(USA Herald) - In a decision that is sure to ruffle feathers among policyholders, a Markel Corp. unit, has been deemed not liable to continue defending a company in connection with its former CEO's embezzlement. The 10th U.S. Circuit Court of Appeals in Denver overturned a previous lower court decision, sparking outrage among consumer advocates and policyholders.

The case involves Paul Donisthorpe, the former CEO of Desert State Life Management in Albuquerque, New Mexico, who ran an embezzlement scheme in which he intentionally misappropriated and comingled more than $4.9 million of the entity's client funds for his own use. Donisthorpe pleaded guilty to wire fraud and money laundering and was sentenced to 12 years in prison.

Desert State was declared financially unsound in March 2017, and Christopher Moya was appointed its receiver. Three former clients sued Desert State, Donisthorpe, his ex-wife, a director, and others, demanding restitution, and their cases were consolidated into a class action. Moya asked Desert State's professional liability insurer, Markel unit Evanston Insurance, to defend and indemnify Desert State.

Evanston responded by sending a reservation of rights letter to Moya, then later 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 be granted a declaration that the class-action defendants were not entitled to coverage under the policy and that Evanston had no duty to defend against claims arising from Donisthorpe's criminal conduct.

The district court ruled the policy insured Moya and the director for the claims filed against them. However, this decision was overturned by a unanimous three-judge appeals court panel, which ruled that the lower court had erred in not applying a policy exclusion that barred coverage for any claim arising out of misappropriation or commingling of funds. Two of the judges upheld the lower court's decision on Evanston not being entitled to the policy's rescission because it had not requested it immediately, with one of the judges disagreeing on this issue.

This case is significant because it sets a precedent for insurance companies to avoid responsibility for defending policyholders who have fallen victim to embezzlement and fraud. It is also a clear indication of the Markel Corp. unit's willingness to leave policyholders to fend for themselves, even when they have paid for the coverage.

Policyholders must take a closer look at the fine print of their insurance policies and consider the actions that their insurance company might take if they are ever in a similar situation. The outcome of this case highlights the need for greater transparency in the insurance industry and the importance of holding insurers accountable for their actions.

In conclusion, policyholders should be aware of the potential risks they face when purchasing an insurance policy. The case of Evanston Insurance Co. v. Desert State Life Management et al. serves as a stark reminder of the need for greater protection and stronger advocacy for consumer rights. It is up to policyholders to remain vigilant and demand the highest standards of accountability from insurance companies like the Markel Corp. unit.