A group of US executives charged with fraud will have legal costs covered by their directors’ and officers’ insurer after previously being told their policy would not be honoured.

Syndicates at Lloyd’s and Arch Speciality Insurance initially denied coverage for five former Stanford Financial Group executives charged with fleecing investors of $US7 billion ($7.8 billion) via an elaborate Ponzi scheme.

But a Houston district court ruled a money laundering exclusion invalid because it undermined the principle of taking out insurance.

“Essentially, coverage that directors and officers relied upon and expected when the policies were purchased on their behalf could be withdrawn at the insurer’s whim,” Judge David Hittner wrote in his ruling.

The insurers have until Friday to honour the claim, which is worth up to $US5 million ($5.6 million).