Under the insurance contract, Indian Harbor agreed to pay for any “Loss resulting from a Claim first made against the Insured Persons”—a group that included Capitol's directors, officers, and employees—“during the Policy Period ․ for a Wrongful Act.” R. But the contract excluded from coverage “any claim made against an Insured Person ․ by, on behalf of, or in the name or right of, the Company or any Insured Person,” except for derivative suits by independent shareholders and employment claims. Not unlike a homeowners insurance policy that excludes coverage for a fire that the policyholder intentionally sets, these exclusions limit the management-liability insurance to claims by outsiders, prohibiting coverage for claims by people within the insured company. Zucker notified Indian Harbor of the lawsuit against the Reids. We ask only whether “the Company” includes Capitol as debtor in possession. The dissent says that the bar on coverage for claims “in the name or right of” Capitol is the only clause in the insured-versus-insured exclusion that plausibly applies to the Trust's suit. As an assignee, the Trust stands in Capitol's shoes and is subject to the same defenses. The plain language reading of the insurance contract in this case and Sixth Circuit precedent both support that finding. The courts in each of these cases held that the plain language of the insured-versus-insured exclusion did not apply to claims by a trustee in bankruptcy or an estate representative, emphasizing that such claims “are not the same claims brought ‘by’ the Debtor under the exclusionary provision.” Alstrin, 179 F. Specifically, the Alstrin court rejected the insurance company's argument that the insured-versus-insured exclusion applies to the estate representative because the company's estate and the company share the same identity. Instead, the Alstrin court emphasized that the debtor's estate representative, by way of the debtor's estate, and the debtor are separate entities.
A company thus cannot hope to push the costs of mismanagement onto an insurance company just by suing (and perhaps collusively settling with) past officers who made bad business decisions. Indian Harbor responded by filing this diversity action against Zucker and the Reids, seeking a declaratory judgment that it had no obligation to cover any damages from the lawsuit because the Trust's claims fell within the insured-versus-insured exclusion. In resolving this dispute, the terms of the contract are a good place to start. Just as the exclusion covers a lawsuit “by” Capitol, it covers a lawsuit “by” the Trust “in the ․ right” of Capitol. When Capitol and Indian Harbor formed the insurance contract, they argue, “the Company” referred to Capitol in its pre-bankruptcy form. The contract itself, together with core principles of bankruptcy law, confirms that it does. Just as the exclusion would bar a suit “by” or “on behalf of” Capitol, it bars a suit by or on behalf of the Trust. But the key point in the case is not which of the three clauses applies; it's whether Capitol as debtor-in-possession is still “the Company” that entered into the insurance contract. Because this decision makes it harder for companies to emerge from bankruptcy with a consensual plan of reorganization, I respectfully dissent.“The primary intent of the development of the ‘insured vs. Similar to Alstrin, the insured-versus-insured exception in Molten Metals excluded coverage for claims “brought by any Insured or by the Company.” However, the Molten Metals court noted that “Company” was “expressly defined to mean MMT [the insurance corporation] and its subsidiaries. If we look to the plain language of the insured-versus-insured exclusion in this case, we will find the same result.
