The United States Bankruptcy Court for the District of Delaware, applying federal law, has held that certain lawsuits brought by a bankruptcy trustee were related claims, even though they alleged unique causes of action, because they were based upon the same course of conduct.  The court also found that the trustee was pursuing claims both on behalf of the policyholder-debtor and its subsidiaries, and therefore the application of the insured versus insured exclusion was “unclear.”  Nonetheless, the court found that the individual insureds were entitled to 100% of their defense cos

The United States District Court for the Northern District of California, applying California law, has granted summary judgment in favor of a bankruptcy plan administrator for the estate of an insured, holding that the plan administrator is entitled to recover premiums paid to an insurer after the insurer rescinded the policy. In re SONICblue Inc., 2011 WL 839401 (N.D. Cal. Mar. 4, 2011). The court also held that the insurer is entitled to reimbursement for defense costs paid to the insured prior to the policy’s rescission.

The United States District Court for the Northern District of Illinois, applying Illinois law, has ruled that an insolvency exclusion barred coverage for claims arising out of an insurance broker’s placement of coverage with an insolvent insurance association. American Automobile Insurance Co. v. B.D. McClure & Associates, Ltd., 2011 WL 211204 (N.D. Ill. Jan. 21, 2011).

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.

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).

A federal district court in Delaware, applying New York law, has affirmed a bankruptcy court's dismissal of an adversary proceeding brought by a bankrupt home mortgage company against its directors and officers liability insurers, holding that coverage for a pre-petition lawsuit against the mortgage company was barred by application of an “inadequate consideration” exclusion.Delta Fin. Corp. v. Westchester Surplus Lines Ins. Co., 2009 WL 2392882 (D. Del. Aug. 4, 2009).

The United States District Court for the Southern District of New York has affirmed a bankruptcy court's ruling that defense costs advanced by an insurer to a debtor under an Interim Fee Advancement and Non-Waiver Agreement (the Interim Agreement) were not held in trust and, therefore, constituted property of the debtor's estate. Great Am. Ins. Co. v. Bally Total Fitness Holding Corp. (In re Bally Total Fitness of Greater N.Y.), No. 09-CV-4052, 2009 WL 1684022 (S.D.N.Y. June 15, 2009).

A federal bankruptcy court, applying New York law, has dismissed an adversary proceeding brought by a bankrupt home mortgage company against its directors and officers liability insurers, holding that coverage for a pre-petition lawsuit against the mortgage company was barred by application of an “inadequate consideration” exclusion. Delta Fin. Corp. v. Westchester Surplus Lines Ins. Co., Case No. 07-11880 (CSS) (Jointly Administered) (Bankr. D. Del. Dec. 15, 2008). The court also held that the coverage dispute was a non-core proceeding.

The United States District Court for the Western District of Pennsylvania has held that an excess liability insurer had no standing to object to a Chapter 11 bankruptcy debtor's reorganization plan where the plan, although requiring contributions from the insurer's policyholder, was not contingent on the policyholder obtaining any funds or proceeds from its insurer. Hartford Accident and Indemnity Co., et al. v. North Am. Refractories Cos. et al., Civ. Action No. 07-1750, Bankr. Case No. 02-20198 (JFK) (W. D. Pa. Jul. 25, 2008).

The United States Bankruptcy Court for the Southern District of New York has granted another preliminary injunction ordering an excess directors and officers liability insurer to advance defense costs, despite the fact that the insurer had denied coverage on the basis of a prior knowledge exclusion and three of the insured entity's principals have pled guilty to various offenses, including violations of the securities laws. Murphy v. Allied World Assurance Co. (U.S.), Inc. (In re Refco, Inc.), No. 08-01133 (Bankr. S.D.N.Y. Apr. 21, 2008).