FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BILTMORE ASSOCIATES, LLC, as 

Trustee of the Visitalk Creditors

Trust,

Plaintiff-Appellant,

v.

TWIN CITY FIRE INSURANCE

COMPANY, an Indiana corporation; No. 06-16417 GREAT AMERICAN INSURANCE

COMPANY  D.C. No. , a New York

corporation; CAROLINA CASUALTY CV-05-04220-FJM

INSURANCE COMPANY; OLD REPUBLIC

INSURANCE COMPANY, a

Pennsylvania corporation; NORTH

AMERICAN SPECIALTY INSURANCE

COMPANY, a New Hampshire

corporation,

Defendants-Appellees. 

8563
BILTMORE ASSOCIATES, LLC, as 

Trustee of the Visitalk Creditors

Trust,

Plaintiff-Appellant,

v.

TWIN CITY FIRE INSURANCE

COMPANY, an Indiana corporation; No. 07-16036

GREAT AMERICAN INSURANCE D.C. No.

COMPANY, a New York  CV-05-04220-FJM

corporation; CAROLINA CASUALTY OPINION INSURANCE COMPANY; OLD REPUBLIC

INSURANCE COMPANY, a

Pennsylvania corporation; NORTH

AMERICAN SPECIALTY INSURANCE

COMPANY, a New Hampshire

corporation,

Defendants-Appellees. 

Appeal from the United States District Court

for the District of Arizona

Frederick J. Martone, District Judge, Presiding

Argued and Submitted

May 15, 2008—San Francisco, California

Filed July 10, 2009

Before: Andrew J. Kleinfeld and N. Randy Smith,

Circuit Judges, and Richard Mills,* District Judge.

Opinion by Judge Kleinfeld

*The Honorable Richard Mills, United States District Judge for the

Central District of Illinois, sitting by designation. 

8564 BILTMORE ASSOCIATES v. TWIN CITY FIRE
COUNSEL

Andrew S. Jacob, Shughart Thompson & Kilroy, P.C., Phoenix, Arizona, for the appellant.

Michael F. Perlis, Stroock & Stroock & Lavan LLP, Los

Angeles, California, for appellee Twin City Fire Insurance

Company.

E. J. Kotalik, Jr., Peshkin & Kotalik, P.C., Phoenix, Arizona,

for appellee Old Republic Insurance Company.

BILTMORE ASSOCIATES v. TWIN CITY FIRE 8567
Mark G. Worischeck (briefed), Sanders & Parks, P.C., Phoenix, Arizona, for appellee Carolina Casualty Insurance Company.

Greg S. Comol (briefed), Lewis Brisbois Bisgaard & Smith

LLP, Phoenix, Arizona, for appellee Great American Insurance Company.

Gena L. Sluga (briefed), Harper Christian Dichter Graif, PC,

Phoenix, Arizona, for appellee North American Specialty

Insurance Company.

OPINION

KLEINFELD, Circuit Judge:

This is an insurance coverage dispute arising in the context

of bankruptcy. It turns on the insured versus insured exclusion. We also resolve an associated attorneys’ fees dispute.

I. Facts.

The district court dismissed the case for failure to state a

claim on which relief could be granted, under Rule 12(b)(6).

The complaint was supplemented by attachment of the insurance policies at issue to the defendants’ motions.1

 The complaint and the insurance policies control the outcome.

Visitalk, an Arizona corporation, purchased directors and

officers liability insurance from Reliance Insurance Company

1A court may consider documents, such as the insurance policies, that

are incorporated by reference into the complaint. Van Buskirk v. CNN,

Inc., 284 F.3d 977, 980 (9th Cir. 2002). There was a dispute about whether

two endorsements, nos. 99 and 100, could properly be considered. The

endorsements do not matter to the insured versus insured exclusion, which

controls the outcome. 

8568 BILTMORE ASSOCIATES v. TWIN CITY FIRE
and Twin City Fire Insurance Company.2

 A corporation frequently agrees to protect and indemnify its directors and officers against claims made against them, such as in

shareholders’ derivative suits, on account of their work for the

company. The policies in this case named Visitalk.com, Inc.,

and its directors and officers as insureds, and promised to pay

losses that Visitalk and the directors and officers became liable to pay as a result of covered claims:

I. INSURING AGREEMENTS

This policy affords the following coverages:

(A) DIRECTORS’ AND OFFICERS’

LIABILITY

Except for Loss which the Insurer

pays pursuant to Insuring Agreement

(B) of this Policy, the Insurer will pay

on behalf of the Directors and Officers Loss which the Directors and

Officers shall become legally obligated to pay as a result of a Claim

first made during the Policy Period or

the Discovery Period, if applicable,

against the Directors and Officers for

a Wrongful Act which takes place

during or prior to the Policy Period;

(B) COMPANY REIMBURSEMENT

The Insurer will pay on behalf of the

Company Loss for which the Com2The complaint alleges that Twin City “succeeded in interest” to the

Reliance policy. The parties dispute whether this issue was sufficiently

pleaded. Because we resolve this case on the insured versus insured exclusion, which is the same in both policies, we do not resolve the dispute

about whether Twin City’s successorship was adequately pleaded. 

BILTMORE ASSOCIATES v. TWIN CITY FIRE 8569
pany has, to the extent permitted or

required by law, indemnified the

Directors and Officers, and which the

Directors and Officers have become

legally obligated to pay as a result of

a Claim first made during the Policy

Period or Discovery Period, if applicable, against the Directors and Officers for a Wrongful Act which takes

place during or prior to the Policy

Period. . . .

