NEW YORK ? A company that insured Tyco International Ltd. executives must pay legal bills for former CEO L. Dennis Kozlowski, who is on trial on corporate-looting charges, an appeals court says.

In a 5-0 ruling, the state Supreme Court Appellate Division left open the possibility that Federal Insurance Co., a subsidiary of Chubb Corp., could later recover some of the costs from Kozlowski.

A lower court judge had ruled that Federal, which provided liability coverage to Tyco, was required to pay Kozlowski?s legal bills.

The appeals court modified the ruling to say Federal was obligated only to pay legal costs of defending covered claims, and could later be repaid for the legal costs of defending noncovered claims.

Federal lawyer David J. Hensler said yesterday he had argued the policy?s ?personal profit exclusion? applied to some claims against Kozlowski because the former CEO was accused of enriching himself by some of his crimes.

The appeals court wrote on Tuesday in its 19-page opinion, ?Federal must pay all defence costs as incurred, subject to recoupment when Kozlowski?s liabilities, if any, are determined.?

Kozlowski, 58, and Mark H. Swartz, 44, Tyco?s former chief financial officer, are accused of stealing $170 million from Tyco by hiding unauthorised pay and bonuses and by abusing loan programs. They also are accused of making $430 million by inflating the value of Tyco stock by lying about the company?s finances.

Their retrial in Manhattan?s State Supreme Court on charges of grand larceny, falsifying business records and violating state business laws is ending its second month. Their first trial ended in a mistrial last April.