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New York Bankruptcy Court Permits Corzine and Others to Draw Defense Costs From D&O Insurance Proceeds

Bankruptcy Alert | September 8, 2014
By: Earl Forte

On September 4, 2014, the United States Bankruptcy Court for the Southern District of New York, in In re MF Global Holdings Ltd, MF Global, Inc., Case Nos. 11-15059, 11-2790 SIPA, granted the motion of Jon Corzine and the other former Directors and Officers (D&Os) of the defunct MF Global for access to most of the $200 million in D&O policy proceeds. 


Corzine and the other former MF Global D&Os sought bankruptcy court approval to access the proceeds of the MF Global D&O program to pay defense costs in an array of lawsuits filed against them by securities holders, commodity customers and other plaintiffs, arising from the 2011 collapse of MF Global. The Court had previously lifted the automatic stay of § 362(a) of the Bankruptcy Code to allow Corzine and the other MF Global D&Os access to the D&O insurance proceeds, but had set a “soft cap” on draws of $30 million. Corzine and the other MF Global D&Os had previously succeeded in having this “soft cap” raised to cover $43.8 million in defenses costs. 

The Court’s September 4, 2014 Ruling

Noting that only D&O (and not E&O) insurance proceeds were now at issue, plus the fact that the Debtors had past the point of ever being sued on any claims that might trigger their need to access the same D&O proceeds, the bankruptcy court held that “it appears that the D&O Proceeds are not property of the [Debtors’] estates….” Id. at 17. 

The Court noted that the D&O insurance policies in question provided direct Side “A” coverage to the D&Os [1] and contained a payment priority provision requiring that insurance proceeds be used first to pay direct D&O claims of the type sought by Corzine and the other MF Global D&Os. Id. at 6. The Court noted that under such provisions, as well as the current procedural posture of the case, the Debtors simply had no property interest in the D&O insurance proceeds and therefore it was not proper to make determinations about their disposition. Id. at 3, 4, 9. The primary D&O policy at issue provided coverage up to $25 million, with excess policies providing an additional $200 million in coverage. Id. at 6. 

In its ruling, the Court stated that while it had concerns about the significant amount of defense costs incurred by Corzine and the other MF Global D&Os to date, “it is not the proper role of the bankruptcy court to police litigation in other courts that does not directly affect the property of the [bankruptcy] estates” and “the Court does not believe the law supports placing the bankruptcy court as the overseer of defense costs”.  Id. at 22.

The Court did, however, deny Corzine and the other MF Global D&Os access to $13.06 million of the D&O insurance, which represents the amount the Debtors could claim against the D&O policies if the Debtors pay the indemnification claims of three of the individual insureds.

[1] Side A coverage generally affords protection against individual directors and officers having to use their own resources to pay the costs of any claims for which they are not indemnified by the company.

For additional information on these matters, please contact Earl Forte ( | 215.864.6822). Earl has worked extensively in bankruptcy litigation matters for over 25 years.  He is the author of The Fraudulent Transfer Handbook – A Practical Guide for Lawyers and Their Clients (1st Ed. 2013), available on  A supplement to his book is planned for 2014. 

This correspondence should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult a lawyer concerning your own situation and legal questions.
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