In a decision not designated for publication, the United States District Court for the Northern District of California, applying California law, has held that an insurer's declaratory judgment complaint for rescission effectuated the rescission of the policy and that the subsequent coverage litigation confirmed the validity of the rescission. In re Sonic Blue Inc., 2010 WL 2034798 (N.D. Cal. May 19, 2010).

The United States Court of Appeals for the Third Circuit, applying New York law, has held that an inadequate consideration exclusion unambiguously bars coverage for a lawsuit arising out of a debt restructuring transaction. Delta Financial Corp. v. Westchester Surplus Ins. Co. (In re Delta Financial Corp.), 2010 WL 1784054 (3d Cir. May 5, 2010).

On April 5, 2010, the United States Bankruptcy Court for the Middle District of Florida denied motions filed by Black Crow's secured creditor that would have likely ended the company's chance to reorganize its operations under chapter 11 of the Bankruptcy Code.

Applying Texas law, the United States Bankruptcy Court for the Northern District of Texas has held that a primary insurer that "exhausted" its policy limits by agreeing to pay the insured's bankruptcy estate its remaining policy limits, while stipulating that a significant portion of this payment would be returned to the insurer by the estate's bankruptcy trustee, was required to reimburse the excess insurer the value of the returned payments made by the trustee. Yaquinto v. Admiral Ins. Co., Inc. (In re Cool Partners, Inc.), 2010 WL 1779668 (Bankr. N.D. Tex. Apr. 30, 2010).

The United States District Court for the District of Connecticut, applying Connecticut law, has held that coverage under a bankers professional liability policy was precluded by the policy's insolvency exclusion where the underlying claims "arose out of" the bankruptcy of a third-party securities broker or dealer. Associated Community Bancorp, Inc. v. The Travelers Cos., 2010 WL 1416842 (D. Conn. Apr. 8, 2010). The court also held that coverage was barred by the professional services exclusion of the management liability coverage part of the policy.

On March 22, 2010, the United States Court of Appeals for the Third Circuit affirmed a lower court decision which held that secured creditors do not have an absolute right to credit bid at an auction of assets conducted in connection with a bankruptcy reorganization plan. The court ruled that secured creditors are only entitled to the "indubitable equivalent" of their claims under a specific subsection of the Bankruptcy Code. The "indubitable equivalent" could be the cash value of the assets upon which the creditor holds liens as determined through an auction process.

It is a harrowing scenario for any seller of goods: a trading-partner files for bankruptcy and leaves the seller with thousands, even millions of dollars in unpaid invoices. In many instances, some of these goods were delivered only days before the bankruptcy filing. While a creditor may be able to assert reclamation rights, those rights are often difficult to enforce in bankruptcy and may be subordinate to the interests of an all assets lender.

The Bankruptcy Appellate Panel of the Ninth Circuit has affirmed the bankruptcy court’s grant of a motion by a debtor’s sole director to modify the automatic stay to allow payment of defense costs under the A-side coverage of the debtor’s directors and officers liability insurance policy. In re MILA, Inc., 2010 WL 455328 (B.A.P. 9th Cir. Jan. 29, 2010).

The United States District Court for the District of Kansas, applying Kansas law, has held that a D&O policy issued to a bank was not automatically canceled or terminated when the FDIC was appointed as the bank’s receiver but that coverage under the policy ceased. Columbian Fin. Corp. v. BancInsure, Inc., 2009 WL 4508576 (D. Kan. Nov. 30, 2009). The court concluded that although coverage ceased upon the appointment of the FDIC as receiver, the insureds could report claims at any time prior to the expiration of the policy.

The dispute over the disposition of customer records held by the "Clear" airport traveler program casts a spotlight once again on the handling of consumer personal data when a business falls on hard times. In such circumstances, the desire of the debtor to preserve or maximize the value of its business assets can conflict with legitimate privacy interests of individuals who were customers of the business.