Stanford sues Lloyd's of London for defense fees

R. Allen Stanford, the former billionaire accused of a $7 billion fraud, leaves federal court in Houston after a hearing October 14, 2009.

HOUSTON (Reuters) - Allen Stanford, who faces U.S. criminal and civil charges for allegedly leading a $7 billion Ponzi scheme, is suing Lloyd's of London for defense costs.

Lloyd's had advanced some legal fees under a directors and officers policy. But the insurer sent a letter on November 16 declining to extend coverage for beyond August 27, according to the complaint filed in federal court in Houston on Friday.

The insurer has declined to provide additional funds, the lawsuit said, because claims resulting from fraud and money laundering are excluded from coverage.

Laura Pendergest-Holt, Stanford's former chief investment officer, and former Stanford accounting executives Mark Kuhrt and Gilbert Lopez are also plaintiffs in the lawsuit, court records show.

The defendants, who are accused of involvement in a scheme using certificates of deposit (CDs) issued by the firm's offshore bank in Antigua, have battled to come up with funds to pay their attorneys.

Stanford and Pendergest-Holt had their assets frozen when the U.S. Securities and Exchange Commission filed civil fraud charges in February. Kuhrt is represented by a court-appointed attorney.

Dick DeGuerin, Stanford's attorney who resigned from the case because he was not paid, said in an April court filing that the cost of defending the former billionaire would exceed $20 million.

A representative for Lloyd's could not immediately be reached by email for a comment.

Stanford, Pendergest-Holt, Kuhrt and Lopez have all pleaded not guilty. Stanford is in a Houston jail awaiting trial.

The case is Laura Pendergest-Holt, R. Allen Stanford, Gilbert Lopez and Mark Kuhrt v Certain Underwriters at Lloyd's of London and Arch Specialty Insurance Co, U.S. District of Court, Southern District of Texas, No. 09-03712.

(Reporting by Anna Driver, editing by Leslie Gevirtz)