Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, NY 10153-0119

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

WEIL, GOTSHAL & MANGES LLP 

Stephen Karotkin (pro hac vice) 

(stephen.karotkin@weil.com) 

Ray C. Schrock, P.C. (pro hac vice) 

(ray.schrock@weil.com) 

Jessica Liou (pro hac vice) 

(jessica.liou@weil.com) 

Matthew Goren (pro hac vice) 

(matthew.goren@weil.com) 

767 Fifth Avenue 

New York, NY 10153-0119 

Tel: 212 310 8000 

Fax: 212 310 8007 

KELLER & BENVENUTTI LLP 

Tobias S. Keller (#151445) 

(tkeller@kellerbenvenutti.com) 

Jane Kim (#298192) 

(jkim@kellerbenvenutti.com) 

650 California Street, Suite 1900 

San Francisco, CA 94108 

Tel: 415 496 6723 

Fax: 650 636 9251 

Attorneys for Debtors

and Debtors in Possession

UNITED STATES BANKRUPTCY COURT 

NORTHERN DISTRICT OF CALIFORNIA 

SAN FRANCISCO DIVISION 

In re: 

PG&E CORPORATION,

 - and - 

PACIFIC GAS AND ELECTRIC COMPANY,

Bankruptcy Case No. 19-30088 (DM)

Chapter 11 

(Lead Case) (Jointly Administered) 

DEBTORS’ REPLY IN SUPPORT OF THE 

D&O INSURANCE MOTION AND 

RESPONSE TO OBJECTIONS OF THE 

OFFICIAL COMMITTEE OF 

UNSECURED CREDITORS 

[Relates to Docket. Nos. 2471 and 2835] 

Date: July 9, 2019 

Time: 9:30 am, Pacific Time 

Place: United States Bankruptcy Court 

 Courtroom 17, 16th Floor 

 San Francisco, CA 94102 

Debtors.

 Affects PG&E Corporation 

 Affects Pacific Gas and Electric Company 

 Affects both Debtors 

* All papers shall be filed in the Lead Case, No. 

19-30088 (DM). 

Case: 19-30088 Doc# 2882 Filed: 07/08/19 Entered: 07/08/19 09:46:57 Page 1 of

9
2 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, NY 10153-0119

PG&E Corporation (“PG&E Corp.”) and Pacific Gas and Electric Company (the 

“Utility”), as debtors and debtors in possession (collectively the “Debtors”) in the above-captioned 

chapter 11 cases (the “Chapter 11 Cases”), file this reply (the “Reply”) in support of the Debtors’ 

Motion Pursuant to 11 U.S.C. §§ 363 and 105(A) and Fed. R. Bankr. P. 6004 Authorizing Debtors to 

Purchase Directors and Officers Insurance [Docket. No. 2471] (the “Motion” or the “D&O 

Insurance Motion”) and in response to the Objection to the Motion [Docket. No. 2835] (the 

“Objection”) and the Supplemental Objection to the Motion (the “Supplemental Objection”) filed 

by the Official Committee of Unsecured Creditors (the “Creditors Committee”).1 

In support of this Reply, the Debtors submit the Supplemental Declaration of Janaize 

Markland (the “Markland Sup. Declaration”), and the Declaration of Theodore E. Tsekerides (the 

“Tsekerides Declaration”) filed contemporaneously herewith. 

The Court Should Grant the Relief Sought in the Motion 

A. The Debtors Evaluated the Need for Additional D&O Insurance, 

Properly Explored Alternatives to the EIS Policy, and Exercised 

Their Business Judgment to Select the Most Effective Coverage 

for the Lowest Cost 

It is within the Debtors’ business judgment to operate their affairs, including finding 

suitable and cost-appropriate insurance for their officers and directors. As outlined below and in the 

Motion, the Debtors have satisfied the requisite standard in their decision to purchase the EIS Policy: 

the exercise of a reasonable business judgment, on the basis of some articulated business justification, 

and the absence of bad faith, whim or caprice. See In re Ernst Home Ctr., Inc., 209 B.R. 974, 979 

(Bankr. W.D. Wash. 1997); In re Ionosphere Clubs, Inc., 98 B.R. 174, 175 (Bankr. S.D.N.Y. 1989); 

and In re New Bedford Capacitor, Inc., No. 01-14680-JNF, 2003 WL 25889620, at *5 (Bankr. D. 

