D&O Policy Proceeds as Bankruptcy Estate Assets: The Elusive Quest for Clarity

With the number of corporate bankruptcies over the past few years, an increasingly prevalent issue in the D&O liability insurance context is whether directors and officers of a bankrupt corporation will be able to access the proceeds of the corporation’s D&O policy.  Unfortunately for carriers and directors and officers, the courts have not taken a consistent approach.  Questions about whether D&O policy proceeds are property of the bankruptcy estate and competing demands for those proceeds can complicate a claim under a D&O policy.  This article discusses the courts’ divergent approaches and offers some practical considerations for insurance practitioners and professionals.

Typical D&O Policies
Traditionally, D&O policies contained only two types of coverage.  First, Insuring Agreement A (or A-Side coverage) provided liability coverage payable directly to the directors and officers for claims for wrongful acts when indemnification is not permitted or not available due to insolvency.  Second, Insuring Agreement B (or B-Side coverage) reimburses the insured entity for its indemnification payments to officers and directors for such claims.

More recently, D&O insurers have offered policies with a third type of coverage, Insuring Agreement C (or entity coverage).  This coverage part provides direct coverage to the insured entity for its own wrongful acts.  Entity coverage typically limited to securities claims in policies issued to publicly-traded companies, but it may be broader in other types of policies. 

The Automatic Stay
When a corporation files for bankruptcy, certain conduct, litigation and proceedings that involve the debtor are automatically stayed under section 362 of the Bankruptcy Code, including actions concerning “property of the estate.”¹  The Bankruptcy Code defines “property of the estate” as “all legal and equitable interests of the debtor in property as of the commencement of the case.”² The automatic stay protects the debtor and creditors from the dissipation of estate property.

When the directors and officers of a bankrupt corporation attempt to access D&O policy proceeds to fund defense costs or a settlement, they may be opposed by the bankruptcy trustee or debtor in possession, by creditors, and by other claimants or potential claimants under the policy.  These parties will contend that the D&O policy and its proceeds are property of the estate and that the automatic stay therefore precludes the insurer from advancing or paying policy proceeds to insureds or underlying claimants. 

A majority of courts consider D&O policies property of the debtor’s estate.³  The larger issue is whether the D&O policy proceeds are the property of the estate rather than the policy itself.  The issue presented to a court is whether proceeds of the D&O policy are property of the bankruptcy estate under 11 U.S.C. § 541(a)(1) and thus subject to the automatic stay.  If so, the insurer must seek relief from the automatic stay to make the advances or payments.  If the insurer advances without leave of the bankruptcy court and the proceeds are deemed estate property, an insurer may face assertions that it is liable for the amount of the advances, either as voided payments or as a sanction imposed by the bankruptcy court under 11 U.S.C. § 362(h).

Typical Factual Scenario
In the typical scenario, securities plaintiffs are foreclosed from litigating against the debtor because of the automatic stay.  However, the directors and officers generally are not protected by the automatic stay and therefore are left to defend securities litigation without indemnification from the debtor.  At the same time, the bankruptcy trustee is pursuing claims of the debtor against the directors and officers.  The directors and officers want to access policy proceeds for defense costs or settlements, and the trustee wants to preserve the policy proceeds to satisfy his or her claim.  Accordingly, the trustee objects to the use of policy proceeds, arguing that the debtor has an interest in the policy proceeds and therefore the automatic stay applies.

In reality, however, the debtor’s claim to policy proceeds under either the policy’s B-Side coverage or entity coverage usually is hypothetical.  The debtor in bankruptcy is not providing indemnification to the directors and officers, so it has no claim under the B-Side coverage.   If the policy provides entity coverage, any existing or future litigation or claims against the debtor are subject to the automatic stay so there is no claim under the entity coverage.  In substance, the trustee is just one among a number of claimants to the policy proceeds, but is attempting to use the automatic stay to his or her advantage.  Whether the trustee has a higher priority to policy proceeds than the directors or officers or underlying claimants presents one key issue throughout the relevant case law. 

