The United States District Court for the Northern District of Texas has held that underlying claims that the insureds misused investment funds intended for the purchase of nonperforming mortgages did not allege negligent acts, errors, or omissions in performing “mortgage broker services” within the policy’s definition of “Insured Services.” Axis Surplus Ins. Co. v. Halo Asset Mgmt., LLC, 2013 WL 5416268 (N.D. Tex. Sept. 27, 2013).
The United States Bankruptcy Court for the Eastern District of New York held that it had subject matter jurisdiction over a bankruptcy trustee’s adversary proceeding against the bankrupt entity’s insurer because the policy and policy proceeds were part of the policyholder’s bankruptcy estate. EMS Financial Services, LLC. v. Federal Ins. Co., 2013 WL 64755 (Bankr. E.D.N.Y. Jan. 4, 2013).
Despite having more than its fair share of failed banks, Florida has not been a hotbed of D&O litigation. On November 9th, the FDIC filed only its second lawsuit against former directors of a failed banking institution. The defendants here are former directors of Century Bank, FSB (Sarasota, FL), which was placed into receivership in mid-November 2009. A copy of the FDIC’s complaint is available here.
A federal court jury in Manhattan returned verdicts on Monday, November 12, largely exonerating the two most senior Reserve Management Company executives in a Securities and Exchange Commission enforcement action accusing them of fraud.
In Official Committee of Unsecured Creditors v. Baldwin (In re Lemington Home for the Aged), 659 F.3d 282 (3d Cir. 2011), the Third Circuit Court of Appeals held, among other things, that the “deepening insolvency” cause of action, which the Third Circuit previously recognized in Official Committee of Unsecured Creditors v. R.F. Lafferty & Co., 267 F.3d 340 (3d Cir. 2001), remains an independent cause of action under Pennsylvania law.
Background
In its recent decision ACE Capital Ltd. v. Morgan Waldon Ins. Mgmt., LLC, 2011 U.S. Dist. LEXIS 135902 (W.D. Pa. Nov. 28, 2011), the United States District Court for the Western District of Pennsylvania had occasion to consider the scope of an insolvency exclusion in a professional liability policy.
Frontier Insurance, in rehabilitation, filed proofs of claim following the Chapter 11 bankruptcy of Black, Davis & Shue Agency. The claims related to captive reinsurance program with Frontier. In turn, Westport Insurance, which had issued a professional liability insurance policy to BDS, objected to Frontier’s claims, asserting affirmative defenses and counterclaims. Frontier moved to dismiss those objections, or in the alternative, for a stay pending a ruling on BDS’s own objections to Frontier’s claims.
The Bottom Line:
Section 548(c) of the Bankruptcy Code entitles the recipient of a fraudulent transfer in certain circumstances to retain a lien on the property received through the debtor’s fraud if the transferee took the property in good faith and for value.
The United States District Court for the District of New Jersey, applying New Jersey law, has held that a bankruptcy court properly rescinded an insurance policy where the application denied any knowledge of occurrences that might give rise to claims despite the company's knowledge that employees were stealing money from the company. In re Tri-State Armored Services, Inc., 2007 WL 1196558 (D.N.J. Apr. 23, 2007).