A recent ruling from the bankruptcy court in Texas has significant implications for directors and officers facing legal challenges during corporate financial distress. The court’s decision in the case of In re First Brands Group, LLC on January 7, 2026, allowed former executives access to millions in Side A D&O insurance coverage, specifically designed to protect individuals from personal liability when indemnification by the company is not available.
The ruling emerged from a complex situation involving an automotive parts supplier that filed for Chapter 11 bankruptcy. Following this filing, several key former executives, including the company’s CEO and CFO, faced investigative requests and government scrutiny, prompting them to seek coverage under the company’s directors and officers (D&O) insurance policies. These policies included both traditional Side ABC coverage and Side A coverage, which is dedicated exclusively to individuals.
After notifying the company of their intention to file claims for coverage, the executives were informed that indemnification would not be provided. They were also told that they needed bankruptcy court approval before proceeding with any claims. This led the executives to petition the court to lift the automatic stay that typically prohibits actions against the estate during bankruptcy proceedings.
The creditors’ committee opposed this move, arguing that the D&O policies constituted assets of the bankruptcy estate. They contended that allowing the executives to access these funds would deplete resources available for creditor claims and potentially create an “insurance fortress” for “bad managers.” They urged the court to delay any payments until their claims, totaling over $2 billion, had been adjudicated.
In a pivotal ruling, the bankruptcy judge determined that the Side A D&O insurance policies and their proceeds were not part of the bankruptcy estate. The judge clarified that these policies provide coverage solely for the benefit of individual directors and officers, thus the debtors had no claim to the Side A proceeds. As a result, the court granted the executives immediate access to tens of millions in coverage to address their legal defense costs.
In contrast, the judge found that the debtor retained an interest in the proceeds from the Side ABC policies. Consequently, while the request to lift the stay for these policies was denied, this denial was without prejudice, leaving room for future reconsideration.
This case underscores the importance of Side A D&O coverage, particularly during times of financial instability. Companies and their leaders face increasing risks that can escalate significantly during bankruptcy. As such, retaining experienced insurance counsel and brokers is vital. These professionals can help organizations navigate complex insurance programs and maximize recovery efforts, ensuring robust protection for executives amid potential claims.
The recent ruling serves as a reminder that having the right insurance coverage can be a critical lifeline for executives facing personal liability in challenging circumstances.
