Insured v. Insured Exclusion Bars Coverage For Bankruptcy Trustee's Claims Where Policy Defines "Insured" To Include Trustees And Debtors-In-Possession

• Published date: 21 September 2023
• Law Firm: Wiley Rein
• Author: Ysabelle G. Reyes

The United States Bankruptcy Court for the Northern District of Illinois, applying Illinois law, has held that an insured v. insured exclusion in a D&O policy bars coverage for a trustee's claims against a bankrupt insured condominium association's former officers and board members where the policy defined "Insured" to include bankruptcy trustees and debtors-in-possession. Avellone v. U.S. Liab. Ins. Co. (In re Ford City Condo. Ass'n), 2023 WL 5624581 (Bankr. N.D. Ill. Aug. 31, 2023).

After the condo association filed for bankruptcy, the bankruptcy trustee issued a demand letter to the association's D&O insurer requesting coverage for alleged breaches of fiduciary duty and mismanagement by the association's former officers and board members. The insurer denied coverage based...