Not necessarily so, according to the recent rulings of Southern District of New York Bankruptcy Judge Allan Gropper in the US$27 billion General Growth Properties Chapter 11 bankruptcy—at least with respect to the issue of substantive consolidation.
During the second afternoon session of the first day of the PLUS D&O Symposium, the panelists discussed the complex underwriting issues that arise when the company to be insured is insolvent, in bankruptcy, or close to bankruptcy. The panelists discussed the following topics and provided the following insights:
In a significant ruling with potentially wide-reaching implications, Judge Lewis Kaplan of the U.S. District Court for the Southern District of New York dismissed the Securities Act of 1933 causes of action (Sections 11, 12, and 15) against McGraw Hill and Moody's (the "Rating Agencies") in In re: Lehman Brother Mortgage Backed Securities Litigation.
In 2009, there were 140 failed banks. So far this year, 16 more banks have been seized by the FDIC. There are 702 banks currently on the FDIC's troubled banks list, and regulators and analysts predict that several hundred of those likely will fail over the next two years.
Although courts are generally reluctant to equitably subordinate claims of non-insiders, the United States Bankruptcy Court for the District of Montana recently did just that to the claims of a non-insider lender based on overreaching and self-serving conduct in Credit Suisse v. Official Committee of Unsecured Creditors (In Re Yellowstone Mt. Club, LLC), Case No. 08-61570-11, Adv. No. 09-00014 (Bankr. D. Mont. May 13, 2009).
Amaca Pty Ltd v McGrath & Anor as liquidators of HIH Underwriting and Insurance (Australia) Pty Ltd [2011] NSWSC 90
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District Court for the District of New Jersey, applying New Jersey law, has held that a bankruptcy court properly rescinded an insurance policy where the application denied any knowledge of occurrences that might give rise to claims despite the company's knowledge that employees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).
Your insurer goes bust – can you as an insured claim the reinsurance proceeds? An important decision in the NSW Supreme Court gives useful guidance on when a court will allow departures from the statutory scheme controlling the application of reinsurance proceeds (Amaca Pty Ltd v McGrath & Anor as liquidators of HIH Underwriting and Insurance (Australia) Pty Ltd [2011] NSWSC 90).
The insurer goes broke, and there are all these claimants at the door…
Industry observers have been waiting to see when bank failures arising out of the recent financial crisis would produce a wave of Federal Deposit Insurance Corporation (“FDIC”) litigation similar to that seen in the early 1990s after the savings and loan crisis. With its second suit in recent months, the FDIC has shown that it will aggressively pursue claims against directors and officers in connection with failed depository institutions.
Not necessarily so, according to the recent rulings of Southern District of New York Bankruptcy Judge Allan Gropper in the US$27 billion General Growth Properties Chapter 11 bankruptcy—at least with respect to the issue of substantive consolidation.