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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) 

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 

(THE “D&O INSURANCE MOTION”) 

Date: July 9, 2019 

Time: 9:30am, Pacific Time 

Place: United States Bankruptcy Court 

 Courtroom 17, 16th Floor 

 San Francisco, CA 94102 

 

Objection Deadline: July 2, 2019 

 4:00 p.m. (Pacific Time) 

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). 

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

“Utility”), as debtors and debtors in possession (collectively, “PG&E” or the “Debtors”) in the 

above-captioned chapter 11 cases (the “Chapter 11 Cases”), hereby submit this Motion (the 

“Motion”), pursuant to sections 363 and 105(a) of title 11 of the United States Code (the 

“Bankruptcy Code”) and Rule 6004 of the Federal Rules of Bankruptcy Procedure (the 

“Bankruptcy Rules”), for authority to purchase insurance coverage in the amount of $50 million 

for the benefit of the current directors and officers of the Debtors, including new officers and new 

directors appointed to the boards of each of the Debtors after the Petition Date (as defined below). 

Specifically, the Debtors seek to purchase a Side A Difference In Conditions Directors and 

Officers Liability Insurance Policy issued by Energy Insurance Services, Inc. (the “EIS Policy”), 

subject to a participation agreement between Energy Insurance Services, Inc. (“EIS”) and PG&E 

Corp. with respect to a mutual business protected cell program, as described further herein. 

In support of the Motion, the Debtors submit the Declaration of Janaize Markland 

(the “Markland Declaration”), filed contemporaneously herewith. A proposed form of order 

granting the relief requested herein is annexed hereto as Exhibit A (the “Order”). 

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TABLE OF CONTENTS 

Page 

I. JURISDICTION ........................................................................................................................6 

II. BACKGROUND .......................................................................................................................6 

III. THE DEBTORS’ NEED FOR ADDITIONAL DIRECTORS AND OFFICERS 

INSURANCE .............................................................................................................................7 

a. The Debtors’ Existing D&O Coverage and Pre-Bankruptcy Wildfire Claims ..............7 

b. The Current Directors and Officers May Lack Coverage Under 

the 2018 Policies Under Certain Circumstances ............................................................8 

c. The Debtors’ Efforts to Procure Additional Insurance Coverage 

for the New Directors and Officers ..............................................................................10 

IV. THE EIS POLICY ...................................................................................................................12 

V. BASIS FOR RELIEF REQUESTED ......................................................................................14 

VI. REQUEST FOR BANKRUPTCY RULE 6004 WAIVERS ...................................................18 

VII. NOTICE ...................................................................................................................................18 

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TABLE OF AUTHORITIES 

Page(s) 

Cases 

Berg & Berg Enters., LLC v. Boyle, 

178 Cal. App. 4th 1020 (2009) ......................................................................................................16 

Comm. of Asbestos-Related Litigants v. Johns-Manville Corp. (In re Johns-Manville 

Corp.), 

60 B.R. 612 (Bankr. S.D.N.Y. 1986) .............................................................................................16 

In re Ernst Home Ctr., Inc., 

209 B.R. 974 (Bankr. W.D. Wash. 1997) ......................................................................................15 

FDIC v. Castetter, 

184 F.3d 1040 (9th Cir. 1999) .......................................................................................................16 

Hansen v. Finn (In re Curry & Sorensen, Inc.), 

57 B.R. 824 (B.A.P. 9th Cir. 1986)................................................................................................16 

Holta v. Zerbetz (In re Anchorage Nautical Tours, Inc.), 

145 B.R. 637 (B.A.P. 9th Cir. 1992)..............................................................................................16 

In re Ionosphere Clubs, Inc., 

98 B.R. 174 (Bankr. S.D.N.Y. 1989) .............................................................................................15 

In re Kahuku Hosp., 

No. 07-00176 (Bankr. D. Haw. May 7, 2008) ...............................................................................18 

Lentine v. Williams, 

Case No. CGC-17-562553 (Cal. Super. Ct.) ....................................................................................8 

In re Metro. Mortg. & Sec. Co., 

No. 04-00757-FPC11 (Bankr. E.D. Wash. April 16, 2004)...........................................................17 

In re Nat’l R.V. Holdings, Inc., 

No. 6:07-bk-17941-DS (Bankr. C.D. Cal. March 26, 2008) .........................................................17 

In re New Bedford Capacitor, Inc., 

No. 01-14680-JNF, 2003 WL 25889620 (Bankr. D. Mass. June 27, 2003) ..................................17 

Official Comm. of Subordinated Bondholders v. Integrated Res., Inc. (In re Integrated 

Res., Inc.), 

147 B.R. 650 (S.D.N.Y. 1992) .......................................................................................................16 

In re Robles, 

No. 14-51812-ASW, 2014 WL 3715092 (Bankr. N.D. Cal. July 24, 2014) .................................16 

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Scouler & Co., LLC v. Schwartz, 

No. 11-CV-06377 NC, 2012 WL 1502762 (N.D. Cal. Apr. 23, 2012) .........................................16 

In re Shengdatech, Inc.