The policies excluded from this coverage various claims, such

as personal injury, defamation, and, central to this case,

claims brought by Visitalk itself against its own officers or

directors. There is an exception to this exclusion for stockholder derivative actions and claims by former officers and

directors for wrongful termination, discrimination or sexual

harassment:

V. EXCLUSIONS

The Insurer shall not be liable to make any payment for Loss in connection with any Claim

made against the Directors and Officers . . .:

(D) brought or maintained by or on behalf

of an Insured in any capacity or by an

security holder of the company

except:

(1) a Claim, including, but not limited

to, a security holder class or derivative action that is instigated and

continued totally independent of,

and totally without the solicitation

of, or assistance of, or active participation of, or intervention of an

Insured;

8570 BILTMORE ASSOCIATES v. TWIN CITY FIRE
(2) an Employment Practice Claim3

 by

a former Director or a present or

former Officer;

(3) a claim for contribution or indemnity if the Claim directly results

from another Claim that is otherwise covered under this Policy; or

(4) a claim by any employee(s) of the

Company described in IV.(D)(2) of

the Policy.

This case turns on the exclusion from coverage quoted above,

commonly called the “insured versus insured” exclusion.

Basically, if Visitalk sues its directors or officers itself, they

have no liability coverage. Some covered claims, such as

shareholders’ derivative actions, are excepted from the exclusion, even though they are at least in theory on behalf of the

corporation. But the exception to the exclusion only applies

if the claims are “instigated and continued totally independent

of” the corporation. 

The exclusion was put at issue when, after two years in

business, Visitalk filed a chapter 11 bankruptcy petition. Visitalk, as “debtor and debtor in possession,” sued some of its

recently discharged officers and directors for breaches of their

fiduciary duties. The attorney representing Visitalk as debtor

in possession told the insurers that officers and directors of

Visitalk had looted the company. He asserted that they had

charged grossly excessive amounts as expenses for inappropriate things, such as “personal expenses, strippers, lavish

3The policies define an Employment Practice Claim as “any Claim for

or arising out of . . . any actual or alleged wrongful dismissal, discharge

or termination (either actual or constructive) of employment, sexual

harassment of an employee, unlawful employment discrimination, wrongful failure to hire or promote, or failure to grant tenure.” 

BILTMORE ASSOCIATES v. TWIN CITY FIRE 8571
trips, and gifts” of no value to the company, and failed to

institute appropriate financial controls to prevent this sort of

thing. He claimed that the directors and officers purchased

unnecessary software and usurped corporate opportunities. He

also claimed that the directors had paid one officer more than

a million dollars to cover up the inappropriate issuance of

warrants to other officers to purchase Visitalk’s common

stock. The insurers declined to cover the claims.

This case arises out of a variation on what insurance litigators often call the “confession of judgment, assignment of

rights, covenant not to execute” technique. Sometimes when

a liability insurer denies coverage and declines to defend, the

injured party sues the insured tortfeasor, and they agree on a

confession of judgment, assignment of rights, and covenant

not to execute. That way the insured party obtains protection

from having to pay anything, and the injured party steps into

the insured’s shoes in order to sue the liability insurer. The

injured party may be able to get more than the policy limits

from the insurer, if he prevails on coverage, because damages

for bad faith denial of coverage and punitive damages are in

the nature of tort damages, not limited by the insurance contract.

Visitalk filed a chapter 11 reorganization plan which

assigned its claims against the directors and officers to a trust

established for its creditors (the ‘Visitalk Creditors Trust’)

and named Biltmore as trustee. Biltmore and four directors

and officers against whom Visitalk had asserted claims then

agreed to settle Visitalk’s claims for about $175 million. The

four directors and officers assigned to the creditors’ trust their

rights against the liability insurers. The complaint does not

say whether the confession of judgment and assignment of

rights was coupled with the typical covenant not to execute

against the settling directors and officers personally. But the

existence of such a covenant does not matter here. Basically,

Visitalk sued its directors and officers for breach of their fiduciary duties, the directors and officers liability insurers

8572 BILTMORE ASSOCIATES v. TWIN CITY FIRE
refused coverage under the insured versus insured exclusion,

Visitalk assigned the claims to its creditors’ trust, and Biltmore, as trustee, then settled with four directors and officers

for a confession of judgment of $175 million and an assignment of whatever claims the directors and officers had against

the insurers.

Biltmore, as trustee for the creditors’ committee, then sued

the insurance companies on the basis of these claims.4 The

district court dismissed the case because the complaint failed

to set forth sufficient facts to show that the named defendant,

Twin City, had obligated itself as successor to Reliance to

cover the Reliance policy period, and failed to allege sufficient facts to show that the underlying claims were made

within the Twin City policy period. The district court also

relied in part on a local rule governing motions practice. The

district court awarded attorneys’ fees to the insurers and

against Biltmore personally, under Arizona’s statute adopting

the English rule for contract cases.5 Biltmore timely appeals

both decisions.6

We affirm the dismissal of the complaint, but on different

grounds (also urged in district court and fully briefed here),

that the insured versus insured exclusion applies. We do not

decide whether the district court’s grounds for dismissal were

correct. We remand the award of attorneys’ fees to clarify that

Biltmore is not personally liable, because it was acting as representative of the trust and was not personally at fault.

4There are multiple insurance companies involved in this case because

several layers of coverage were issued by multiple carriers. 

5Ariz. Rev. Stat. Ann. § 12-341.01(A) (2003). 

6No. 06-16417 is the merits appeal, No. 07-16036 is the attorneys’ fees

appeal. 

BILTMORE ASSOCIATES v. TWIN CITY FIRE 8573
II. The insured versus insured exclusion.

In appeal number 06-16417, Biltmore appeals the dismissal

of its complaint for failure to state a claim. We review the

12(b)(6) dismissal de novo.7 We can affirm on any ground

supported by the record.8 We conclude that insured versus

insured exclusion in the relevant policies bars coverage for

Biltmore’s claims, because a post-bankruptcy debtor in possession acts in the same capacity as the pre-bankruptcy debtor

for the purpose of directors and officers liability insurance.

There are two issues; (1) what the insured versus insured

exclusion means, and (2) how bankruptcy law affects its

application.

