In an interesting and unusual development, the victims’ trust that was created as part of the Pacific Gas & Electric (PG&E) bankruptcy has reached an agreement to settle the trust’s assigned claims against PG&E’s directors and officers for $117 million. According to the parties’ settlement agreement, the settlement is to be funded entirely with proceeds from PG&E’s D&O insurance program. As discussed below, there are a number of interesting aspects and implications to this settlement A copy of the Fire Victim’s Trust’s September 29, 2022 press release about the settlement can be found here. A copy of the parties’ settlement agreement can be found here.



A series of wildfires struck California over the course of several years, including the 2015 Butte Fire, the 2017 North Bay Fires, and the 2018 Camp Fire. In the aftermath of the fires, victims of the fire and others asserted that the fires had been caused by PG&E’s electrical transmission facilities as well as by other PG&E actions and omissions. PG&E filed for bankruptcy in 2019 after it announced a $13.5 billion settlement with fire victims and their families.


The bankruptcy court’s plan of reorganization for PG&E created the PG&E Fire Victim Trust to pursue and process fire victims’ claims arising out of the wildfires. Among other things, the purpose of FVT was to pursue claims assigned to the FVT as part of the bankruptcy reorganization. The plan specifically provided for PG&E’s assignment to the FVT of “any and all rights, claims, causes of action, and defenses related thereto relating directly or indirectly to any of the Fires that the Debtors may have against … former directors and officers of the Debtors solely to the extent of any directors and officers’ Side B Insurance Coverage.”


The Settlement

Pursuant to the assignment under the reorganization plan, the FVT filed an action in the Superior Court of California, San Francisco County, against certain current and former directors and officers of PG&E, asserting assigned claims for breach of fiduciary duty. In connection with this action, the parties entered settlement negotiations that ultimately resulted in an agreement to settle the action for $117 million.


Among other things, the settlement agreement recites that PG&E and the defendants in the action have “executed an agreement with certain of their D&O Insurance Carriers” providing that, subject to Bankruptcy Court approval, for “those D&O insurance Carriers to pay amounts on behalf of the Defendants that are sufficient to fund the Settlement Amount.” The settlement agreement further provides that payment of the settlement amount “will be made solely from proceeds from Side B Insurance Coverage, as defined by the Plan, and that the Director Defendants, the Officer Defendants, and PG&E shall not under any circumstances be obligated to pay or have liability for the Settlement Amount.”


Readers interested to know the names of the specific insurers implicated in this settlement will want to refer Section of the Settlement Agreement, where the settlement agreement’s term “D&O Insurance Carriers” is defined.



The circumstances surrounding the settled claims and the settlement itself are extraordinary. The wildfires resulted in massive, tragic loss of life and property damage. As a result of PG&E’s efforts to resolve the claims of the fire victims, the company was driven into bankruptcy, in the course of which the company assigned to the fire victims claims the company itself may have, including the company’s own claims against its directors and officers for breach of fiduciary duties – subject to the condition that the claims against the directors and officers could only be recovered from the company’s D&O insurance, and not from the directors and officers themselves.


This arrangement for the assignment of D&O claims is, in my experience, at least highly unusual and perhaps even unprecedented. Readers can let me let me know if there are other examples of this type of arrangement, but I am not aware of any other circumstance quite like this – especially with the arrangement’s unusual feature that the assigned claims could only be executed against the assignor company’s D&O insurers.


The size of the settlement is also extraordinary. Were these claims to have been asserted in the form of a shareholder derivative lawsuit, the $117 settlement would rank among the largest derivative settlements of all time. (Depending on which settlements are taken into account, the $117 million settlement would rank around the 14th largest of all time, were it a derivative settlement.)


All of that aside, the entire sequence of events presents an unusual but noteworthy was in which claims against directors and officers can arise. The spectacle of the fire victims bringing an action against the directors and officers, albeit based on claims assigned by the company itself, represents a novel form of D&O claim, one that for D&O insurers arguably presents a disturbing new possibility for D&O liability and loss. The possibility for persons harmed in calamity, disaster, and catastrophe pursuing claims against the directors and officers of involved companies, even if only based on assigned claims, has to present an unwelcome prospect for D&O insurers generally. Certainly, the development here was a costly one for the insurers involved in this case.


It could be argued that this case also represents an example of how climate change could contribute toward D&O liability. The wildfires that cause the catastrophic loss to the victims arguably is the result of changes environmental conditions and drought caused by climate change. Even though there were a host of intervening events that preceded the assertion of liability against the directors and officers, the fact is that the precipitating condition was the loss from the wildfires, which arguably were the result of altered conditions resulting from climate change. For those in the D&O insurance industry charged with thinking about how climate change could result in D&O losses, this case arguably is a prominent and significant example to consider.


One final note. PG&E’s role in the California wildfires has separately been the subject of securities class action litigation (refer here), and shareholder derivative litigation (refer here). It is not apparent from the available record how this Victim’s Trust settlement relates to or affects the other wildfire-related D&O litigation against PG&E and its executives. I would be grateful if any reader with insight with this issue could please let me know.


Special thanks to a loyal reader for calling my attention to this settlement.