The exclusion would bar the claim, as both sides to this dispute agree. All of its assets, including all causes of action, became property of the bankruptcy estate, 11 U. §§ 1101(1), 1107; see In re Wilcox, 233 F.3d 899, 901 (6th Cir. As Zucker and the Reids see it, a debtor in possession is legally distinct from “the [pre-bankruptcy] Company,” making the insured-versus-insured exception inapplicable to Capitol or its assignee. Even if settings remain in which it makes good sense to treat the debtor and debtor in possession as legally distinct, this is not one of them. It makes no difference that the bankruptcy court approved the plan transferring the bankruptcy estate's causes of action from Capitol to the Liquidation Trust. And when Capitol filed for bankruptcy, it is also true, this breach-of-fiduciary-duty claim became property of the bankruptcy estate. In truth, because the exclusion also applies to claims “in the ․ right of” Capitol, it's not even clear that a court-appointed trustee or creditor's committee could collect on the policy. Sousa, Making Sense of the Bramble-Filled Thicket: The “Insured vs. In fact, there is a split among “federal courts on the issue of whether a lawsuit against a corporation's former directors and officers brought by a debtor in possession, trustee, creditors' committee, or postconfirmation liquidating trustee triggers the ‘insured vs. The lawsuit brought by the Liquidation Trustee against Capitol's officers was not made “by the Company or any Insured Person” nor is it suggested that the suit is an action on “behalf of an Insured Person.” Thus, the only remaining provision of the insured-versus-insured exclusion left to potentially bar coverage for the lawsuit against Capitol's officers pertains to actions brought in the “name or right of the Company.” Both the plain language of the insured-versus-insured exclusion and established precedent in this Circuit do not support the majority's interpretation that the insured-versus-insured exclusion prohibits the Liquidating Trustee's lawsuit against Capitol's officers. Joseph Reid founded Capitol and served as its chairman and chief executive officer. The district court agreed that the policy does not cover the Trustee's action, and so do we. A holding company incorporated in Michigan, Capitol Bancorp owned community banks in seventeen States. Addison Draper, TROUTMAN SANDERS LLP, Atlanta, Georgia, for Appellee. After negotiations between Capitol's officers and the company's creditors during the bankruptcy process, Capitol created a Liquidation Trust to pursue the estate's legal claims. Moss, BARRIS, SOTT, DENN & DRIKER, PLLC, Detroit, Michigan, for Appellants in 16-1697 and 16-1698. Ahari, TROUTMAN SANDERS LLP, Tysons Corner, Virginia, M.Now consider today's fact pattern, one step removed from that example. But this new-entity argument surely would not work before bankruptcy. Zucker and the Reids may be right that court approval offers a safeguard against the collusive suits that insured-versus-insured exclusions seek to prevent. But this reality does not help Zucker and the Reids. But today's decision does not resolve that distinct question. Insured” Exclusion in the Bankruptcy Context, 23 EMORY BANKR. insured’ exclusion in a directors and officers liability insurance policy.” Id. First, the plain language of the policy defines the term “Company” as:the parent Company [i.e. The term Company, therefore, only includes “Capitol Bancorp, its Subsidiaries, and 216 entities affiliated with Capitol Bancorp, including community banks, real estate holding companies, and trust companies.” R. The plain meaning of the insured-versus-insured exclusion does not include a debtor-in-possession or other estate representative.The objects of the claim are the same (the officers) and so is the theory of liability (mismanagement). Capitol could not have dodged the exclusion by transferring a mismanagement claim to a new company—call it Capitol II—for the purpose of filing a mismanagement claim against the Reids. Zucker and the Reids do not come to grips with this distinction. But that does not eliminate the practical and legal difference between an assignee and a court-appointed trustee that receives the right to sue on the estate's behalf by statute. The bankruptcy estate is a nominal entity that cannot act on its own; it needs a debtor in possession or trustee to sue on its behalf. On the one hand, one might think that any suit alleging a breach of fiduciary duty to Capitol is “in the right of” Capitol and therefore excluded. Functionally, however, there is no distinction between an assigned trustee that a bankruptcy court has determined is independent and does not pose a risk of collusion, and one that is appointed by a bankruptcy court and is by nature of that appointment independent. Capitol Bancorp Ltd.] and any Subsidiary created or acquired on or before the Inception Date set forth in item 2 of the Declarations or during the Policy Period, subject to General Conditions VI(D). Therefore, if the Liquidating Trustee brings a suit on behalf of the debtor-in-possession, by the plain language of the insurance policy, it is not brought on behalf of the debtor company.Under the majority decision, if only court-appointed trustees are exempt from the insured-versus-insured exclusion, creditors would be required to reject any plan and instead seek appointment of a trustee in order to preserve the ability to obtain an insurance recovery. Moreover, the insurance company would be no better off as it would be left in the same position, having to defend the directors' claims. The plan stipulated that the Reids had no liability for any conduct after they filed the bankruptcy petition, and limited any pre-petition liability to amounts recovered from Capitol's liability insurance policy.The liquidation plan also required the Reids to sue Indian Harbor, the company's Delaware-based insurer, if it denied coverage under the management liability policy.