A. The meaning of the exclusion.

As shareholder’s derivative suits and class actions against

directors and officers became more common, people began to

demand that companies indemnify them against the risks of

liability if they were to serve as directors and officers. Corporations accordingly bought liability insurance for their directors and officers to induce qualified people to serve.9

 Insured

versus insured exclusions are boilerplate in these and other

kinds of liability policies.10 Directors and officers liability policies are colloquially called “D & O insurance.” The exclusion arose in D & O policies as a reaction to several lawsuits

in the mid-1980s in which insured corporations sued their

own directors to recoup operational losses caused by improvident or unauthorized actions.11 Such lawsuits created prob7Cholla Ready Mix, Inc. v. Civish, 382 F.3d 969, 973 (9th Cir. 2004).

8Adams v. Johnson, 355 F.3d 1179, 1183 (9th Cir. 2004).

9

See generally Michael D. Sousa, Making Sense of the Bramble-Filled

Thicket: The “Insured vs. Insured” Exclusion in the Bankruptcy Context,

23 Emory Bankr. Dev. J. 365, 372-77 (2007). 

10Barry R. Ostrager & Thomas R. Newman, 2 Handbook on Insurance

Coverage Disputes § 20.02[g], at 1384 (14th ed. 2008). 

11See, e.g., Nat’l Union Fire Ins. Co. v. Seafirst Corp., No. C85-396R,

1986 WL 1174695, at *6 (W.D. Wash. Mar. 19, 1986) (“After carefully

8574 BILTMORE ASSOCIATES v. TWIN CITY FIRE
lems of moral hazard, collusion, and unintended expansion of

coverage. The reasonable expectations of the parties were that

they were protecting against claims by outsiders, not intracompany claims.

[1] The exclusion at issue in this case provides “[t]he

Insurer shall not be liable to make any payment for Loss in

connection with any Claim made against the Directors and

Officers . . . brought or maintained by or on behalf of an

Insured in any capacity.” This is not the gobbledygook it

sounds like to the uninitiated on an overly rapid reading.

Insurance against shareholders derivative suits and employment claims is essentially liability insurance. The trigger for

liability insurance is a claim by someone not under the control

of the insured himself. By contrast, people buy casualty insurance against the risks created by their own bad luck or carelessness. Thus, one buys fire insurance and gets indemnified

even for carelessly leaving a lit candle untended and burning

down one’s own house. And one buys automobile comprehensive and collision coverage to get indemnified for carelessly damaging one’s own car. 

Though there is overlap, many of the risks that affect the

price of liability insurance differ from the risks that affect

casualty insurance, particularly moral hazard and collusion.

For example, almost nobody intentionally induces someone

else to collide with his car, but someone might have an interest in burning down his own house if he owed more on it than

it was worth. Companies have traditionally purchased “fidelity bonds” to insure the company against employees’ dishonesty.12 Thus if an employee was “bonded” and stole from the

reviewing the language of the policy, the court concludes that the policy

plainly and unambiguously covers direct actions by Seafirst itself against

its own directors and officers. According to the policy terms, National

Union must pay for loss suffered as a result of ‘any claim or claims’

against the directors and officers.”). 

12David L. Bickelhaupt, General Insurance 748-50 (9th ed. 1974); William R. Vance & Buist M. Anderson, Handbook on the Law of Insurance

§ 197 (3d ed. 1951). 

BILTMORE ASSOCIATES v. TWIN CITY FIRE 8575
company, the insurance company that had issued the bond

would have to indemnify the company for the loss.

Because risks such as collusion and moral hazard are much

greater for claims by one insured against another insured on

the same policy than for claims by strangers, liability policies

typically exclude them from coverage. Allowing such claims

would turn liability insurance into casualty insurance, because

the company would be able to collect from the insurance company for its own mistakes, since it acts through its directors

and officers. The exclusion protects of course against collusion, and also against the risk of selling liability insurance for

what amounts to a fidelity bond. If the exclusion were

ignored, then those companies who only want to pay for protection against third party claims they cannot control would

have to bear the additional financial burden of paying for

claims over which companies have more control.

[2] Biltmore does not (and could not) argue that the exceptions to the insured versus insured exclusion apply. The claim

is not by a fired director for wrongful termination or one of

the other excepted employment practice claims, and the claim

is not brought “by . . . a security holder,” as the exception to

the exclusion for shareholders’ derivative actions requires.

The only question before us on the language of the exclusion

is whether the underlying suit was “brought or maintained on

behalf of an Insured in any capacity.” 

[3] Appellant argues that this claim is on behalf of the creditors and brought by the creditors’ trustee, Biltmore, so it is

not “brought or maintained on behalf of an Insured in any

capacity.” We conclude that this argument is mistaken. First,

the underlying lawsuit, for which coverage is sought, alleged

that the directors and officers of Visitalk breached their statutory and fiduciary duties. A cause of action for mismanagement belongs to the corporation.13 Shareholders and creditors

13Ross v. Bernhard, 396 U.S. 531, 538-39 (1970); Hidalgo v. McCauley,

70 P.2d 443, 445-46 (Ariz. 1937); Realty Exch. Corp. v. Cadillac Land &

Dev. Co., 475 P.2d 522, 545-46 (Ariz. Ct. App. 1970). See generally 18B

Am. Jur. 2d Corporations § 1597. 

8576 BILTMORE ASSOCIATES v. TWIN CITY FIRE
can bring a suit for mismanagement only derivatively, on

behalf of the corporation. True, the directors and officers have

coverage for derivative claims, but not for claims by Visitalk.

Coverage is excluded if Visitalk sues them, and it did. The

lawsuit was “instigated and continued” by Visitalk. That the

creditors rather than the shareholders will get whatever money

the insurer pays does not avoid the exclusion. Creditors get

much, most, or even all of the money any business collects,

as part of the business’s overhead, which is why a landlord is

always happy to see diners in his tenant’s restaurant. 

[4] Second, the claim has to be made by an insured party

for it to have any contractual basis in the insurance policies.

The named insured and others insured are defined in all the

policies here to be Visitalk, Inc., and its directors and officers,

and no one else. None of the insurance companies issued any

policies to Biltmore, or to Visitalk’s creditors. Sometimes a

promisee buys insurance to protect against a potential debtor’s

risk, as when a concert promoter buys life insurance on a star,

but Visitalk’s creditors bought no insurance on Visitalk and

its principals. The creditors have no independent contractual

claim against the insurance companies, because they are not

insureds.

