Verizon’s $120M Win Against AIG Raises Bankruptcy Coverage Risks

Verizon Communication Inc.'s recent win against AIG lobs new ammunition to creditors looking to tap the corporate insurance proceeds of bankrupt companies that fraudulently move assets.

The Delaware Superior Court ruled last month that AIG and other insurers must cover Verizon’s $95 million settlement—and $24 million of litigation cost—with a bankruptcy trustee for creditors of then-insolvent FairPoint Communication. The dispute stemmed from a merger agreement.

According to insurance attorneys, the ruling is the first to find that a litigation trustee representing a bankrupt company’s creditors can be treated as a securities holder when suing companies for fraudulently transferring money or ...