Last month the United States Court of Appeals for the Sixth Circuit issued its anticipated decision in Indian Harbor Insurance v. Zucker, affirming a 2016 decision from a federal district court in Michigan that an Insured v. Insured (“IVI”) exclusion bars coverage for a claim brought by a post-bankruptcy litigation trustee for the benefit of the insured debtors’ creditors. The district court’s Indian Harbor decision was driven largely by the mistaken conclusion that a post-bankruptcy trustee is an ordinary assignee of the debtor company—an insured—and therefore purportedly stands in the shoes of the insured debtor for purposes of the IVI exclusion. As we described at the time, that decision, however, ignores the fundamentally different nature of transfers pursuant to Bankruptcy Code Section 1123 when compared to ordinary assignments pursuant to state contract law and the fact that a post-bankruptcy trustee assumes special powers as an estate representative. Unfortunately, after appeal, this issue still remains unresolved.
The Insured v. Insured (“IVI”) exclusion is a frequent and important issue for directors & officers (“D&O”) liability coverage, particularly where the bankruptcy of an insured entity may blur the lines of who is an insured and who is acting on behalf of an insured. Nevertheless, because the exclusion generally bars coverage for a claim made against an insured individual that is “brought or maintained by or on behalf of” the insured entity, whether the IVI exclusion applies is often the single most important coverage issue for the many claims often asserted against a debtor’s former directors and officers in bankruptcy.
Although the applicability of the IVI exclusion to bankruptcy-related claims has been litigated several times and often decided in favor of insurers, none of those cases has addressed the critical question of the primacy of Bankruptcy Code Section 1123, and how this provision may prevent application of the exclusion in such circumstances. Therefore, as insurers become more emboldened by their prior victories, debtors, their former directors and officers, as well as their bankruptcy and coverage counsel should be careful to consider Section 1123 both when drafting the debtor’s plan of reorganization and in any subsequent insurance coverage litigation. Continue reading “The Insured v. Insured Exclusion and Section 1123: the Primacy of Bankruptcy Law and the Importance of Planning Ahead”
Erin L. Webb
Exelon Corp., the largest United States nuclear operator, announced recently that it would agree to purchase Pepco Holdings, Inc. for $6.8 billion in cash. Pepco no longer generates its own power, but serves utility customers from Washington, D.C. to New Jersey. Bloomberg reports that this merger, if approved, would create the largest electric and natural gas utility in the Mid-Atlantic region.
The merger will require approval by both the Federal Energy Regulatory Commission and the public service commissions in the relevant states and the District of Columbia. It will also need to pass antitrust review by either the Department of Justice or the Federal Trade Commission. Lawyers, consultants, and accountants for both companies will undoubtedly conduct extensive diligence reviews. Continue reading “Exelon-Pepco Merger Highlights Importance of Insurance Coverage Analysis in Mergers and Acquisitions”
Erin L. Webb
A federal court of appeals and the Nuclear Regulatory Commission (NRC) recently made advances toward a national disposal site for spent nuclear fuel. My recent Law360 column analyzes the potential impact of an eventual spent nuclear fuel disposal site on insurance coverage for nuclear plant owners. Shipping spent nuclear fuel offsite for disposal presents very different risks from those associated with storing the spent fuel onsite, which is the situation at many nuclear power plants today.
The D.C. Circuit recently held that the U.S. government may not collect any more fees from nuclear plant owners under the Nuclear Waste Policy Act until it finalizes a disposal solution for spent fuel. Nat’l Ass’n of Regulatory Util. Comm’rs v. U.S. Dep’t of Energy, Nos. 11-1066, 11-1068, 2013 WL 6064021 (D.C. Cir. Nov. 19, 2013). Additionally, the NRC directed its staff last month to “complete and issue the Safety Evaluation Report” on the U.S. Department of Energy’s (DOE) application for consideration of the Yucca Mountain site as a disposal facility. In the Matter of U.S. Dep’t of Energy (High-Level Waste Repository), No. 63-001, __ N.R.C.___, slip op. at 23 (Nov. 18, 2013). Continue reading “Disposal Site for Spent Nuclear Fuel Could Change the Insurance Picture for Nuclear Plant Owners”
The natural gas and oil extraction and production technique known as fracking is a hot-button issue in today’s political landscape and in the media. Estimates suggest that more than a quarter of the United States’ natural gas supply is derived from shale bed fracking. As evidenced by the recent Presidential campaigns, many Americans view fracking as an economic catalyst that may create jobs domestically and help reduce the country’s reliance on foreign energy supplies. While this extraction and production technique has been utilized in the United States since the 1940s, it has recently gained additional attention from environmental groups claiming environmental harm as the extraction moves into the more densely populated areas surrounding the natural-gas rich Marcellus Shale in the northeast and the huge Monterey shale that lies under California’s Central Valley at San Benito and Monterey counties. Continue reading “Insurance Coverage for Fracking Claims”