[5] Third, the claim for which coverage is sought was

indeed “instigated and continued” by Visitalk, as a chapter 11

“debtor and debtor in possession.” The First Amended Complaint says in paragraphs 22 and 24 that Visitalk filed a complaint in the underlying case against the four directors and

officers, and then assigned its claims to the creditors’ trust

with Biltmore as trustee. Biltmore sued the insurers as

assignee of the directors’ and officers’ claims for failure to

cover and its bad faith in so doing. An assignee of a claim

against an insurance company can have no stronger claim

than the assignor who assigned the claim.14 Biltmore has to

14Bassidji v. Goe, 413 F.3d 928, 939 (9th Cir. 2005); Stephens v. Textron, Inc., 619 P.2d 736, 739 (Ariz. 1980); Carpenter v. Superior Court,

422 P.2d 129, 131 (Ariz. 1966). 

BILTMORE ASSOCIATES v. TWIN CITY FIRE 8577
step into an insured’s shoes as assignee to have any claim

against their insurers, since Biltmore is not an insured. And in

those shoes, it is barred by the exclusion. Biltmore cannot

jump into the insureds’ shoes to bring the lawsuit, out of their

shoes to claim not to be suing as though it were the insureds,

and then back into their shoes to get compensatory and punitive damages for the insurers’ failure to cover their liabilities.

B. Bankruptcy.

The additional feature of this case is bankruptcy. Biltmore

argues that Visitalk, the chapter 11 debtor in possession that

brought the underlying suit, is not the same entity as Visitalk,

the insured corporation. Several bankruptcy decisions around

the country, including one in this circuit, treat a postbankruptcy entity as different from the debtor before it went

into chapter 11 for purposes of the insured versus insured exclusion.15 Several others hold that they are the same entity for

15Unified W. Grocers, Inc. v. Twin City Fire Ins. Co., 457 F.3d 1106,

1116-17 (9th Cir. 2006) (bankruptcy trustee of subsidiary different entity

than subsidiary itself); Alstrin v. St. Paul Mercury Ins. Co., 179 F. Supp.

2d 376, 403-05 (D. Del. 2002) (Chapter 11 estate representative distinct

entity from debtor); Grafenauer v. Mukamal (In re Laminate Kingdom,

LLC), Nos. 07-10279, 07-01792, 2008 WL 704396, at *3-4 (Bankr. S.D.

Fla. Mar. 13, 2008) (Chapter 7 trustee is distinct entity from debtor);

Cohen v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. (In re County Seat

Stores, Inc.), 280 B.R. 319, 324-26 (Bankr. S.D.N.Y. 2002) (trustee

legally distinct entity from debtor, distinguishing trustee from debtor in

possession); Gray v. Executive Risk Indem., Inc. (In re Molten Metal

Tech., Inc.), 271 B.R. 711, 728-31 (Bankr. D. Mass. 2002) (Chapter 11

trustee not same entity as debtor, distinguishing debtor in possession),

aff’d, No. 02-10289, 2002 WL 923936 (D. Mass. May 6, 2002), see also

Narath v. Executive Risk Indem., Inc., No. 01-10122, 2002 WL 924231,

at *2 (D. Mass. Mar. 14, 2002) (same, also arising from Molten Metal’s

insolvency); Rieser v. Baudendistel (In re Buckeye Countrymark, Inc.),

251 B.R. 835, 840-41 (Bankr. S.D. Ohio 2000) (Chapter 7 trustee not the

same entity as debtor); Rigby v. Underwriters at Lloyd’s, London, 907 So.

2d 1187, 1188-89 (Fla. Dist. Ct. App. 2005) (Chapter 7 trustee, listed as

insured, still different entity from debtor), review granted sub nom. Cer8578 BILTMORE ASSOCIATES v. TWIN CITY FIRE
this purpose.16 Few cases, and no circuit court decisions, deal

with the specific situation of a chapter 11 debtor in possession.17

tain Underwriters at Lloyd’s of London v. Rigby, 917 So. 2d 192 (Fla.),

review dismissed as improvidently granted, 934 So. 2d 1183 (2006); Cirka

v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., No. 20250, 2004 WL

1813283, at *7-9 (Del. Ch. 2004) (creditor’s committee not same entity or

assignee of debtor in possession, which was specifically covered by the

insured versus insured exclusion at issue). 

16Nat’l Union Fire Ins. Co. v. Olympia Holding Corp., 148 F.3d 1070

(11th Cir. 1998) (unpublished table disposition) (affirming partial summary judgment that exclusion bars coverage for a bankruptcy’s trustee

claim against former directors and officers) (11th Circuit Rule 36-2 says

that “[u]npublished opinions are not considered binding precedent, but

they may be cited as persuasive authority.”), aff’g, inter alia, No. 94-2081,

1996 WL 33415761, at *6-7 (N.D. Ga. June 4, 1996); Reliance Ins. Co.

of Ill. v. Weis, 5 F.3d 532 (8th Cir. 1993) (unpublished table disposition)

(affirming “on the basis of the well-reasoned opinion of the district

court.”), aff’g 148 B.R. 575, 581-83 (E.D. Mo. 1992) (bankruptcy plan

agent is assignee of debtor’s claims, “no significant legal difference”

between debtor and debtor’s bankruptcy estate); Federal Ins. Co. v. Surujon, No. 07-22819, 2008 WL 2949438, at *6 & n.5 (S.D. Fla. July 29,

2008) (reorganized post-bankruptcy company same entity as prebankruptcy debtor); Stratton v. Nat’l Union Fire Ins. Co. of Pittsburgh,

Pa., No. 03-12018, 2004 WL 1950337, at *4-6 (D. Mass. Sept. 3, 2004)

(reorganized post-bankruptcy company successor entity of pre-bankruptcy

debtor). 

