“Bankruptcy is about financial death and financial rebirth. Bankruptcy is the great American story rewritten. We’re a nation of debtors.” -Elizabeth Warren

Amid the Coronavirus (COVID-19) pandemic and related economic turmoil, bankruptcy filings in the United States are on the rise. Non-US insurers should review contractual arrangements with US insureds and brokers, and establish a plan to deal with bankruptcy filings across the United States in a consistent fashion.

There is an inherent tension between the goals of bankruptcy law and the state law doctrine of constructive trust. A central tenet of bankruptcy policy is that similarly situated creditors should be treated equally: because an insolvent business or individual will not be able to pay all creditors in full, a proper bankruptcy system must provide as equitable a distribution to each of them as possible. Constructive trust law, on the other hand, works to the advantage of a single creditor – which always means the detriment of the others when everyone is competing for limited funds.