US Treasury Secretary Steven Mnuchin and six other former directors of Sears Holdings have asked the judge overseeing the retail company’s Chapter 11 proceeding to allow them to access a $150mn D&O policy.
Sears entered bankruptcy proceedings last October. It sued seven former and current directors in April alleging they had wrongfully transferred $2bn in company assets.
In a new filing in the Southern District of New York, the director defendants asked the bankruptcy judge to lift a stay to permit payment by Sears’ D&O insurers of their defence costs incurred in connection with that adversary proceeding.
The filing said debtor Sears does not object to the relief requested.
“The Director Defendants seek confirmation from the Court, out of an abundance of caution, that they are free to seek reimbursement from the insurance carriers of currently outstanding and future fees and expenses as covered by the D&O Policies,” the filing said.
Sears maintained D&O insurance providing $150mn in coverage for the potential policy coverage years of 2015-2016 and 2017-2019. For each relevant policy year, Sears has a primary coverage policy with XL Specialty Insurance Company and excess policies with a variety of other insurance companies.
The filing noted a disagreement between XL and the excess insurers as to the applicable policy year. “But regardless of which policy year or years are applicable, the Director Defendants should be permitted to immediately obtain reimbursement for their fees and expenses in accordance with the policies’ terms,” it said.
A hearing has been set for 25 September on the matter.
XL and QBE Insurance, one of the excess insurers, have both previously made filings in the bankruptcy proceeding arguing that the 2015-2016 side A policy covers only the directors and officers and not the entity and so should not be property of the debtors’ estate.
XL argued this meant there should be no automatic stay and they should be allowed to advance defence costs to the insured officers and directors in accordance with the policy.
QBE asked for a finding that the automatic stay does not prohibit the insurer from filing a declaratory judgment action in the Northern District of Illinois against certain former directors of Sears Canada.