17Compare Terry v. Federal Ins. Co. (In re R.J. Reynolds-Patrick

County Mem’l Hosp., Inc.), 315 B.R. 674, 678-82 (W.D. Va. 2003) (litigation trustee, assignee of debtor in possession, same entity as debtor, distinguishing bankruptcy trustee) with HA 2003, Inc. v. FDIC (In re HA 2003,

Inc.), 310 B.R. 710, 717-19 (Bankr. N.D. Ill. 2004) (Debtor in possession

not same entity as pre-bankruptcy debtor under exception to insured versus insured exclusion for claims “brought by or on behalf of a bankruptcy

trustee, magistrate or any other person appointed by a bankruptcy court or

judge, or authorized under applicable law to act on behalf of a debtor”)

and Pintlar Corp. v. Fid. & Cas. Co. of N.Y. (In re Pintlar), 205 B.R. 945,

947-48 (Bankr. D. Idaho 1997) (litigation trustee, assignee of debtor in

possession, not same entity as debtor under terms of trust precluding debtor’s successor entities from receiving any benefit from the prosecution of

claims), aff’d sub nom. Cigna Ins. Co. v. Gulf USA Corp., No. 97-250,

1997 WL 1878757, at *3-5 (D. Idaho Sept. 11, 1997). See also Federal

BILTMORE ASSOCIATES v. TWIN CITY FIRE 8579
[6] We conclude that for purposes of the insured versus

insured exclusion, the prefiling company and the company as

debtor in possession in chapter 11 are the same entity. The

bankruptcy code defines a Chapter 11 debtor in possession as

the debtor.18 The debtor, in turn, is defined as the “person or

municipality concerning which a case under this title has been

commenced.”

19 Bankruptcy cases can be filed only with

respect to pre-bankruptcy persons.20 Thus the debtor in possession is the debtor, and the debtor is the person, Visitalk,

that filed for bankruptcy. Applying these statutory provisions

literally, Visitalk, the debtor in possession, is the same person

for bankruptcy purposes as Visitalk, the pre-bankruptcy corporation. There is no good reason to interpret the language

other than literally in this context.

In NLRB v. Bildisco & Bildisco, the Supreme Court reached

the same conclusion in the labor law context, stating “it is

sensible to view the debtor-in-possession as the same ‘entity’

which existed before the filing of the bankruptcy petition.”

21

While the Court divided on other points, it unanimously

agreed that the ‘new entity’ theory should be rejected.22 Biltmore argues that Bildisco did not treat the debtor-inIns. Co. v. D’Aniello, No. 05-305, 2006 WL 3386625, at *13 (W.D. Pa.

Nov. 22, 2006) (debtor in possession not the same entity as debtor, claims

brought originally brought by unsecured creditor’s committee by leave of

the district court, then assigned to litigation trust on behalf of creditors, not

debtor in possession). 

We overrule the bankruptcy and district court opinions in Pintlar Corp.

v. Fid. & Cas. Co. of N.Y. (In re Pintlar), 205 B.R. 945 (Bankr. D. Idaho

1997), aff’d sub nom. Cigna Ins. Co. v. Gulf USA Corp., No. 97-250, 1997

WL 1878757 (D. Idaho Sept. 11, 1997), for the reasons stated in this opinion. 

1811 U.S.C. § 1101(1) (2006). 

1911 U.S.C. § 101(13) (2006). 

20Cf. 1 U.S.C. § 1 (2006) (person includes corporate entities). 

21465 U.S. 513, 528 (1984). 

22Id. at 544 (Brennan, J. concurring in part and dissenting in part). 

8580 BILTMORE ASSOCIATES v. TWIN CITY FIRE
possession as the same entity as the debtor, because it permitted the debtor-in-possession to reject a labor agreement which

the debtor could not. That argument confuses the right of a

bankrupt to reject an executory contract with the question of

whether it is the promisor under the contract. Bildisco

explains that “[o]bviously, if the [debtor-in-possession] were

a wholly ‘new entity,’ it would be unnecessary for the Bankruptcy Code to allow it to reject executory contracts, since it

would not be bound by such contracts in the first place.’ ”

23

The converse applies to the case at bar. Two subsequent, similarly unanimous opinions of the Court treat a bankrupt entity

as the same as the pre-bankruptcy entity.24

Our own authorities speak variously in different contexts to

whether a chapter 11 debtor in possession should be treated

as a different entity for various purposes. Biltmore points to

two 1993 cases in which we stated that the debtor and debtorin-possession are “legally distinct entities,” Hillis Motors, Inc.

v. Hawaii Automobile Dealers’ Ass’n25 and Bonner Mall Partnership v. U.S. Bancorp Mortgage Co. (In re Bonner Mall

Partnership).

26 Hillis Motors does not involve a debtor in possession or insurance. It concerns application of the automatic

stay provision to the involuntary dissolution of a corporation

23Id. at 528. 

24O’Melveny & Myers v. FDIC, 512 U.S. 79, 86 (1994) (FDIC as a bank

receiver under 12 U.S.C. § 1821 is treated as if it were pre-receivership

bank — “The FDIC as receiver ‘steps into the shoes’ of the failed S&L”

and “ ‘any defense good against the original party is good against the

receiver.’ ”) (citations omitted); Commodity Futures Trading Commission

v. Weintraub, 471 U.S. 343 (1985) (Trustee, as bankrupt corporation’s

management, has the power to waiver attorney-client privilege just like

pre-bankruptcy corporation’s management). 

25997 F.2d 581, 585 n.6 (9th Cir. 1993). 

262 F.3d 899, 915 (9th Cir. 1993) (“Bankruptcy law is very formalistic

in that it treats the debtor, the debtor-in-possession, and old equity as

legally distinct entities when in reality they may all be one and the same.”)

(emphasis added), cert. granted, 510 U.S. 1039 (1994), aff’d as moot, 513

U.S. 18. 

BILTMORE ASSOCIATES v. TWIN CITY FIRE 8581
by a governmental entity.27 Bonner Mall addresses application

of the “new value doctrine” to priorities between a bank and

providers of new capital in a reorganization of a debtor in

possession under chapter 11.28 Neither speaks to insurers’

obligations or the effect of the insured versus insured exclusion in debtor in possession in chapter 11 bankruptcies. Nor

do they speak to the insuperable problem appellant has in this

case, that if Biltmore stands in Visitalk’s shoes, it has no coverage because of the insured versus insured exclusion. 