Mass. June 27, 2003). As the Court in New Bedford recognized, in considering the exercise of 

business judgment in connection with the approval of a debtor’s purchase of an extension of its 

 

1

 Capitalized terms used but not herein defined have the meaning ascribed to them in the 

Motion. 

Case: 19-30088 Doc# 2882 Filed: 07/08/19 Entered: 07/08/19 09:46:57 Page 2 of

9
3 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, NY 10153-0119

directors’ and officers’ insurance, the following undertakings by the debtor satisfied the required 

standard: (a) an evaluation of the need for the additional insurance, weighing the costs, risks, and 

potential benefits, and (b) a consideration of the various options available to the estate for the purchase 

of such additional insurance. Id at *5. That the potential risks of liability to the estate were unknown 

at the time of the proposed purchase was not a bar to the Court granting the relief sought – only a 

potential for claims to be asserted was required. Id. Those circumstances plainly exist here, and there 

is no basis to challenge the Debtors’ business judgment based on allegations that procurement of 

coverage is premature or that adequate coverage already exists, particularly where the premiums are 

fully refundable, with interest, if the insurance coverage is not utilized. 

As discussed in the Motion, the Debtors’ counsel, insurance brokers, and other 

professionals identified a legitimate risk that the Debtors’ current D&O insurance may not provide 

adequate protection for the New Directors and Officers. See Motion at 8-10; see also Deposition 

Transcript of Janaize M. Markland, dated July 3, 2019 (the “Markland Deposition”) at 26-33.2 The 

Creditors Committee concedes the importance of maintaining appropriate coverage to protect the New 

Directors and Officers. See Objection, ¶ 1. Once the need for further coverage was identified, the 

Debtors explored three potential options for securing additional coverage that would address the risk 

that the 2017 and/or 2018 Policies are exhausted or otherwise unavailable to pay claims asserted 

during the Chapter 11 Cases. In deciding to purchase the EIS Policy, the Debtors sought to isolate the 

funds in a protected captive cell and ensure that any payment of proceeds would be subject to an 

approved insurance contract and overseen by an experienced, regulated third party (here, EIS). The 

Debtors also determined that, compared to traditional insurance, the EIS Policy was the lowest cost 

means of procuring insurance and provided the New Directors and Officers with the most effective 

coverage. Specifically, the total administrative costs of maintaining the proposed policy over its 5-

year lifetime are expected to be less than $100,000, and any portion of the premium not used to cover 

 

2

 Excerpts of the Markland Deposition are attached to the Tsekerides Declaration as Exhibit 

A.

Case: 19-30088 Doc# 2882 Filed: 07/08/19 Entered: 07/08/19 09:46:57 Page 3 of

9
4 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, NY 10153-0119

postpetition claims arising from postpetition alleged wrongful acts by the directors or officers will be 

recouped by the Debtors, plus interest less any expenses. The Court should defer to the Debtors’ 

exercise of their reasonable and prudent business judgment and grant the D&O Insurance Motion. 

B. The Purchase of the EIS Policy Cannot be Postponed Without 

Leaving the New Directors and Officers at Risk of No Coverage 

In objecting to the Motion, the Creditors Committee attempts to unduly minimize the 

very real uncertainty that the New Directors and Officers confront: In the unfortunate event of a new 

wildfire and the inevitable postpetition claims arising from such a fire, the New Directors and Officers 

may be unable to access D&O insurance coverage. 

