The Supreme Court found a primary insurer qualified as a "party in interest" under the Bankruptcy Code and retained standing to challenge a proposed reorganization plan for its insureds. The insureds were companies that manufactured and sold products containing asbestos and faced numerous ongoing and future claims. As part of the reorganization plan, the insureds would be permitted to fund a trust and channel all present and future asbestos-related claims into that trust. Insured claims would be filed in the tort system for the benefit of the insurance coverage, while uninsured claims would be submitted directly to the trust for resolution. The insurer sought to oppose the plan because it would not require the same disclosures and authorizations for insured and uninsured claims, which would expose the insurer to fraudulent claims, and would impermissibly alter its rights under its insurance policies. The lower court approved the plan without consideration of the insurer’s objection and the insurer appealed. 

The Supreme Court found that “[a]n insurer with financial responsibility for bankruptcy claims is a ‘party in interest’ under [the Bankruptcy Code] that ‘may raise and may appear and be heard on any issue.’” The plan would require the insurer the take financial responsibility for bankruptcy claims and could be directly and adversely affected by the reorganization. “Where a proposed plan ‘allows a party to put its hands into other people’s pockets, the ones with the pockets are entitled to be fully heard and to have their legitimate objections addressed.’” The Court determined that the insurer may be the only entity with an incentive to identify problems with the plan and must be heard before the plan could be approved.

A California court held that a concert venue manager did not suffer the necessary property damage to trigger property insurance coverage. In holding so, the court left the door open for the theoretical possibility of COVID-19 pandemic to cause physical loss to the property sufficient to trigger coverage since the ruling was focused on the facts of the concert venue manager’s loss.

As a result of the COVID-19 pandemic, many businesses were forced to cease operations and, as a result, suffered business income losses. The concert venue manager (the “Venue”) was among them, as its venue closed. The Venue submitted a Claim to its property insurer (the “Insurer”) for direct physical loss or damage to the property, as well as the subsequent economic loss. The Insurer denied coverage, arguing that the Venue failed to show “physical loss or damage that would implicate coverage” under the Insurer’s policy.

The Venue urged the court to recognize that coverage under the property policy was triggered because the COVID-19 virus bonded with the property at issue on a microscopic level. However, the court held that such alteration to the property did not result in the impairment of the property necessary to trigger coverage. The court explained that, while “[t]he physical alteration need not be visible to the naked eye, nor must it be structural, [ . . . ] it must result in some injury to or impairment of the property as property.” According to the court, the mere fact that the Venue’s property cannot be used for its intended purpose was insufficient to establish direct physical loss to the property. Similarly, being forced to curtail business operations was insufficient because doing so did not entail suffering direct physical loss or damage to property.

While this, and similar decisions in other courts and jurisdictions do not foreclose the possibility of COVID-19 related loss to enjoy coverage, courts indicated that the practical effect of their holdings would serve as bar to coverage in most scenarios.  

A bankruptcy court ruled that a qui tam action that was filed under seal and never served on the insured triggered a D&O policy’s pending and prior litigation exclusion (the “PPL”). The bankruptcy Trustee of a pharmaceutical company sought coverage for litigation costs stemming from a shareholder derivative suit. The carrier denied coverage based on the PPL exclusion, which provided that:

[i]n consideration of the premium charged, no coverage will be available under this Policy for claims based upon, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving any fact, circumstance, situation, transaction, event or wrongful act, underlying or alleged in any prior and/or pending litigation or administrative or regulatory proceeding or arbitration which was brought prior to [the cutoff date] (emphasis added).

The carrier argued the derivative suit arose out of the same facts as a qui tam suit, both actions challenged the same allegedly fraudulent scheme to market opioid products, filed under seal prior to the policy’s PPL cutoff date. The qui tam action was dismissed and never served on the company and the company was unaware of its existence when it obtained the policy. The Trustee argued the unique procedural characteristics of qui tam suits call for different treatment under the PPL exclusion and the word "brought" was ambiguous.

The Trustee argued that "brought" could reasonably be interpreted to mean the action must be both filed and served. The court found it was not ambiguous because it is commonly understood that litigation is "brought" when a complaint is filed. The court also found that the policy made no distinction between qui tam actions and other kinds of civil actions and so the qui tam’s procedural characteristics had no bearing on the application of the PPL exclusion. Despite the company’s lack of awareness of the qui tam action, the carrier was still able to disclaim coverage for the later filed derivative suit. This case highlights the importance of policy language, especially in context of exclusions.