The more appropriate precedents are DiSalvo v. DiSalvo (In

re DiSalvo)29 and Teerlink v. Lambert (In re Teerlink Ranch

Ltd.),

30 though they too involve different factual circumstances. In DiSalvo v. DiSalvo, a debtor personally owed

money to a creditor, but as debtor in possession sued the creditor for abuse of process and other torts.31 The debtor’s purpose was to dump his debt into the pot for unsecured

creditors, but recover outside the bankruptcy for a debt flowing the other way, to himself. We held that “in the chapter 11

context a debtor and debtor in possession are not to be treated

as separate legal entities,” applying the Supreme Court’s analysis in Bildisco, though we recognized that Bildisco was a

labor law case and DiSalvo was not.32

Similarly, in Teerlink v. Lambert, we treated the debtor in

27Hillis Motors, 997 F.2d at 585 (“In this appeal, we must decide

whether federal bankruptcy law prohibited the DCCA from involuntarily

dissolving Hillis pursuant to state law in 1986.”); see also id. at 592

(“Bankruptcy does not grant debtors rights greater than those they would

receive outside bankruptcy.”). 

28Bonner Mall P’ship, 2 F.3d at 901 (“This case requires us to decide

whether the new value ‘exception’ to the absolute priority rule surives the

enactment of the Bankruptcy Reform Act of 1978 . . . .”). 

29219 F.3d 1035 (9th Cir. 2000). 

30886 F.2d 1233 (9th Cir. 1989). 

31DiSalvo, 219 F.3d at 1037-39. 

32Id. at 1038 (citing Bildisco, 465 U.S. at 528). 

8582 BILTMORE ASSOCIATES v. TWIN CITY FIRE
possession as “still the same old debtor satisfying the same

old debt.”

33 This quotation was the holding of Teerlink, rejecting the debtor in possession’s argument that “it was no longer

a debtor paying its own debt, but a hypothetical judicial lien

creditor paying a stranger’s debt.”

34 That argument resembles

Biltmore’s, that for purposes of the insured versus insured

exclusion, Visitalk as debtor in possession is a different entity

than it was before bankruptcy. As in Bildisco, DiSalvo, and

Teerlink, Visitalk in chapter 11 and out of it “are not to be

treated as separate entities”

35 for purposes of what its directors

and officers owe Visitalk.

[7] It is certainly true that the interests differ once a debtor

goes into bankruptcy. Prior to Visitalk’s bankruptcy, the

underlying lawsuit belonged to Visitalk as a corporation.

Once it filed its voluntary bankruptcy petition, ownership of

the cause of action fell into the bankruptcy estate.36 Visitalk

became the debtor in possession of the bankruptcy estate,

empowered to act as a trustee and required to act as a fiduciary for its creditors and shareholders.37 The differences in

the fiduciary responsibilities of Visitalk’s management on

account of bankruptcy, however, do not make Visitalk a different entity for purposes of the insured versus insured exclusion.38

33Teerlink, 886 F.2d at 1236. 

34Id. at 1235. 

35DiSalvo, 219 F.3d at 1038; see also Bildisco, 465 U.S. at 528; Teerlink, 886 F.2d at 1236. 

3611 U.S.C. § 541 (2006). 

3711 U.S.C. §§ 1107, 1104 (2006). 

38Before bankruptcy, the principals must exercise their business judgment to act in the best interest of the shareholders. See Ariz. Rev. Stat.

Ann. § 10-830 (2004); see generally 3A Fletcher Cyc. Corp. § 1036. In

bankruptcy, the principals must exercise their business judgment to act in

the best interest of the bankruptcy estate. Bennett v. Williams, 892 F.2d

822, 824 (9th Cir. 1989); see generally 7 Collier’s on Bankruptcy

¶ 1108.07 (15th ed. 2008). 

BILTMORE ASSOCIATES v. TWIN CITY FIRE 8583
Biltmore argues that Visitalk, as debtor in possession,

brought the underlying suit as representative of the creditors

of the bankruptcy estate, so the insured versus insured exclusion does not apply. This argument presupposes that a suit

brought as representative of the creditors is brought on their

behalf, conflating ‘for the benefit of’ and ‘on behalf of.’ Just

because the “creditors could have asserted fiduciary duty

claims outside the bankruptcy context similar to those pressed

by the Trustee, . . . does not prove that the Trustee is asserting

‘creditors’ claims’ . . . . Rather, it is simply because state law

often permits creditors to pursue derivative claims on an

insolvent corporation’s behalf.”

39 Even if Visitalk, as debtor

in possession, is acting in the capacity of representative for

the creditors, it is advancing their interests by bringing suit on

behalf of the pre-bankruptcy corporation. The suit is for the

benefit of the creditors, but on behalf of the pre-bankruptcy

corporation. 

It may be (we do not know) that every penny recoverable

from the liability insurers would go to the creditors of Visitalk

and its principals. But that might happen even if there were

no bankruptcy, and a debtor owed creditors every penny it

could recover. In a sense, when any business obtains revenue,

its success is on behalf of its employees and suppliers as well

as (or more than) its owners, but that does not avoid the

insured versus insured exclusion. The liability insurance that

the corporation and its principals bought to protect against

shareholders’ derivative suits cannot be turned into an available pot for the corporation’s creditors by enforcing the insurers’ obligations while disregarding the parties’ agreement to

limit those obligations to exclude insured versus insured

claims.

[8] Biltmore argues that this analysis creates windfall for

the insurance companies, because creditors would have a cov39Smith v. Arthur Andersen, LLP, 421 F.3d 989, 1006 (9th Cir. 2005)

(emphasis added). 

