The Texas Bankruptcy Court has granted access to millions in Side A D&O insurance for several former executives of First Brands Group, LLC. In a ruling dated January 7, 2026, the court enabled these individuals to utilize insurance proceeds to cover their defense costs amid ongoing investigations and claims resulting from the company’s bankruptcy.
Background of the Case
First Brands Group, an automotive parts supplier, filed for Chapter 11 bankruptcy, prompting a series of legal challenges for its former management team. Following the bankruptcy filing, former directors and officers, including the company’s CEO and CFO, faced investigative requests from both a special committee and the creditors’ committee. Additionally, a court-appointed examiner was tasked with conducting a separate investigation into the company’s affairs.
The executives soon found themselves embroiled in multiple ongoing government inquiries and were named as defendants in related legal proceedings. Consequently, they incurred significant legal fees and sought coverage under the company’s Directors and Officers (D&O) insurance program, which included both traditional Side ABC policies and Side A policies. The latter specifically covers non-indemnified losses for individuals.
Upon notifying the company of their intent to file a claim, the executives learned that indemnification would not be provided. Instead, the company asserted that court approval was necessary before any claims could be pursued.
Legal Disputes Over Insurance Coverage
In response, the executives petitioned the bankruptcy court to lift the automatic stay, allowing them to access D&O insurance proceeds to cover their defense costs. This request met with strong resistance from the creditors’ committee, which contended that all D&O policies constituted assets of the Chapter 11 estate. They argued that releasing these funds could deplete resources available for creditor claims, potentially jeopardizing the financial recovery of the company.
The creditors’ committee voiced concerns that allowing the executives to tap into the D&O proceeds could facilitate litigation tactics designed to drain the policy limits. They urged the court to postpone any payments until after the adjudication of their claims, which exceeded $2 billion.
In a pivotal ruling, the bankruptcy judge determined that the Side A D&O insurance policies were not part of the bankruptcy estate. The court concluded that since these policies provided coverage solely for the benefit of individual directors and officers, the debtors held no interest in the proceeds. As a result, the executives were granted immediate access to tens of millions in Side A coverage to manage their defense costs.
Conversely, the judge clarified that the debtor retained interest in the proceeds from the Side ABC policies. Consequently, the request to lift the stay concerning those policies was denied, though the denial was without prejudice, leaving room for potential reconsideration in the future.
Implications for Corporate Leaders
This ruling highlights the critical role of Side A D&O insurance in protecting executives from personal liability, particularly during financially tumultuous periods. As risks continue to evolve, it is essential for companies and their leaders to understand the significance of such coverage.
Retaining knowledgeable insurance coverage counsel, brokers, and risk professionals can aid policyholders in navigating complex insurance programs. This proactive approach can help maximize recovery and ensure robust protection for executives in the event of claims arising from their corporate decisions.
