D&O Indemnity Claims in Bankruptcy: Navigating Third-Party Suits, Chapter 11, and D&O Insurance Coverage

Description

A company's bankruptcy filing often places its directors and officers in a vulnerable position. While the company may find instant relief from litigation, its directors and officers remain exposed to being sued individually or collectively.

Whether directors and officers are entitled to indemnity protection will often depend on the indemnity claim's nature and the underlying claims against them. Does the indemnification obligation arise under state law or in the company's formation documents? Are they alleged to have committed fraud or negligence? A shareholder derivative action will be viewed differently from allegations of misappropriation of trade secrets.

Increasingly, officers and directors have to litigate the enforceability of bankruptcy exclusions, which purport to deny coverage for claims brought by the debtor, trustees, and others. Even if they are entitled to indemnity protection, the directors and officers' claims may be subordinated under Section 502 or 510 of the Bankruptcy Code. And when they turn to the company's D&O insurance policy, directors and officers will likely need to seek a bankruptcy court determination of whether the proceeds of that policy belong to the estate or the individuals themselves.

Listen as our authoritative panel discusses the sources of director and officer indemnity claims and treatment of those claims in bankruptcy. The panel will also discuss coverages that should be included in any company's D&O insurance policy, and how best to pursue collection under the D&O policy in a Chapter 11 proceeding.