8584 BILTMORE ASSOCIATES v. TWIN CITY FIRE
ered claim before the bankruptcy against the principals of an

insolvent corporation, but not after. That is not quite right,

because before bankruptcy, the creditor would first have to

demand that the insolvent corporation bring the claim,40 and

if the corporation did, then the insured versus insured exclusion would still bar recovery. Bankruptcy does not erect the

bar to recovery, the insurance policy does. All bankruptcy did

to the creditors was impose the automatic stay and require

them to advance their claims within the bankruptcy proceeding;41 it did not change the insurance policies. 

[9] We therefore affirm the dismissal of the complaint. The

alternative position would create a perverse incentive for the

principals of a failing business to bet the dwindling treasury

on a lawsuit against themselves and a coverage action against

their insurers, bailing the company out with the money from

the D & O policy if they win and giving themselves covenants

not to execute if they lose. That is among the kinds of moral

hazard that the insured versus insured exclusion is intended to

avoid. 

40Ariz. Rev. Stat. Ann. § 10-742 (2004); see also Fed. R. Civ. P.

23.1(a). 

41A creditor can demand that the debtor in possession bring an action

on its behalf. If the debtor in possession refuses, the creditor “may appear

and be heard” on the issue in the bankruptcy proceeding. 11 U.S.C.

§ 1109(b) (2006). After such a hearing, the court must allow the creditors’

committee to sue independent of the debtor in possession if the failure to

bring suit does not adequately protect the creditor’s interests or the chose

in action is of inconsequential value to the estate. 11 U.S.C. §§ 362(d)(1),

554(b) (2006). Compare Terry v. Federal Ins. Co. (In re R.J. ReynoldsPatrick County Mem’l Hosp., Inc.), 315 B.R. 674, 678-82 (W.D. Va.

2003) (litigation trustee, assignee of debtor in possession, same entity as

debtor) with Federal Ins. Co. v. D’Aniello, No. 05-305, 2006 WL

3386625, at *13 (W.D. Pa. Nov. 22, 2006) (litigation trustee, assignee of

unsecured creditor’s committee that brought suit by leave of the district

court, not same entity as debtor in possession). 

BILTMORE ASSOCIATES v. TWIN CITY FIRE 8585
III. Attorneys’ fees.

In appeal number 07-16036, Biltmore contests the

$88,565.59 attorneys’ fees award in favor of the insurers. The

fees were awarded under the Arizona fee shifting statute for

contract cases,42 not as a sanction.43 Biltmore does not challenge whether the fees were properly awarded at all, nor does

it challenge the amount. Its challenge goes to whether fees

could properly be awarded against Biltmore personally, rather

than in its representative capacity. The judgment says that it

is against “Biltmore Associates, L.L.C., as Trustee of the

Visitalk Creditors Trust,” but the judge denied Biltmore’s

motion to bar execution against its own assets. 

Biltmore makes two arguments on appeal. First, relying on

bankruptcy law, it contends that our decision in Metcalf v.

Golden (In re Adbox, Inc.)44 barred the district court from

properly imposing judgment against its personal assets

because it acted solely in the representative capacity of a

bankruptcy trustee. Second, relying on the general law of

trusts, Bilmore posits that because it captioned its pleading

“Biltmore Associates, L.L.C., as Trustee of the Visitalk Creditors Trust,” and because it was acting for the creditors’ trust,

fees should have been awarded only against the trust. We deal

with each of these arguments in turn.

A. Bankruptcy trustees.

Biltmore’s bankruptcy law argument has no merit, because

42Ariz. Rev. Stat. Ann. § 12-341.01(A) (2003) (“In any contested action

arising out of a contract, express or implied, the court may award the successful party reasonable attorney fees.”). 

43Ariz. Rev. Stat. Ann. § 12-341.01(C) (2003) (“The court shall award

reasonable attorney fees in any contested action upon clear and convincing

evidence that the claim or defense constitutes harassment, is groundless

and is not made in good faith.”). 

44488 F.3d 836 (9th Cir. 2007). 

8586 BILTMORE ASSOCIATES v. TWIN CITY FIRE
Biltmore is not a bankruptcy trustee. A bankruptcy proceeding may be crowded with trustees, perhaps the trustees under

deeds of trust on real property seeking relief from the stay so

that they can foreclose, trustees for minors and for inter vivos

trusts trying to keep assets out of the bankruptcy estate, and

trustees for decedents, but they are not all the same. Biltmore

was not appointed as trustee of the bankruptcy estate. Visitalk, the bankrupt, remained a debtor in possession.

[10] The creditors’ committee hired Biltmore as its trustee.

Under 11 U.S.C. § 1102, the United States Trustee appoints

a committee of the creditors holding unsecured claims, to provide access to information for unsecured creditors not on the

committee and to solicit and receive comments from them.45

The creditors committee can hire attorneys, accountants, and

other agents to perform services for it.46 In this case, the creditors’ committee retained Biltmore Associates, L.L.C., as a

trustee, with the approval of the bankruptcy court. The committee provided that the trustee would “hold all, right, title

and interest in and to the causes of action on behalf of the

beneficiaries of the Creditors’ Trust,” and could “sue and be

sued in a representative capacity for the trust.” This lawsuit

took place outside the bankruptcy court, as an ordinary civil

action for breach of contract between a trustee on behalf of a

beneficiary against promissors, the insurance companies. No

bankruptcy authority of which we are aware provides immunity to a trustee hired by the creditors’ committee, as opposed

to the chapter 11 trustee appointed by the court. Metcalf v.

Golden (In re Adbox, Inc.)47 and the other authorities cited by

Biltmore only speak to chapter 11 trustees appointed by the

court.

4511 U.S.C. § 1102(a)(1), (b)(3) (2006). 

4611 U.S.C. § 1103(a) (2006). 

47488 F.3d 836 (9th Cir. 2007). 

BILTMORE ASSOCIATES v. TWIN CITY FIRE 8587
B. Trustees generally.