D&O Policy Proceeds—Courts’ Divergent Approaches
The courts have adopted divergent approaches into determining whether D&O policy proceeds are property of the bankruptcy estate under section 541(a)(1).  The case law can be distilled into two lines of authority based on the types of coverage afforded by the operative D&O policy and/or implicated by the underlying claim.  

Traditional D&O Policies
When the operative D&O policy provides only A-Side and B-Side coverages, the courts have adopted two approaches to the estate property issue.  Many courts have held that, under these types of D&O policies, the debtor does not have a “direct interest” in the policy proceeds and therefore the proceeds are not property of the bankruptcy estate.⁴  For example, in the seminal case of Louisiana World Exposition, Inc. v. Federal Insurance Co. (In re Louisiana World Exposition, Inc.),⁵ the Fifth Circuit reasoned that the D&O policy benefited only the directors and officers by providing either direct coverage for claims made against them or indirect coverage by reimbursing the corporation for its indemnification of the directors and officers.⁶  Because the debtor did not have a direct interest in the policy’s proceeds, the court determined that the proceeds were not the property of the bankruptcy estate.⁷

Other courts have found, however, that, where there are claims for indemnification under the policy’s B-Side coverage, the policy proceeds may constitute property of the bankruptcy estate.  These courts reason that payments to the directors and officers for defense expenses would deplete the policy limits, thereby increasing the debtor’s exposure to indemnification claims in other litigation.⁸  Thus, according to these courts, the debtor’s interest in being reimbursed by the insurer for the amounts it must pay to indemnify its directors and officers is sufficient to establish that the policy’s proceeds are an asset of the bankruptcy estate.

D&O Policies With Entity Coverage
The advent of entity coverage in D&O policies has generated further complications.  Courts addressing the estate property issue in the context of a D&O policy that provides entity coverage have also adopted two distinct approaches.  Some courts have held that the proceeds of D&O policies that provide entity coverage are the property of the bankruptcy estate.⁹  These courts reason that the addition of direct coverage for the corporation transforms the policy into a vehicle for both individual and corporate protection.  Because the proceeds of the policy are “commingled,” one court found that the debtor’s interest in the policy proceeds is sufficient to bring all of the policy proceeds into the bankruptcy estate.¹⁰   Moreover, because a single aggregate limit of liability generally applies to both the coverage for directors and officers under Side-A and the coverage for the entity under Side-B and the entity coverage, depletion of the aggregate limit by payment to the directors and officers will reduce the coverage available to the debtor and thus to the debtor’s estate. 

Other courts, however, have held that the proceeds of a D&O policy are not the property of the bankruptcy estate even though the policy includes entity coverage.¹¹ For example, in Ochs v. Lipson (In re First Central Financial Corp.),¹² a chapter 7 trustee filed an adversary proceeding against the directors and officers on behalf of the estate for alleged mismanagement and corporate waste and sought to enjoin the distribution of any of the D&O policy’s proceeds for the defense of the directors and officers.¹³  The court rejected the trustee’s argument that the proceeds of the D&O policy were the property of the estate, noting that “D&O policies are obtained for the protection of the individual directors and officers."¹⁴ Although the policy included entity coverage, the “mere appendage of entity coverage [for securities claims] to [the] Policy by way of a rider . . . does not provide sufficient predicate, per se, to metamorphose the proceeds into estate property."¹⁵ The court stressed that the estate was not a party to the shareholder suit and appeared to face no other securities claims: “If [the] entity coverage is hypothetical and fails to provide some palpable benefit to the estate, it cannot be used by a trustee to lever himself into a position of first entitlement to policy proceeds."¹⁶ 

Advancement of Defense Costs
When an insured entity is bankrupt, the advancement of defense costs presents two issues:  (1) whether the automatic stay bars insurers from advancing defense costs to directors and officers and (2) if so, whether cause exists to lift the stay to permit the advancement. 

