“Death of Company”: Insurance Coverage in Bankruptcy

The John Liner Review

PUBLISHED ON: November 9, 2009

Download PDF

Given the jump in insolvencies and bankruptcy filings due to the moribund economy, insurance claims again are becoming a focal point for the administration of debtor assets and liabilities.

Bankruptcy trustees may find themselves pursuing first-party property insurance claims if the policyholder was rendered insolvent by the refusal of the insurance company to pay, in part or in full, the claims for business income loss or full property damage suffered by the policyholder following a calamity.

Third-party and hybrid policies often in play during bankruptcy include directors and officers (D&O) insurance policies, fidelity bonds, and commercial crime insurance policies. Often, for D&O insurance claims, this is a reflection of the fact that shareholder suits tend to spike when companies struggle to stay afloat and the stock price gets pounded as a result.

As for crime insurance or fidelity bond claims, the debtor company may have been pushed over the edge by a large theft or a rogue trader.

Insurance claims pursued during bankruptcy are often complicated by the fact that many insurance claim issues — especially ones involving D&O insurance claims — give rise to conflicts between competing insureds.