Delaware Bankruptcy Judge Brendan L. Shannon ruled that the group, which also includes former SemGroup executives Brent Cooper and Alex Stallings, can use only $3.5 million of the $10 million policy taken out to cover company officials in 2007. All five executives departed SemGroup shortly before or after the July 2008 filing for Chapter 11 bankruptcy protection.

Earlier this year, SemGroup, through its unsecured creditors group, sued the quintet for allegedly mismanaging the company and, in some cases, are accused of enriching themselves with improper bonuses, according to reports.

Kivisto, Wallace, Foxx, Cooper and Stallings must make regular, detailed accountings of their legal fees and can spend only up to $3.5 million of the $10 million policy, Shannon said.

“The payment of defense costs” is authorized only for use “by individual defendants to pay covered defense costs incurred solely in connection with the adversary proceeding” brought by SemGroup and the unsecured creditors, Shannon wrote.

Kivisto and some other former SemGroup officials also face a Tulsa federal class-action lawsuit brought by investors in publicly traded SemGroup Energy Partners, or SGLP. Those plaintiffs allege that the public SGLP, which shared administration and other assets with its parent firm, did not warn investors about the SemGroup

SemGroup filed for Chapter 11 bankruptcy protection last year after amassing at least $2.4 billion in lost margins on failed oil futures trades, according to reports. A U.S. judge-appointed bankruptcy examiner, former FBI Director Louis Freeh, alleged that Kivisto personally guided the secretive and risky strategy, and that he, Wallace, Fox and others mismanaged the firm, violated their fiduciary duties and misled creditors, among other things.

Kivisto was placed on administrative leave more than a year ago and fired in late 2008. Wallace, the former chief financial officer, left the company last year, while Foxx moved over to maintain his CEO role at SemGroup Energy Partners.

Cooper, the SemGroup treasurer, departed on medical leave just prior to the bankruptcy, according to reports. Stallings is no longer with SemGroup but, like Foxx, stayed on as an executive with SGLP.