The first issue turns on whether the policy proceeds are an asset of the estate.  Several courts have permitted the advancement of defense costs to directors and officers under the view that the debtor had no interest in the D&O policy proceeds because its exposure for direct or indemnification claims was hypothetical.  For example, in In re Medex Regional Labs., LLC,¹⁷ the court permitted the advancement of defense costs under a D&O policy that provided entity coverage to a bankrupt insured entity.  The court held that the policy proceeds did not constitute estate property and thus the automatic stay did not apply.  Although the policy afforded entity coverage for securities claims, the court determined that entity coverage was no longer available because the policy period and discovery period had expired without the assertion of any securities claim against the debtor.  The court went on to conclude that the debtor’s exposure for indemnification claims by the officers and directors was only hypothetical, because the directors and officers would not be entitled to indemnification if the claimant against them could prove gross negligence.  Because the policy proceeds were not estate property, the insurer could advance defense costs without running afoul of the automatic stay. 

In another recent case, the Delaware bankruptcy court held that when a D&O policy provides a debtor corporation with indemnification coverage, but the obligation to indemnify is uncertain or has not occurred, the proceeds are not property of a bankruptcy estate.¹⁸  In In re Allied Digital Technologies Corp., the insurer issued a D&O policy that provided A-Side coverage, B-Side coverage and entity coverage for securities claims.  After the corporation filed for bankruptcy, the trustee filed an adversary proceeding against the corporation’s directors and officers seeking $62 million in damages.  The directors and officers sought an order allowing reimbursement of their defense costs under the D&O policy.  The trustee objected on the grounds that proceeds of the policy were part of the bankruptcy estate, and that the automatic stay therefore barred distribution of these proceeds. 

In rejecting the trustee’s argument, the bankruptcy court identified and addressed four scenarios: 

• First, in cases where a policy provides only direct coverage to a debtor, the court concluded that the proceeds are property f the estate.
• Second, in cases where a policy provides only direct coverage to directors and officers, the proceeds are not property of the estate. 
• Third, in cases where a policy provides direct coverage to the directors and officers, and direct or indemnification coverage to the debtor, the court stated that the proceeds are property of the estate “if depletion of the proceeds would have an adverse effect on the estate to the extent the policy actually protects the estate’s other assets from diminution” by providing indemnification coverage for a pending claim.¹⁹
• Fourth, in cases where a policy provides the debtor with coverage, but the covered loss “either has not occurred, is hypothetical, or speculative, the proceeds are not property of the bankruptcy estate.²⁰

The court concluded that the last scenario applied in that case. The court found that the entity coverage for securities claims had no continuing vitality.  The remaining coverage was A-Side coverage for the individual directors and officers for “real” claims and defense costs and Side-B coverage for the corporation for amounts paid to the directors and officers.  However, such indemnification payments were “hypothetical” rather than “real,” since the company had not paid any defense costs.²¹  Therefore, the directors and officers were entitled to their bargained-for right to coverage for liability and defense costs.  The court viewed the trustee as “no different than any third party plaintiff,” since his true concern was that the payment of the directors’ and officers’ defense costs might affect his ability to recover under the D&O policy as a plaintiff in his suit against the directors and officers, rather than to protect the estate as a potential defendant.²²

In In re Adelphia Communications Corp.,²³ the district court reversed a decision of the bankruptcy court, holding that Adelphia’s D&O policies’ proceeds are not property of the bankruptcy estate.  The court reasoned that although the D&O policies afforded entity coverage, the debtors did not have a “cognizable equitable and legal” property interest in the policies at this juncture because: (1) the debtors had not made or contemplated making any payments for which they would be entitled to indemnification coverage, and (2) no claims for entity coverage existed.²⁴ Instead, the district court characterized the debtors’ interest as “akin to a car owner with collision coverage claiming he has the right to proceeds from his policy simply because there is a prospective possibility that his car will collide with another tomorrow.”²⁵

The court in Maxwell v. Megliola (In re marchFIRST, Inc.),²⁶ reached the same result using a different rationale.  In that case, the court held that the proceeds of a D&O policy are not property of the estate because neither the debtor nor the directors or officers have a “property interest in the proceeds . . . unless and until there is a judgment requiring that the insurers issue payment.”²⁷  The court reasoned that an insurer does no more than advance policy proceeds (typically defense costs) under a reservation of rights, and neither the insureds nor the debtor have an interest in these proceeds until a final coverage determination occurs.  Thus, until the terms and conditions of a D&O policy are met, “which they may never be, the proceeds are not property of the estate.”²⁸  The court accordingly permitted advancement of defense fees and costs to directors and officers of the debtor.²⁹

