The number of businesses seeking bankruptcy protection during the first three quarters of 2009 exceeded the annual filings in every year since 1997. See American Bankruptcy Institute, Quarterly Business Filings by Year (1994-2009), available at http://www.abiworld.org. In 2008, business filings rose to 43,000 nationwide; in 2009 the numbers are not compiled yet, but may exceed 60,000, nearly 38 percent increase over 2008.
Because of the rise of bankruptcy filings, businesses should be sure to look into insurance issues. Once concern is to make sure the contractors they are hiring have insurance to cover in the event of liability since they may not collect a judgment after a lawsuit if a vendor files for bankruptcy. With this, contributing insurance comes into play where the party engaging the vendor who is not the tortfeasor does not want to be stuck paying a third party's claims. Contributing insurance occurs if two insurance companies insure the same risk and a loss occurs, then they both participate. Example, a distributor causes injuries from its negligence to end customers of a manufacturer. Both the manufacturer and the distributor have separate insurance.
Another insurance issue is Side A in a D & O insurance contract. Side A indemnifies directors and officers when the company cannot, such as when company is insolvent. In bankruptcy, the insurance coverage may be considered an asset. Claims under liability policies, like E&O and D&O insurance, may be pursued by the trustee/debtor against third parties or by creditors against the debtor/insiders. To protect one director or officer from the others, review whether coverage has full severability, meaning intentional bad acts of one insured director or officer cannot cause an innocent director or officer to lose the benefit of insurance coverage.
In obtaining insurance, a company should look to see if the coverage is non-rescindable, making it difficult if not impossible for the insurance carrier to deny payment, or break insurance contract for any reason. Understanding what insurance coverage is available to liquidate a claim in bankruptcy means the difference between a full recovery or no recovery for creditors.
Bankruptcy provides opportunities to pursue insurance claims. Recover from bankruptcies by engaging a bankruptcy attorney familiar with insurance coverage.
