NEW YORK (Bloomberg) — Refco former chief executive officer Phillip R. Bennett and other officers can force an insurance company to pay for their defence as they have spent almost $17.5 million and are about to run out of coverage.

US Bankruptcy Judge Robert Drain said in Manhattan bankruptcy court that Axis Reinsurance Company must cover defence costs for Bennett and other officers.

Axis was one of several companies from which futures trader Refco bought insurance for its directors and officers prior to its October 2005 bankruptcy.

"Nowhere does the policy say, or imply that, the insurer can unilaterally withhold defence costs absent a court determination," Drain said, after going over specific wording in the Axis policy.

Refco filed the 15th-biggest bankruptcy in US history in October 2005 after disclosing Bennett and others had concealed $430 million in bad debt.

The former futures trader emerged from bankruptcy in late 2006, and trusts are still pursuing returns for creditors through lawsuits against parties allegedly involved in the fraud.

Axis Reinsurance had argued that a fraud exclusion clause in the policy should bar Bennett as well as former chief financial officer Robert Trosten and former Refco Group president Tone Grant and other former officers of Refco from having their legal fees paid.

Lawyers for the former Refco officers said that as their role in the fraud that brought Refco into bankruptcy hadn't yet been proven in pending legal cases, their insurance couldn't be rescinded.

"That issue will have to be resolved by the underlying action," said Helen Kim, a lawyer with Baker & Hostetler LLP who represents some Refco officers.

Bennett faces a criminal case, originally scheduled for this month, in March.

Other officers face lawsuits and regulatory investigations. Axis said it plans to deny coverage because of contract violations.

"The representations and documents Axis relied upon when evaluating the risk and deciding whether or not to insure Refco's directors and officers, turned out to be false," Axis said in US Bankruptcy Court papers.