Buyers of assets through the bankruptcy court process seek comfort and solace in the entry of a sale order providing for the transfer of assets “free and clear” of all liabilities. Except for those liabilities expressly assumed by the buyer and new owner, the bankruptcy court order typically includes exacting and precise language transferring those assets, under the imprimatur of the United States Bankruptcy Court, free and clear of all liabilities.

The United States District Court for the Middle District of Pennsylvania has held that an E&O policy issued to a now-bankrupt credit counseling company did not cover claims arising under unfair trade practices statutes, but did cover claims arising under fair debt collection statutes. Hrobuchak v. Fed. Ins. Co., 2013 WL 2291875 (M.D. Pa. May 24, 2013). The court also held that carve-outs from the policy’s definition of loss did not preclude coverage for statutory damages or damages representing the return of fees paid to the insured.

It has long been standard practice for Court-appointed receivers, monitors and trustees in bankruptcy to include comprehensive disclaimer language in the reports they submit to Court in connection with insolvency proceedings. The reason is simple – these reports are relied on by the Court and other parties to the proceedings, and are often prepared using unaudited and unverified information obtained from management of the debtor company.

On April 2, 2013, Justice Mesbur of the Ontario Superior Court of Justice (Commercial List) granted an application brought by Business Development Bank of Canada (“BDC”) for the appointment of a receiver over the assets, undertakings and properties of Pine Tree Resort Inc. and 1212360 Ontario Limited, operating as the Delawana Inn in Honey Harbour, Ontario (together, “Delawana”).

The United States District Court for the Northern District of Georgia, applying Georgia law, has held that a default judgment against an insured in a rescission action precluded any subsequent recovery under the policy by a judgment creditor of the insured. Old Republic Nat’l Title Ins. Co. v. Hartford Accident & Indem. Co., 2013 WL 1943427 (N.D. Ga. May 9, 2013).

On April 29, 2013, the Supreme Court of the United States declined to hear an appeal of the Second Circuit's decision dismissing, as equitably moot, appeals arising out of the bankruptcy of Charter Communications and let stand the opinion in In re Charter Communications, Inc., 691 F.3d 476 (2d Cir. 2012). As a result, the application of the equitable mootness doctrine, as it applies to bankruptcy appeals, will continue to vary among jurisdictions.

On February 1, 2013, the Supreme Court of Canada (the “SCC”) released its long-awaited decision in Sun Indalex Finance, LLC v. United Steel Workers1 (“Indalex”). By a five to two majority, the SCC allowed the appeal from the 2011 decision of the Ontario Court of Appeal (the “OCA”) which had created so much uncertainty about the relative priorities of debtor-in-possession (“DIP”) lending charges and pension claims in Companies’ Creditors Arrangement Act (the “CCAA”) proceedings.

The Companies’ Creditors Arrangement Act¹ (the “CCAA”) is by far the most flexible Canadian law under which a corporation can restructure its business. When compared against theBankruptcy and Insolvency Act² (the “BIA”), the CCAA looks like a blank canvass and lends itself well to invention and mutual compromise.

Applying Minnesota law, a federal district court has held that, where an entity’s principal shareholder was insolvent, but the entity was not, the individual’s insolvency could not be attributed to the entity for purposes of establishing Side A coverage for “Non-Indemnifiable Loss.” Zayed v. Arch Ins. Co., 2013 WL 1183952 (D. Minn. Mar. 20, 2013). The court further held that allegations of fraudulent inducement did not trigger an exclusion for claims “arising from” contractual liability, but that the claim was uninsurable as matter of law.

The United States District Court for the District of Connecticut has held that a settlement agreement between the claimant and policyholder satisfies Connecticut’s direct action statute’s requirement regarding the need for an unsatisfied judgment. Tucker v. American International Group, Inc., No. 3:09-cv-1499, 2013 WL 1294476 (D. Conn. Mar. 28, 2013). Accordingly, the court permitted the claimant’s suit against the carrier to proceed.