not respond to requests for comment.


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