The Creditors Committee’s contention that the purchase of $50 million in coverage is 

“premature” and suggestion that the Debtors can postpone purchasing coverage while the claims 

unfold is misplaced, as it does not protect the New Directors and Officers from the risk of non-covered 

claims arising from postpetition events. Postponing obtaining coverage does not work. The 2019 

California wildfire season has already started. EIS cannot issue the EIS Policy after an event takes 

place and claims have been filed. Only claims that occur after the inception of the policy would be 

covered under the policy—this is fundamentally how insurance works. See Markland Deposition at 

61-62. Unless and until the EIS Policy is in place, there is the risk of a postpetition event (e.g., 

wildfire) that promptly results in claims against the New Directors and Officers before EIS has a 

chance to issue the policy. 

C. The Creditors Committee Mischaracterizes the Risk of Insurers’ 

Attempting to Treat All Wildfire Claims as Relating Back to 2017 

The Creditors Committee also downplays in its Objection the risk that the existing 

insurers will assert that all wildfire claims should be pushed back into the 2017 policy period. But the 

risk is real. The 2018 Policies and 2017 Policies are “claims-made” policies, which means that they 

provide coverage, subject to all terms and conditions, for claims first asserted during the policy period. 

Case: 19-30088 Doc# 2882 Filed: 07/08/19 Entered: 07/08/19 09:46:57 Page 4 of

9
5 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, NY 10153-0119

If the D&O insurers take the position that claims from the 2017 and 2018 wildfires constitute a single 

claim for purposes of coverage, which AEGIS Security Insurance Company, the Debtors’ primary 

D&O insurance carrier, has already done,3 they may contend that all the wildfire claims, even those 

filed in 2019 and 2020, trigger coverage only under the 2017 Policies. Markland Deposition at 27-

28. As a consequence, the risk that insurers will attempt to push the claims back into 2017 is far from 

hypothetical. 

Further, the fact that expenses are still within the retention does not reduce the risk of 

exhaustion of the 2017 Policies and/or 2018 Policies on prepetition claims. While there is a stay now, 

as the various claims against the Debtors’ officers and directors are later litigated, there is a substantial 

risk of one or both towers of coverage exhausting, leaving nothing for the New Directors and Officers 

to use in defense of postpetition claims. In fact, plaintiffs in the PERA litigation are seeking to move 

forward with their claims against the Debtors’ current and former officers and directors.4 

 

D. The Creditors Committee Misrepresents the Risk of Uncertain 

Coverage Facing the New Directors and Officers 

As discussed in detail in the Motion, the 2017 and 2018 Policies contain a priority of 

payments clause. This clause provides for the insurers to prioritize payments on account of claims 

arising from alleged prepetition wrongful acts over claims alleging postpetition conduct. If a claim 

were to be asserted against the New Directors and Officers arising from a postpetition event, such as 

a wildfire, such claims would be noticed under the 2018 Policies. However, if the insurers believe 

that the prepetition claims may exhaust the 2017 Policies and/or 2018 Policies, the New Directors and 

 

3

 As stated in the Motion, by setting forth potential positions that the insurers may assert with 

respect to coverage under the 2017 and 2018 Policies, the Debtors are not waiving any rights or 

admitting the validity of any positions that may be taken by the insurers. The Debtors reserve all of 

their rights to dispute any such positions under the policies and at law in any appropriate forum. 

4

 See Debtors’ Motion for a Preliminary Injunction as to In re PG&E Corp Securities Litig., 

18-CV-03509 (N.D. Cal.) and Memorandum of Points and Authorities in Support, Adv. Pro. No. 19-

03039 (DM) (Bankr. N.D. Cal. June 18, 2019) [Docket No. 2]. 

