Competing Insurance Interests in Bankruptcy

This article originally appeared in Anderson Kill's Policyholder Advisor (May/June 2009).

As bankruptcy filings rise in this prolonged economic downturn, insurance claims are becoming a focal point for the administration of debtor assets and liabilities. Many insurance claims that arise in bankruptcy — particularly D&O claims — give rise to conflicts issues between competing insureds.

A recurring question in bankruptcy proceedings is whether the benefits of a D&O policy are assets of the estate or personal assets of the insured officers and directors. Creditors of a bankruptcy estate have an obvious interest in keeping available as many assets as possible to satisfy claims. In the Enron case, a state attorney general tried to bar Enron officers and directors from tapping the defense cost insurance coverage of Enron’s D&O insurance, arguing that to permit payment of defense costs would siphon off money from the estate that could be used to pay creditors’ claims.