Bankruptcy Claim Carve-Back

As I noted in yesterday’s post, there could be a significant number of bankruptcies in coming months, and D&O claims in the bankruptcy context could give rise to insurance coverage disputes. In addition to the possible coverage issues I noted in yesterday’s post (pertaining bankruptcy exclusions, in particular), another issue that could arise is whether or not coverage for claims brought on behalf of the bankrupt debtor’s estate or on behalf of unsecured creditors is precluded by the insured vs. insured exclusion found in most policies.

Most insured vs. insured exclusions include a carve-back preserving coverage for claims brought by trustees and other estate representatives. In a recent ruling that broadly considered the scope and purpose of the insured vs. insured exclusion’s bankruptcy claim coverage carve-back, a New York intermediate appellate court concluded that the carve-back applied to preserve coverage for a claim brought by a Creditor Trust formed to pursue post-confirmation legal actions on behalf of unsecured creditors. The May 14, 2020 opinion in Westchester Fire Insurance Company v. Schorsch can be found here.
Continue Reading The Insured vs. Insured Exclusion’s Bankruptcy Claim Coverage Carve-Back