August 17, 2004 Legal news, law news, law firm news & announcements…

August 17, 2004 Legal news, law news, law firm news & announcements at LAWFUEL Chadbourne & Parke LLP Wins on $90 Million D&O Claim for IHS Directors;
Delaware Court Examined Crucial Issue If Creditors Acted For The Company

Chadbourne & Parke LLP recently won summary judgment on a $90 million directors and officers insurance policy claim on behalf of directors of Integrated Health Services, Inc.

IHS, a Maryland-based company, filed for Chapter 11 in early 2000 after its business suffered from the changes to the Medicare payment system caused by the Balanced Budget Act of 1997. An official Committee of Unsecured Creditors was formed, and in early 2002, the committee obtained authorization from U.S. Bankruptcy Court for the District of Delaware to start an action against the directors on behalf of the estate.

The directors were sued for alleged wrongdoing in connection with executive compensation to various corporate officers. Chadbourne filed a claim against the company’s D&O insurance carriers, which declined coverage citing the insured-v-insured policy exclusion.

Chadbourne bought suit against the primary insurer (National Union) for a declaration that coverage exclusion was not applicable. In an August 6, 2004 ruling, the Delaware Chancery Court granted Chadbourne’s motion for summary judgment ruling that the insured-v-insured exclusion was not a bar to coverage.

The decision analyzed a critical issue, whether the Creditors’ Committee was acting “on behalf of” the company. The Delaware Chancery Court determined that the Creditors’ Committee was not, and thus the exclusion did not apply.

Handling the case for Chadbourne were New York litigation partner Thomas J. Hall and associates Beth D. Diamond and Thomas Freedman.

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