As to the second issue presented by advancement of defense costs, even if a court determines that D&O policy proceeds are property of the estate, the court can lift the automatic stay to permit the advancement.  For example, In re CyberMedica, Inc.,³⁰ a bankruptcy court in Massachusetts granted two directors’ motion to lift the automatic stay in order to obtain advances from a D&O insurer for defense fees incurred in an action brought by a chapter 7 trustee.³¹ Although it viewed the D&O policy proceeds as property of the bankruptcy estate because the policy provided entity coverage, the bankruptcy court found that there was cause to lift the automatic stay to permit the directors to seek payments for defense fees.³²

The court reasoned that the directors would be irreparably harmed if they were deprived of the benefit of their contractual right to payment of defense costs.  Id.  The court also opined that any prejudice to the debtor was speculative because the debtor had made no claim for indemnification or entity coverage.³³  Moreover, the court rejected the argument of the chapter 7 trustee that indemnification claims might arise in the future, reasoning that the claims for which the insurer would advance defense costs would correspond to the claims for which the directors would seek indemnification from the debtor.³⁴ Thus, the insurer’s advancement of defense costs would minimize the potential exposure of the debtor.³⁵

Funding Settlements of Underlying Actions
The estate property issue (as well as the issue of whether to lift the stay) also arises when directors and officers seek to use D&O policy proceeds to resolve underlying litigation.  As with the advancement of defense costs, a trustee or other bankruptcy representative who is pursuing claims against the directors and officers may object to the expenditure of policy proceeds to settle other litigation.  Typically, the courts attempt to balance (where possible) the competing interests of the directors and officers who have a right to the protection afforded them by their D&O policies and those of the bankruptcy representative who seeks to preserve the assets of the estate.  However, the courts often examine closely whether the debtor has a real interest in the policy proceeds. 

In re CHS Electronics, Inc.³⁶ is illustrative of the analysis undertaken by the courts.  In that case, the court held that the proceeds of a D&O policy could be used to fund the settlement of an underlying class action lawsuit against the debtor’s directors and officers despite the bankruptcy trustee’s objections.  The trustee had objected to the use of the D&O policy proceeds to fund the settlement until the district court considered the trustee’s potential claims against the debtor’s former officers and directors.  Specifically, the trustee argued that his unliquidated claims against the directors and officers would exceed the $8.25 million in coverage that would remain under the two policies if the proposed settlement were approved.  Therefore, he contended, the class action settlement should not be implemented until the district court had an opportunity to evaluate the trustee’s claims and to protect his alleged right to share ratably with the class action plaintiffs the aggregate $20 million of coverage available under the two D&O policies. 

In its analysis, the court first noted that the liability proceeds under A-Side coverage were the primary focus of the dispute.  According to the court, entity coverage was not implicated because all of the securities claims previously pending against the debtor had been discharged.  Moreover, the proceeds under B-Side coverage were not a primary focus because the submitted claims for amounts paid by the debtor to indemnify its directors and officers for legal fees before the bankruptcy were relatively minimal.  In addition, one of the insurers already had announced that it would pay that claim out of its $10 million in limits and that the settlement amount would be reduced by this payment.  Accordingly, the court rejected the trustee’s argument that the debtor estate had an interest in the D&O policy proceeds because of the entity coverage or indemnification coverage.³⁷

The court’s analysis then turned to the issue of whether the liability proceeds available under A-Side coverage were part of the bankruptcy estate.  Adopting the reasoning of the Fifth Circuit in Louisiana World Exposition, Inc., the court held that the debtor’s estate had no property interest in the proceeds available under A-Side coverage because the liability proceeds flow directly to the directors and officers.  Since the contested matter did not involve insurance proceeds that were estate property, the real issue for the court was the right of the to priority trustee in his role as a competing claimant:

Unfortunately, [the trustee] could not cite to, and this Court is unaware of, any Bankruptcy Code provision or case law that would give a bankruptcy trustee any different status than a non-bankruptcy plaintiff with an unliquidated claim against third-parties which may be covered by insurance proceeds about to be used to settle or satisfy a judgment entered in favor of other plaintiffs.³⁸

Therefore, the class action plaintiffs were permitted to proceed with their efforts to obtain district court approval of the settlement and the funding of the settlement from the liability proceeds of the D&O policies.

