An appeals court in Illinois has upheld the dismissal of a $16 million claim by accounting firm BDO Seidman against several professional liability insurance companies that the firm hoped would pay a legal settlement on its behalf.
BDO had agreed in 2002 to pay $16 million to settle charges that it knew about, but did not report, that its tax client, James Gibson, and his structured settlement company, SBU, misappropriated $65 million from clients. BDO signed a pretrial diversion agreement to pay $16 million to a fund established to pay restitution to Gibson's clients. The amount represented how much Gibson received from his clients but did not report as taxable income.
BDO had professional liability insurance with Peter Harris and other companies, but they excluded from coverage "any claim or claims for fines, penalties, punitive or exemplary damages imposed by a judgment or any other final adjudication."
The Illinois appeals court found that the malpractice policies excluded penalties imposed by judgment or final adjudication. BDO had contended that the conduct admitted to in its agreement had been that of employees of its St. Louis office, and not its own.
BDO disputed the judge's ruling. "We respectfully, but firmly, disagree with the court's decision to deny BDO Seidman's effort to obtain reimbursement for a payment it made to assist personal injury victims and we will be appealing this ruling to the Illinois Supreme Court," said a statement from the firm.
BDO contended that the appeals court ignored both the trial judge and the U.S. Attorney's "clear description" of the firm's payment as an intent to make a contribution to a restitution fund to assist those victims, and not to make any admission of guilt.
BDO contended that it was never required to enter a plea to any charge and was commended by U.S. District Judge G. Patrick Murphy when he stated, "BDO Seidman has come forward, recognized what happened and done a tremendous service."
"This decision refers to an old matter, the payment of which was made by BDO Seidman in 2002," said the firm.
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