In re Tom's Foods, Inc. (05-40683)
Prior to filing for bankruptcy relief, the Chapter 11 debtor purchased director and officer liability insurance. The policies provided direct coverage to the directors and officers and indirect coverage to the debtor. The policies also paid for attorney fees incurred in defending a claim. The director and officers were entitled to have their claims paid before the debtor's claims were paid. Several creditors made claims against the directors and officers. The debtor did not object to the advancement by the insurance company of the directors and officers defense cost. The debtor, however, contended that the directors and officers should submit for review by the Court or the debtor a fee application for each advancement request. The directors and officers argued that the insurance company would monitor and review all defense cost requests and only pay reasonable costs and that review by the debtor or Court was not necessary. The Court was persuaded by this reasoning.