[11] Biltmore’s second argument, that the general law of

trusts shields its personal assets from liabilities incurred while

acting as a representative for the trust, is correct. Trustees

used to be personally liable, albeit with indemnity rights, for

obligations incurred on behalf of the trust.48 But this doctrine

has changed. Over the last few decades, the law has become

more protective of trustees.49 The Uniform Trust Code, in

force in Arizona, provides that the trustee is personally liable

only if he is personally at fault for the obligation.50 Otherwise,

the trustee is liable only in his representative capacity. 

Haskett v. Villas at Desert Falls, Inc.51 speaks to this issue,

albeit in California rather than Arizona. The California Court

of Appeal applied a California statute (identical to Arizona’s)

to a nearly identical set of facts. A trustee filed a contract

claim against an individual and a corporation.52 The complaint

was dismissed, with attorneys’ fees and costs awarded against

48Restatement (Second) of Trusts §§ 261, 265 (1959); Richardson v.

Cortner, 105 So. 2d 456, 456 (Miss. 1958) (“When a party brings . . . a

suit in his name in such representative capacity (trustee in a chattel deed

of trust), he is individually liable for costs, insofar as the opposite party

and the officers of the court are concerned.”). 

49See Restatement (Second) of Trusts §§ 265 cmt. a, 271A cmt. a (1959)

(both noting “the modern trend” limiting a trustee’s personal liability); see

generally, e.g., George Gleason Bogart et al., The Law of Trusts and

Trustees § 732 (describing the evolution from the “Orthodox Common

Law Rule—No Direct Representative Liability” to the “Statutory Trend

Toward Direct Representative Liability”). 

50Ariz. Rev. Stat. Ann. § 14-11010(B) (West Supp. 2008) (“A trustee is

personally liable . . . for obligations arising from ownership or control of

trust property . . . only if the trustee is personally at fault.”); Unif. Trust

Code § 1010(b), 7C U.L.A. 227 (Supp. 2003) (same). While the revision

to the Arizona Trust Code only became effective this year, it continues the

previous limitation of liability found in Arizona Revised Statutes Annotated § 14-7306(B) (2005) (repealed 2009). 

51108 Cal. Rptr. 2d 888 (Ct. App. 2001). 

52Id. at 892-93. 

8588 BILTMORE ASSOCIATES v. TWIN CITY FIRE
the trustee.53 The California Court of Appeal determined that

the “trustee cannot be held personally liable . . . unless the

party seeking to impose such personal liability on the trustee

demonstrates that the trustee intentionally or negligently acted

or failed to act in a manner that established a personal fault.”

54

The court reached this conclusion based on California Probate

Code § 18001, which contains the exact same language as

Arizona Revised Statutes § 14-11010, “A trustee is personally

liable for obligations arising from ownership or control of

trust property only if the trustee is personally at fault.”

55 The

court explicitly rejected the argument that an “innocent third

party creditor should not have to be concerned with the source

of the fund that will be used to pay his claim.”

56

The District of Columbia Circuit and several state courts

have reached similar conclusions. In Pete v. United Mine

Workers of America Welfare and Retirement Fund of 1950,

the District of Columbia Circuit said that the “[t]rustees are

before the court in their fiduciary capacities and thus bear no

personal liability for the shifted attorney’s fees.”

57 The highest

courts of Maine and Missouri as well as intermediate courts

in New York, Oregon, and Florida have held likewise.58

53Id.

54Id. at 898 (emphasis in original). 

55Id. at 897 (emphases in original). 

56Id. at 899. 

57517 F.2d 1275, 1279, 1292-93 (D.C. Cir. 1975) (en banc). 

58In re Estate of Ricci, 827 A.2d 817, 825-26 (Me. 2003) (clarifying that

a personal representative of a deceased spouse is not personally liable for

the plaintiff ’s attorney’s fees in a former spouse’s successful suit to

enforce a support agreement); Jesser v. Mayfair Hotel, Inc., 360 S.W.2d

652, (Mo. 1962) (“The judgment should have run against the four surviving trustees not in their individual or personal capacity but as trustees representing the voting trust estate since the allowance of attorneys’ fees and

expenses was proper as a charge or expense of the trust estate.”) (emphasis

added); Skolnick v. Goldberg, 737 N.Y.S.2d 601, 602 (N.Y. App. Div.

2002) (“Since defendant’s decedent could only have brought and mainBILTMORE ASSOCIATES v. TWIN CITY FIRE 8589
[12] Biltmore’s prosecution of the lawsuit was not tortious

or otherwise unlawful. The costs award against Biltmore, acting as the creditors’ committee trustee, was an ordinary cost,

imposed on account of the statutory fee shifting provision in

contract cases.59 The district court did not impose the fees as

a sanction or for misconduct or negligence.60 Thus, Biltmore

is entitled not to be liable for the money personally. The liability should, on remand, be imposed on Biltmore in its capacity as trustee of the Visitalk Creditors Trust.

IV. Conclusion

In appeal number 06-16417, we AFFIRM dismissal of the

complaint because the insured versus insured exclusion bars

coverage for claims brought as the assignee of the debtor in

possession. In appeal number 07-16036, we REMAND the

award of attorneys’ fees for clarification that Biltmore is only

liable in its capacity as representative of the trust. Costs in

favor of appellees in appeal number 06-16417, and in favor

of appellant in appeal number 07-16036.

tained the complained of action in her representative capacity, and not in

her individual capacity, she cannot be held personally liable for any costs

connected with the action.”); McNeely v. Hiatt, 909 P.2d 191, 197 (Or. Ct.

App. 1996) (“It is an entirely different matter affirmatively to order that

the fees of another person be paid by someone who is, in effect, not a

party to the lawsuit.”); cf. Taylor v. Richmond’s New Approach Ass’n, 351

So. 2d 1094, 1096 (Fla. Dist. Ct. App. 1977) (distinguishing Illinois land

trusts from other trust forms, and holding that Illinois land trustees could

be held personally liable for attorneys’ fees, in contrast to trustees of ordinary trusts). 

59Ariz. Rev. Stat. Ann. § 12-341.01(A) (2003). 

60Ariz. Rev. Stat. Ann. § 12-341.01(C) (2003). 

8590 BILTMORE ASSOCIATES v. TWIN CITY FIRE