Case: 19-30088 Doc# 2882 Filed: 07/08/19 Entered: 07/08/19 09:46:57 Page 5 of

9
6 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, NY 10153-0119

Officers will face the serious risk that the insurers will not agree to make any defense cost payments 

under the 2018 Policies for the postpetition claims arising from the new wildfires, unless or until the 

insurers obtain a declaration that such payments may or must be made. Thus, without the EIS Policy, 

there is a risk of a postpetition event (e.g., wildfire) that results in claims against the New Directors 

and Officers for which coverage may be unavailable or so uncertain as to create an unreasonable risk 

of no coverage for the New Directors and Officers.5 

It would be asking far too much of directors of a public company, let alone a company 

operating as a debtor in possession whose current and former officers and directors are already facing 

claims based on prior wildfires, to continue to sit in such capacity without the certainty of D&O 

insurance. That protection and safety valve is ubiquitous among similarly situated companies, and the 

Debtors have undertaken exhaustive efforts to obtain an appropriate level of coverage in a fiscally 

prudent manner. While the Creditors Committee correctly points out that the Debtors are obligated to 

indemnify the directors (on an administrative claim basis) should the need arise, the benefit of the EIS 

Policy is that if an indemnifiable event occurs now (which may not be automatically stayed as against 

the officers and directors), and the Debtors cannot (for whatever reason) indemnify or advance defense 

costs, the officers and directors will have an independent right to access the policy and utilize 

insurance to defend themselves. 

E. The Motion is Supported by Appropriate Evidence

The Supplemental Objection alleges that the Debtors’ supporting declarant, Janaize 

Markland, has insufficient personal knowledge of certain matters contained in her declaration filed in 

support of the Motion (the “Markland Declaration”). The standard the Supplemental Objection 

 

5

 The Creditors Committee notes in their objection that the New Directors and Officers are 

covered by the 2018 Policies, the terms of which were extended to May 2020. However, this is 

misleading as that extension did not result in the purchase of any new limits. It simply extended the 

existing 2018 Policies under which claims had already been tendered. The insurers’ refusal to offer 

any new limits evinces that no insurers wanted to take on the risk of covering a claim arising from a 

new wildfire. 

Case: 19-30088 Doc# 2882 Filed: 07/08/19 Entered: 07/08/19 09:46:57 Page 6 of

9
7 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, NY 10153-0119

purports to apply to the adequacy of the Markland Declaration does not reflect the standard required 

by the Federal Rules of Evidence. 

The Debtors’ insurance operations, unremarkably for organizations the size of the 

Debtors, are operated by a number of employees of the Debtors, supported by insurance brokers and 

counsel. Specifically, Ms. Markland works closely with and relies upon Marsh, the Debtors’ insurance 

broker, in the ordinary course of arranging the Debtors’ D&O insurance coverage. See Markland 

Deposition at 10-11, 13, 20-21. It cannot be reasonably expected that Ms. Markland, or indeed any 

other individual, could have first-hand knowledge of every matter of relevance to the Debtors’ D&O 

insurance policies. However, as the employee responsible for the Debtors’ insurance portfolio, Ms. 

Markland does indeed have the requisite knowledge to support the statements in her declaration and 

to the extent she does not have first-hand knowledge of some information, she was informed or became 

aware of these matters in the ordinary course of her employment by other employees or agents of the 

Debtors, whose roles it was to inform Ms. Markland of such information. See Barthelemy v. Air Lines 

Pilots Ass'n, 897 F.2d 999, 1018 (9th Cir. 1990) (CEO’s personal knowledge of negotiations and 

agreement could be presumed); see also Self-Realization Fellowship Church v. Ananda Church of 

Self-Realization, 206 F.3d 1322, 1330 (9th Cir. 2000) (“Personal knowledge can be inferred from an 

affiant’s position.”) (citations omitted). Additionally, courts have recognized that a declarant’s 

personal knowledge can come from review of the contents of files and records. See Laurant Beverly 

Hills v. Ford Motor Co., 108 F.3d 338 (9th Cir. 1996) (“[The declarant] established that he had 

personal knowledge of the events and transactions to which he refers in his declaration. The mere fact 

that he was out of the country during the time that these events took place does not indicate that he 

lacks personal knowledge of them.”); see also Aniel v. GMAC Mortg., LLC, No. C 12-04201 SBA, 

2012 WL 5373388, at *6 (N.D. Cal. Oct. 30, 2012) (“[P]ersonal knowledge can come from the review 

of the contents of business records, and an affiant may testify to acts that she did not personally observe 

but which have been described in business records.”). 

