On June 28, 2011, the Second Circuit, in a 2-1 decision, held that Bankruptcy Code section 546(e) shields from avoidance in bankruptcy cases an issuer's payments to redeem its commercial paper prior to maturity. See Enron Creditors Recovery Corp. v. Alfa, S.A.B. de CV, Enron Creditors Recovery Corp. v. ALFA, S.A.B. de C.V., Nos. 09-5122-bk(L), 09-5142-bk (Con), 2011 U.S. App. LEXIS 13177 (2d Cir. June 28, 2011). The decision marks the first time an appeals court has considered whether redemption payments constitute "settlement payments" under section 546(e).

An Illinois appellate court, applying Indiana and federal law, has held that neither a bankruptcy exclusion nor an insured versus insured exclusion applied to bar coverage for claims brought by a bankruptcy trustee.  Yessenow v. Exec. Risk Indem., Inc., 2011 WL 2623307 (Ill. App. Ct. June 30, 2011).

The Appellate Court of Illinois, First District, Third Division, applying Indiana and federal law, has held that neither a bankruptcy nor an insured versus insured exclusion applied to bar coverage for claims brought by a bankruptcy trustee.  According to the court, the bankruptcy exclusion is unenforceable because coverage arises from a policy that is a property interest of the debtors, and that property interest is protected under Section 541 of the Bankruptcy Code.  The insured versus insured exclusion did not apply, the court held, because the policyholder and a court-appointe

The Seventh Circuit recently held that a chapter 11 bankruptcy plan of liquidation is not confirmable over a secured lender's objection if such plan prohibits the lender from credit bidding at a sale of its collateral. In doing so, the Seventh Circuit split with the Third and Fifth Circuit Courts of Appeal which have confirmed plans that block secured creditors' rights to credit bid, potentially making the issue ripe for review by the United States Supreme Court.

The United States District Court for the Central District of California has granted motions by eight directors and officers liability insurers to withdraw the reference to the bankruptcy court of two coverage actions involving coverage for claims against former directors and officers of a bank holding company.  In re IndyMac Bancorp, Inc., Nos. CV11-02600; CV11-02605; CV11-02950; CV11-02988 (C.D. Cal. May 17, 2011).  Wiley Rein LLP represents an excess insurer and the primary Side A insurer in the litigation.

The United States Bankruptcy Court for the District of Nevada has held that proceeds from a professional liability policy were not property of the insured-debtors' bankruptcy estate because the proceeds were payable only for the benefit of third party claimants and could not be accessed by the debtors directly.  In re Endoscopy Center of Southern Nevada, Nos. BK-S-09-22780-MKN, S-09-22776-MKN, S-09-22784-MKN, 2011 WL 2184387 (Bankr. D. Nev. May 23, 2011).

Last month, the United States Court of Appeals in two separate circuits held that liability insurers have standing as parties in interest to appear and be heard in an insured's Chapter 11 case where the insurer might be liable to indemnify the claims of the insured's creditors.

Prior to the 1984 Amendments to the Bankruptcy Code1 (BAFJA), there was a split as to whether a transfer of title to real estate by virtue of a mortgage foreclosure constituted a transfer as defined in §101 of the Bankruptcy Code.2, 3 However, BAFJA made it clear that a “transfer” included “the foreclosure of a debtor’s equity of redemption.”4 This change in definition has a significant impact on the application of both §547 (preference) and §548 (fraudulent transfer).  

The second priority lien held by a junior lien holder is a property interest sufficient to trigger the protection of the automatic stay.In re Three Strokes L.P., 379 B.R. 804 (Bankr. N.D. Tex. 2008). Inasmuch as a senior lien holder’s foreclosure proceedings would have the effect of extinguishing the debtor’s second lien interest, a court may only lift the stay and permit the foreclosure to proceed upon such senior lien holder’s showing of adequate protection.

A United States Magistrate Judge in the United States District Court for the Western District of North Carolina has denied a motion to compel discovery of all claims for which the insurer had denied coverage based on the desire of an insolvent insured to forfeit coverage.Lane v. Endurance American Specialty Insurance Co., 2011 WL 1791343 (W.D.N.C. May 10, 2011). The court granted, however, the plaintiff’s motion to compel the insurer to provide information about all other claims noticed under the policies at issue.