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.

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.

The Ninth Circuit Court of Appeals has held that an insured vs. insured exclusion bars coverage for a suit by a debtor-in-possession against former directors and officers of the company. Biltmore Assocs. v. Twin City Fire Ins. Co., No. 06-16417, 2009 WL 1976071 (9th Cir. July 10, 2009). The court rejected the argument that the debtor-in-possession was a different legal entity from the pre-bankruptcy company insured under the policy.

The United States District Court for the Southern District of Ohio, applying Ohio law, has held that an insurer could rescind an insurance policy based on an individual's fraudulent statements that the insured company was not facing bankruptcy. Unencumbered Assets Trust v. Great Am. Ins. Co., 2007 WL 2029063 (S.D. Ohio July 10, 2007).

Weighing in at the intersection of bankruptcy law and the doctrine of subrogation, the Ontario Court of Appeal has ruled that insurers are not entitled to commence subrogated claims in the name of bankrupt insureds.

The Act, which received Royal Assent as long ago as 25 March 2010, is finally due to come into force on 1 August 2016. It has the intention of allowing third parties to make claims directly against liability insurers in insolvency situations.

1930 Act

Case Alert - [2018] EWHC 95 (Comm)

Court considers whether deed of indemnity from insurer is adequate security for costs

The 2010 Act has now been updated by regulations (the Third Parties (Rights against Insurers) Regulations 2016) to reflect changes in insolvency law. Accordingly, the long-awaited 2010 Act will finally come into force on 1 August 2016.

It will be recalled that the 2010 Act is intended to make it easier for third party claimants to bring direct actions against (re)insurers where an insured has become insolvent. The key changes coming in are as follows:

An insolvent company obtained damages in a professional negligence claim against its solicitors. That claim had been pursued with the benefit of various insurance arrangements (including ATE insurance). The insurers sought recovery of unpaid premium but the bankruptcy trustee of the company argued that they were only unsecured creditors in respect of the proceeds.

http://www.bailii.org/ew/cases/EWHC/Ch/2015/3721.html

Two insurance intermediaries entered into administration. Although heavily insolvent, they had significant funds held in client accounts. Those funds represented insurance premiums collected from customers but not yet paid on to the insurers. The issue therefore arose as to whether the insurers, the customers or the unsecured creditors of the intermediaries were entitled to those funds.