Friday Sept 30 2022
The sad saga of now disgraced Chris Pettit continues. He applied for a malpractice insurance policy in the amount of $2M. The insurance company maintain he lied on the application as follows. But the Bankruptcy Trustee maintains the policy is an asset of the bankrupt estate, he wants the insurance company to pay off. It appears to me the insurance company was defrauded by Pettit. We are studying evidence in the audit class. Looks like the insurance company should have done a lot more investigating,n gathering evidence, before issuing the policy. If Pettit claimed there had been no complaints on him for five years, why was he buying the policy? That question alone should have suggested the need for more investigation.
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National Liability filed its complaint in San Antonio’s U.S. Bankruptcy Court, where Pettit and his firm sought refuge from creditors in massive cases filed June 1. The filings, which have been consolidated, came after his clients filed about a dozen lawsuits alleging he had collectively misappropriated tens of millions of dollars that belonged to them.
Pettit’s firm reported $13.8 million in assets and $112.8 million in liabilities in its latest bankruptcy schedules. He specialized in estate planning and personal-injury cases, but also provided financial advice and investment management services. Pettit surrendered his law license in lieu of discipline and shuttered his law offices.
He’s been in jail on a contempt of court charge since Sept. 9, when a judge found he had not been truthful during his bankruptcy proceedings. On Thursday morning, several Pettit creditors and their representatives dialed in to a conference call to once again question him. But he did not call in from the Karnes County Detention Facility.
An attorney for the U.S.trustee’s office declined a request to schedule another meeting given Pettit has already submitted to more than seven hours of questioning. Plus, Pettit is scheduled to be questioned by some creditors’ representatives next week.
In its lawsuit, National Liability seeks a court ruling declaring the insurance policy void and that it’s entitled to rescind the policy.
When Pettit induced the insurer to issue the policy, the suit says, he represented in the application that no claims had been made in the past five years against him or his firm. He also asserted he was not “aware of any act, error, omission or incident that could be reasonably expected to result in a claim or suit” against him or his firm.
Those representations were false, National Liability alleges.
READ MORE: Some of the real estate Chris Pettit transferred ahead of bankruptcy will be returned under deal
That’s because eight days before Pettit filled out a form as part of his application for the policy in September 2021, the insurer alleges he acknowledged in writing that he had received a copy of a lawsuit that was subsequently filed against him and his firm by Dr. Salvador Ortiz.
Ortiz had retained Pettit for some estate planning, including creating a will and forming two trusts. The doctor alleged Pettit misappropriated about $10.9 million, but paid back $8 million before the payments stopped, prompting the doctor to sue for fraud and breach of fiduciary duty.
Ortiz’s complaint and the other lawsuits against Pettit and his firm indicate their “wrongful conduct…began long before the debtors applied for professional liability insurance” with National Liability in 2021, it says.
The insurer adds it never would have issued the policy had Pettit disclosed that he and his firm had “misappropriated millions of dollars of their clients’ assets and monies.”
National Liability says it notified the trustee on Aug. 15 that it was rescinding the policy due to “material misrepresentations and false warranties.” It offered to to turn over to the trustee the full amount of the premium paid for the policy, but the trustee’s counsel rejected the offer, the insurer adds.
A lawyer for National Liability didn’t immediately respond to a request for comment.