On April 25, 2011, the Rhode Island Superior Court (Silverstein, J.) ruled in favor of the constitutionality of the Voluntary Restructuring of Solvent Insurers Act (the “Restructuring Act”), a state statute enacted in 2002 that allows Rhode Island domestic commercial insurers and reinsurers (including those that redomesticate to Rhode Island) to enter into a commutation plan for their run-off business.

Under the laws of the UK and Bermuda, solvent insurance companies that had ceased to write new policies have long been able to implement an orderly and expeditious run off of their businesses through court approved schemes of arrangement.

The US Federal Deposit Insurance Corporation (FDIC) and the Board of Governors of the Federal Reserve System (FRB) have jointly approved a proposed rule requiring certain companies to periodically submit Resolution Plans (also referred to as “living wills”) and Credit Exposure Reports (the “Proposed Rule”) to the FRB and FDIC.1

In a recent decision arising out of the Chapter 11 bankruptcy case of Global Industrial Technologies, Inc. (GIT),1 the U.S. Court of Appeals for the Third Circuit, sitting en banc, held that insurance companies that had issued liability insurance policies to a manufacturer before its bankruptcy filing had standing to object to confirmation of the company’s Chapter 11 plan of reorganization, even though the plan had been designed to be “insurance neutral” with regard to the policies.

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.

It is important that directors and officers insurance provide the necessary protections. In times of financial turmoil, it is especially advisable for companies to review their D&O insurance coverage to ensure that their directors and officers are adequately protected. Although not exhaustive, set forth below are some of the critical issues to be considered in the context of D&O insurance policies.

The Extent of Coverage

Thus far in 2011, six additional states have enacted the provisions from the National Association of Insurance Commissioners’ Insurer Receivership Model Act (“IRMA”) that govern the treatment of “qualified financial contracts” and “netting agreements.”

The IRMA provisions, which are modelled on the U.S. Bankruptcy Code, allow a party that has entered into a swap transaction with an insurer to exercise certain netting, collateral realization and termination rights without being precluded by the automatic stay that is imposed if the insurer becomes insolvent.

The well known travails of Fred Wilpon, the principal owner of the New York Mets, have all converged this past week. He, his partner Saul Katz and their families and affiliated enterprises (the “Wilpon/Katz Group”) lost several hundred million dollars when Bernard Madoff’s long running Ponzi scheme finally unraveled at the height of the financial crisis in 2008.

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.

On June 8, 2011, Governor Andrew M. Cuomo announced the appointment of Assemblyman Jonathan Bing to serve as Special Deputy Superintendent of the New York Liquidation Bureau, an agency tasked with protecting policyholders and creditors of insurance companies that have gone bankrupt.  Bing steps in as the successor to Dennis J. Hayes, who was appointed to the position in September 2009.  Bing’s appointment ends his fifth term in the New York State Assembly, where he has represented the 73rd District since November 2002.