As previously reported (3/17/08 post), this case involves the interpretation of the terms of a reinsurance contract and the duties of the parties under that contract. In the most recent development, the Eighth Circuit affirmed the Bankruptcy Appellate Panel’s judgment affirming in part, and reversing in part, a prior decision of the bankruptcy court regarding the reinsurance contract at issue.

In an unpublished summary order applying New York law, the United States Court of Appeals for the Second Circuit has affirmed a district court's judgment finding that many of the factual allegations asserted in a complaint against the directors and officers of the bankrupt policyholder were excluded by a prior litigation exclusion, even though some of the excluded losses accrued during time periods not at issue in the prior litigation. Pereira v. Gulf Ins. Co., 2009 WL 1262954 (2d Cir. May 6, 2009).

Century Indemnity Company (“CIC”) reinsured The Home Insurance Company (“Home”). Due to Home’s liquidation proceedings, which began in 2003, CIC became fully liable for a $13 million settlement of certain environmental claims for which CIC and Home were both primarily liable under the parties’ respective insurance contracts. CIC, a debtor in the Home proceedings, sought a setoff of $8 million against other obligations owed to Home, for Home’s share of the settlement that CIC paid in full. The New Hampshire Supreme Court reversed the trial court’s order permitting the setoff.

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).

In Biltmore Assocs., LLC v. Twin City Fire Insurance Co., 2009 WL 1976071 (9th Cir.

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.

Two D&O insurers have asked the U.S. Bankruptcy Court for the District of Minnesota to lift an automatic stay in a bankruptcy proceeding pending against their insureds so that the insurers can pursue their coverage defenses as counterclaims against the insureds in a pending declaratory judgment action.In Re Petters Company, Inc., et al., Case No. 08-45257 (Bankr. D. Minn.).

The United States District Court for the Eastern District of New York, applying New York law, has held that an insured did not violate an insurance policy's cooperation clause when it agreed, without providing advance notice to the insurer, to lift the automatic bankruptcy stay with respect to certain personal injury actions filed against it. Admiral Ins. Co. v. Grace Indus., Inc., 2009 WL 2222369 (E.D.N.Y. July 23, 2009).

In light of the possibility that several hundred FDIC-insured banks and thrifts may fail in the next two- to three-year period, many clients and friends of the firm have requested a summary of the legal concerns that arise for officers and directors immediately following the seizure of an institution by the FDIC, as well as steps that may be taken to be better prepared before a failure.

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).