Facing two active lawsuits and other legal hurdles, Tonya Mallory is searching for a new source of defense funds.
The co-founder and former CEO of Health Diagnostic Laboratory is seeking access to a $10 million insurance policy that the company purchased to protect its directors and officers prior to filing for bankruptcy and selling off the bulk of its assets this summer.
The policy was purchased from Pittsburgh-based National Union and includes coverage for other current and former HDL executives, including its two additional co-founders, Joe McConnell and Russell Warnick.
The policy, according to court records, would cover any losses they suffered “for any wrongful Act.”
Court filings show that Mallory, who resigned from HDL last year, is hoping to use the insurance money to help pay for her legal defense costs related to lawsuits she is facing from the Department of Justice and insurance giant Aetna. She’s also to be examined as part of an investigation by HDL’s creditors.
Mallory’s attempt to get to the insurance policy was deterred at a bankruptcy court hearing Wednesday, when Judge Kevin Huennekens agreed with an objection by HDL. The company argued several individuals are included under the insurance policy and they should be a part of any discussion regarding its funds.
Huennekens agreed to hear Mallory’s arguments, along with those of all others insured under the policy, on Dec. 10.
Her attorney, Michael Hastings of Roanoke-based Whiteford Taylor & Preston, argued that Mallory needs the funds sooner, with an impending Nov. 30 response date in her Aetna case.
“We have an immediate need,” Hastings told Huennekens. “Between now and Dec. 10, substantial harm could come to my client.”
Hunton & Williams attorney Jason Harbour, who represents HDL, argued that Aetna is likely to extend Mallory’s deadline. He also said the committee of creditors has not served her a subpoena; there are other insured members who also need defense costs; and tapping into the insurance policy now would deplete HDL’s funds.
“There is no harm, your honor, in waiting until Dec. 10,” he told Huennekens.
Harbour added that Mallory also has not paid the $1 million retention fee required under a clause of the insurance policy related to defense fees from government claims. Harbour said she has paid less than $300,000 so far in defending herself against the Department of Justice.
Mallory did not return requests for comment.