The characterization of the Markland Deposition in the Supplemental Objection is also 

Case: 19-30088 Doc# 2882 Filed: 07/08/19 Entered: 07/08/19 09:46:57 Page 7 of

9
8 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, NY 10153-0119

incomplete and misleading in many respects. First, the allegations in paragraph 7 of the Supplemental 

Objection, that Ms. Markland was not immediately familiar at her deposition with the specific details 

of all the communications in which an insurance carrier indicated an intention to treat claims arising 

from the 2017 and 2018 wildfires as a single claim, does not render her unable to give testimony on 

the subject. Ms. Markland testified that she was aware of the correspondence with the carriers and 

her Supplemental Declaration contains the relevant correspondence Ms. Markland reviewed as part of 

her job duties, which contains statements that the Debtors’ primary D&O insurer under the 2017 

Policies and 2018 Policies is provisionally treating certain claims noticed by the Debtors relating to 

the 2018 wildfires as a single claim along with claims previously noticed by the Debtors in relation to 

the 2017 wildfires. See Markland Sup. Declaration at ¶¶ 6-8 and Ex. A. 

In respect of the allegation in paragraph 8 of the Supplemental Objection, Ms. 

Markland does not need to know the detailed merits of the pending claims to know whether further 

costs will be incurred, or to know that the claims are substantial. Moreover, she testified that she is 

aware of the broad strokes of what the claims are about, which is more than enough to know they 

threaten the amount of insurance available to the New Directors and Officers. See Markland 

Deposition at 18, 30-32 

In paragraph 9 of the Supplemental Objection, the Creditors Committee again seeks to 

impose an impossible standard on the decision of the Debtors to supplement their D&O insurance. 

The Creditors Committee essentially demands that the Debtors face a liquidated claim prior to 

attempting to insure against it. As outlined above, Ms. Markland identified substantial uncertainty as 

to the adequacy of the existing D&O insurance. Rather than a hypothetical “nightmare” scenario, 

there are very plausible scenarios where, even if the coverage limits are not exhausted, the New 

Directors and Officers will not have access to insurance to fund their defense costs without the EIS 

Policy being in place. In respect of the necessity of the EIS Policy to enable board member retention 

and recruitment, Ms. Markland clearly outlines, based on her experience in obtaining D&O coverage 

since 2014, her belief as to the importance of adequate D&O insurance to the Debtors’ officers and 

Case: 19-30088 Doc# 2882 Filed: 07/08/19 Entered: 07/08/19 09:46:57 Page 8 of

9
9 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, NY 10153-0119

directors in her deposition. See Markland Deposition at 52-53. 

Finally, the allegation in paragraph 11 of the Supplemental Objection that the Debtors 

could acquire a new policy “whenever [they] want” fails to reflect the further testimony of Ms. 

Markland that the Debtors would be unable to obtain coverage under the EIS Policy for losses that 

occur prior to the policy being taken out. Markland Deposition at 61. This underscores the need for 

the Debtors to place the EIS Policy as soon as possible. 

Accordingly, the Objection should be overruled and the D&O Insurance Motion should 

be granted. 

Dated: July 8, 2019 

 WEIL, GOTSHAL & MANGES LLP 

 KELLER & BENVENUTTI LLP

 

/s/ Theodore E. Tsekerides

 Theodore E. Tsekerides 

Attorneys for Debtors and Debtors in Possession

Case: 19-30088 Doc# 2882 Filed: 07/08/19 Entered: 07/08/19 09:46:57 Page 9 of

9