A federal bankruptcy court in New York ruled Tuesday that directors and officers of SVB Financial Group, parent company of the failed Silicon Valley Bank that federal regulators took over in March, can tap into their $210 million in directors and officers liability insurance.
The ruling by the U.S. Bankruptcy Court in New York was issued over the objections of SVB’s unsecured creditors committee.
The primary insurer for the D&O coverage was Chubb Ltd. unit Federal Insurance Co., which had an aggregate coverage limit of $10 million, according to the ruling. Excess coverage in $10 million layers is provided by more than a dozen other insurers, as well as Chubb.
The D&O policies are claims-made policies covering the period from Aug. 1, 2022, through Aug.1, 2023. They generally cover losses that directors and officers incur on account of claims during the policy period and provide for the advancement of defense costs in connection with these claims and with governmental investigations, according to the ruling.
The ruling said that to date, seven putative class actions charging violations of federal securities law have been filed against the bank’s directors and officers, five in the San Francisco-based U.S. District Court for the Northern District of California and two in California state court.
The unsecured creditors committee had objected to permitting the D&O insurers to make payments under the policies, arguing they are the property of the bank’s estate and that payment of defense costs could severely diminish it.
The court said permitting the D&O payments “will not result in substantial interference with the bankruptcy case. … The advance of defense costs is critical to (the directors and officers’) ability to present defenses to the Covered Claims.”
It said the policies also contain a “priority of payment provision,” which provides that if payments are due to both the bank and the directors and officers at the same time, the directors and officers should be paid first.
Attorneys in the case did not respond to requests for comment.