Underwriters’ Response to the Property-of-Estate Issue
In response to the mixed case law on whether D&O policy proceeds are property of the estate, insurers sometimes offer priority of payment provisions that predetermine the order of payment of Loss among the three coverage parts of a D&O policy.  These provisions typically require that insurers pay for loss under Insuring Agreement A, then under Insuring Agreement B, and finally under Insuring Agreement C.  Such provisions endeavor to confirm the parties’ intent that the D&O policy serves primarily to limit the potential exposure of directors and officers and to undermine claims that the policy proceeds are part of the bankruptcy estate.³⁹

Another potential solution to the property-of-the-estate issue developed by D&O underwriters is a pre-petition waiver of the automatic stay by the corporation.  These provisions typically provide that in the event of bankruptcy of the insured organization, the insureds waive and release any automatic stay or other injunction to the extent it may apply to the proceeds of the policy and agree not to oppose or object to any efforts by the insurer or any insured to obtain relief from any stay or injunction.  Such pre-petition waiver provisions, however, may not be enforceable in whole or in part on the grounds that:  “(1) the waiver is invalid due to debtors’ lack of capacity to act on behalf of the debtor in possession; (2) the waiver is unenforceable under specific provisions of the Bankruptcy Code which limit the effectiveness of certain contractual provisions that take effect upon the filing of a bankruptcy case . . . and/or (3) the Bankruptcy Code extinguishes the private right of freedom to contract around its essential provisions.”⁴⁰ 

Another potential solution involves the purchase of separate A-Side coverage, either for all the directors and officers or for only the outside directors.  These policies provide coverage, inter alia, when indemnification is not available because of the financial impairment of the insured entity.  Because these policies provide only direct coverage to the directors and officers, they eliminate the most common bases for holding that policy proceeds are assets of the bankruptcy estate. 

Practical Implications of Potential Application of Automatic Stay
The unsettled nature of the law on the issue of advancing defense costs or funding settlements provides little comfort to a carrier facing claims from directors and officers of bankrupt entities.  Thus, in evaluating a request to access policy proceeds by the directors and officers of a bankrupt company, several factors warrant consideration by an insurer:

• Has the court that would address a request for relief from the automatic stay considered the issue whether policy proceeds are property of the estate in a factually analogous scenario?
• Does the D&O policy contain entity coverage?  If not, an insurer may have a stronger argument for proceeding without leave of the bankruptcy court in some jurisdictions. 
• If entity coverage is afforded, are there any pending or potential claims against the entity?  Some courts have found the lack of claims against the entity a relevant factor.
• Is there a “priority of payments” provision or pre-petition waiver of the automatic stay?  If so, do its terms give the insurer sufficient protection to advance fees and costs without leave of the bankruptcy court?
• What are the risks of making a motion to the bankruptcy court?  For example, seeking leave of the bankruptcy court to advance defense costs may highlight the existence of a D&O policy for creditors and other potential claimants.
• What amount of money is at issue?  If the request for defense costs is modest, then it may be less likely that the relevant bankruptcy constituencies would challenge an advancement of the defense costs.  The amount of money at issue also may affect the analysis of the risks associated with seeking—or deciding to forgo—bankruptcy court approval.

The number of variables associated with the question whether and under what conditions an insurer may advance defense costs or fund an underlying settlement in the bankruptcy setting makes clear that a uniform approach in all circumstances is difficult to chart. 

