Keating Says He Won’t Offer Defense in Suits

Citing his insurance carrier’s refusal to pay his legal bills, former Lincoln Savings & Loan owner Charles H. Keating Jr. has told a federal judge that he will not defend himself against civil claims that he defrauded small investors of more than $250 million.

In a letter to U.S. District Court Judge Richard M. Bilby in Tucson, Stephen C. Neal, Keating’s lawyer, said his client “will be unable to conduct any defense” in the civil trial.

Nonetheless, the trial against Keating and others, including three big accounting firms and a major national law firm, is expected to go forward as scheduled next week. The defendants are accused in a series of class-action lawsuits--consolidated into a single case for trial--of helping defraud investors in American Continental Corp. The Phoenix-based development company was the parent firm of failed Lincoln Savings.

Neal informed the court that National Union Fire Insurance Co. of Pittsburgh refused to pay Keating’s attorney fees despite a federal court order and a so-called funding agreement that require continued payments. The agreement is an interim payment arrangement between insurance carriers and lawyers for directors and officers.

According to documents in the case, National Union said it had settled all the litigation against other directors and officers of American Continental by paying a total of $5 million, which represents the limits of its policies.

Once policy limits are paid in full, an insurer no longer owes a policyholder any duty to defend him against continuing legal action, said R. Gaylord Smith, a San Diego lawyer for New York-based National Union.

Court papers indicated that the carrier also paid nearly $24 million in defense costs, which include attorney fees, filing costs and expert witness fees. The insurer is believed to have paid about $30 million in defense costs before halting payments to Neal’s firm in September.

Neal’s firm, Kirkland & Ellis in Chicago, never signed the funding agreement. Instead, the firm assumed--incorrectly, Smith said--that it succeeded to the contract after taking over for Keating’s previous defense lawyers, who did sign the agreement.

Neal contends that the insurer is wrong on both counts, owing a duty to defend Keating under the policy and the agreement.