Coverage Defenses Arising from Bankruptcy Assignments of D&O Claims

John C. Kilgannon
Covered Events, Newsletter of the Insurance Law Committee of the Defense Research Institute

A recent federal court decision highlights potential coverage defenses that may arise when an insured files for bankruptcy protection. It is no secret that insurance proceeds are often the primary, if not sole, source of recovery for unsecured creditors in bankruptcy cases. In many cases, the bankrupt company’s assets are fully encumbered by liens, leaving unsecured creditors with limited prospects to satisfy their claims. As a result, unsecured creditors will frequently pursue claims to trigger coverage under a debtor’s insurance policies. The officers and directors of the debtor, and the debtor’s director and officer liability coverage, are prime targets for such claims.

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