Endnotes

1. See 11 U.S.C. § 362(a). 
2. 11 U.S.C. § 541(a)(1). 
3. See, e.g.,La. World Exposition, Inc. v. Fed. Ins. Co. (In re La. World Exposition, Inc.), 832 F.2d 1391, 1399 (5th Cir. 1987) (“There are a great many bankruptcy cases holding that liability insurance policies that provide coverage for the bankrupt’s liability belong to the bankrupt’s estate.”) (emphasis in original) (collecting cases); see generally, A.H. Robins Co. v. Piccinin, 788 F.2d 994, 1001 (4th Cir. 1986) (“Under the weight of authority, insurance contracts have been said to be embraced in [the] statutory definition of ‘property.’”).
4. See, e.g., La. World Exposition, Inc. v. Fed. Ins. Co. (In re La. World Exposition, Inc.), 832 F.2d 1391 (5th Cir. 1987); In re MCSi, Inc., Secs. Litig., No. C-3-03-015 (S.D. Ohio Feb. 26, 2004); Youngstown Osteopathic Hosp. Ass’n v. Ventresco (In re Youngstown Osteopathic Hosp. Ass’n), 271 B.R. 544 (Bankr. N.D. Ohio 2002); Imperial Corp. of Am. v. Milberg, Weiss, Bershad, Spechtrie & Lerach (In re Imperial Corp. of Am.), 144 B.R. 115 (Bankr. S.D. Cal. 1992); In re Daisy Sys. Secs. Litig., 132 B.R. 752 (N.D. Cal. 1991); Zenith Lab., Inc. v. Sinay (In re Zenith Lab. Inc.), 104 B.R. 659 (Bankr. D.N.J. 1989).
5. La. World Exposition, Inc. v. Fed. Ins. Co. (In re La. World Exposition, Inc.), 832 F.2d 1391 (5th Cir. 1987).
6. In re La. World Exposition, Inc.), 832 F.2d at 1399. 
7. In re La. World Exposition, Inc.), 832 F.2d at 1401. 
8. See, e.g., In re Leslie Fay Cos., Inc., 207 B.R. 764 (Bankr. S.D.N.Y. 1997); Circle K Corp. v. Marks (In re Circle K Corp.), 121 B.R. 257 (Bankr. D. Ariz. 1990). 
9. See Homsy v. Floyd (In re Vitek, Inc.), 51 F.3d 530 (5th Cir. 1995); In re Metropolitan Mortgage & Secs. Co., 325 B.R. 851 (Bankr. E.D. Wash. 2005); In re Eastwind Group, Inc., 303 B.R. 743 (Bankr. E.D. Pa. 2004); Exec. Risk Indem., Inc. v. Boston Reg’l Med. Ctr., Inc. (In re Boston Reg’l Med. Ctr., Inc.), 285 B.R. 87 (Bankr. D. Mass. 2002); In re CyberMedica, Inc., 280 B.R. 12 (Bankr. D. Mass. 2002); In re Sacred Heart Hosp. of Norristown, 182 B.R. 413 (Bankr. E.D. Pa. 1995). 
10. See In re Sacred Heart Hosp. of Norristown, 182 B.R. at 420.
11. See, e.g., In re Medex Reg’l Labs., LLC, 314 B.R. 716 (Bankr. E.D. Tenn. 2004); In re Allied Digital Techs. Corp., 306 B.R. 505 (Bankr. D. Del. 2004); In re Adelphia Commc’ns Corp., 298 B.R. 49 (S.D.N.Y. 2003); Maxwell v. Megliola (In re marchFIRST, Inc.), 288 B.R. 526 (Bankr. N.D. Ill. 2002), aff’d, 293 B.R. 443 (N.D. Ill. 2003); In re CHS Elecs., Inc., 261 B.R. 538 (Bankr. S.D. Fla. 2001); Ochs v. Lipson (In re First Cent. Fin. Corp.), 238 B.R. 9 (Bankr. E.D.N.Y. 1999). 
12. Ochs v. Lipson (In re First Cent. Fin. Corp.), 238 B.R. 9 (Bankr. E.D.N.Y. 1999).
13. In re First Cent. Fin. Corp., 238 B.R. at 12. 
14. In re First Cent. Fin. Corp., 238 B.R. at 16. 
15. In re First Cent. Fin. Corp., 238 B.R. at 17. 
16. n re First Cent. Fin. Corp., 238 B.R. at 18.  
17. In re Medex Reg’l Labs., LLC, 314 B.R. 716 (Bankr. E.D. Tenn. 2004).
18. In re Allied Digital Tech. Corp., 306 B.R. 505 (Bankr. D. Del. 2004). 
19. In re Allied Digital Tech. Corp., 306 B.R. at 512. 
20. In re Allied Digital Tech. Corp., 306 B.R. at 512.
21. In re Allied Digital Tech. Corp., 306 B.R. at 513. 
22. In re Allied Digital Tech. Corp., 306 B.R. at 513.
23. In re Adelphia Commc’ns Corp., 298 B.R. 49 (S.D.N.Y. 2003).
24. In re Adelphia Commc’ns Corp., 298 B.R. at 53. 
25. In re Adelphia Commc’ns Corp., 298 B.R. at 53.
26. Maxwell v. Megliola (In re marchFIRST, Inc.), 288 B.R. 526 (Bankr. N.D. Ill. 2002), aff’d, 293 B.R. 443 (N.D. Ill. 2003).
27. In re marchFIRST, Inc., 288 B.R. at 530.
28. In re marchFIRST, Inc., 288 B.R. at 530.
29. In re marchFIRST, Inc., 288 B.R. at 533.
30. In re CyberMedica, Inc., 280 B.R. 12 (Bankr. D. Mass. 2002).
31. In re CyberMedica, Inc., 280 B.R. at 19. 
32. In re CyberMedica, Inc., 280 B.R. at 18. 
33. In re CyberMedica, Inc., 280 B.R. at 18.   
34. In re CyberMedica, Inc., 280 B.R. at 18. 
35. In re CyberMedica, Inc., 280 B.R. at 18. 
36. In re CHS Elecs., Inc., 261 B.R. 538 (Bankr. S.D. Fla. 2001).
37. In re CHS Elecs., Inc., 261 B.R. at 542-43.
38. In re CHS Elecs., Inc., 261 B.R. at 544. 
39. See, e.g., In re Enron Corp., No. 01-16034, 2002 Bankr. LEXIS 544 (Bankr. S.D.N.Y. May 17, 2002) (applying priority of payments provision to lift the automatic stay to permit the unconditional advancement of defense costs to the directors and officers in accordance with the terms of the operative policies). 
40. In re Pease, 195 B.R. 431, 433 (Bankr. D. Neb. 1996); see also In re Shady Grove Tech Cts. Assocs., 216 B.R. 386, 390 (Bankr. D. Md. 1998) (holding that pre-petition waivers of or agreements to vacate the automatic stay are unenforceable, but that a pre-petition agreement that consents to relief from stay “may be considered as a circumstance in determining whether cause exists for relief from [the] stay”); In re Deb-Lyn, Inc., No. 03-00655-GVL1, 2004 Bankr. LEXIS 200 (Bankr. N.D. Fla. Feb. 20, 2004) (“[P]re-petition waivers of the automatic stay provisions . . . are unenforceable.”).  But see, e.g., In re Atrium High Point Ltd. P’ship, 189 B.R. 599, 607-08 (Bankr. M.D.N.C. 1995) (pre-petition waiver of automatic stay by debtor is enforceable against the debtor when enforcement does not violate public policy, but such waivers are not enforceable against third party creditors); In re Cheeks, 167 B.R. 817, 819-20 (Bankr. D.S.C. 1994) (pre-petition waivers of automatic stay are enforceable as against the debtor but not creditors).

"D&O Policy Proceeds as Bankruptcy Estate Assets: The Elusive Quest for Clarity," by Kimberly Melvin, published in Coverage May/June 2006. © 2006 by the American Bar Association. Reprinted with permission. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

For more information, please contact Kimberly M. Melvin at 202.719.7403 or kmelvin@wileyrein.com.