No. 11-52649-gwz (Bankr. D. Nev. September 13, 2011) ............................................................17 

Solidus Networks, Inc. v. Excel Innovations, Inc. (In re Excel Innovations, Inc.), 

502 F.3d 1086 (9th Cir. 2007) .......................................................................................................16 

Statutes 

11 U.S.C § 105(a) ................................................................................................................................16 

11 U.S.C. § 363(b) ...............................................................................................................................15 

11 U.S.C. § 363(c) ...............................................................................................................................15 

11 U.S.C. § 1107(a) .........................................................................................................................6, 16 

11 U.S.C. § 1108 ....................................................................................................................................6 

28 U.S.C. § 157 ......................................................................................................................................6 

28 U.S.C. § 1334 ....................................................................................................................................6 

28 U.S.C. §§ 1408 and 1409 ..................................................................................................................6 

Bankruptcy Code chapter 11 ........................................................................................................ passim

Other Authorities 

B.L.R. 5011-1(a) ....................................................................................................................................6 

Fed. R. Bankr. P. 1015(b) ......................................................................................................................6 

Fed. R. Bankr. P. 2002 .........................................................................................................................19 

Fed. R. Bankr. P. 6004 .........................................................................................................................18 

Order Referring Bankruptcy Cases and Proceedings to Bankruptcy Judges, General 

Order 24 (N.D. Cal.) ........................................................................................................................6 

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MEMORANDUM OF POINTS AND AUTHORITIES 

I. JURISDICTION 

The Court has jurisdiction to consider this matter pursuant to 28 U.S.C. §§ 157 and 

1334, the Order Referring Bankruptcy Cases and Proceedings to Bankruptcy Judges, General 

Order 24 (N.D. Cal.), and Rule 5011-1(a) of the Bankruptcy Local Rules for the United States 

District Court for the Northern District of California (the “Bankruptcy Local Rules”). This is a 

core proceeding pursuant to 28 U.S.C. § 157(b). Venue is proper before the Court pursuant to 28 

U.S.C. §§ 1408 and 1409. 

II. BACKGROUND 

On January 29, 2019 (the “Petition Date”), the Debtors commenced with the 

Court voluntary cases under chapter 11 of the Bankruptcy Code. The Debtors continue to operate 

their businesses and manage their properties as debtors in possession pursuant to sections 1107(a) 

and 1108 of the Bankruptcy Code. No trustee or examiner has been appointed in either of the 

Chapter 11 Cases. The Debtors’ Chapter 11 Cases are being jointly administered for procedural 

purposes only pursuant to Bankruptcy Rule 1015(b). 

On February 12, 2019, the United States Trustee (the “U.S. Trustee”) appointed 

an Official Committee of Unsecured Creditors (the “Creditors Committee”). On February 15, 

2019, the U.S. Trustee appointed an Official Committee of Tort Claimants (the “Tort Claimants 

Committee” and, together with the Creditors Committee, the “Committees”). 

Additional information regarding the circumstances leading to the commencement 

of the Chapter 11 Cases and information regarding the Debtors’ businesses and capital structure is 

set forth in the Amended Declaration of Jason P. Wells in Support of the First Day Motions and 

Related Relief [Docket No. 263] (the “Wells Declaration”). 

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III. THE DEBTORS’ NEED FOR ADDITIONAL DIRECTORS AND OFFICERS 

INSURANCE 

a. The Debtors’ Existing D&O Coverage and Pre-Bankruptcy Wildfire Claims 

The Debtors recently announced the appointment of William Johnson as the new 

Chief Executive Officer and President of PG&E Corp., and the appointment of eleven new 

directors to the Board of Directors of PG&E Corp. (collectively, the “New Directors and 

Officers”). As is customary in the Debtors’ industry, prior to the Petition Date, the Debtors 

regularly purchased and maintained primary and excess directors and officers (“D&O”) liability 

insurance to cover any claims asserted against their directors and officers in connection with the 

exercise of such individuals’ duties and responsibilities as directors and officers. The Debtors’ 

directors and officers, including the New Directors and Officers, currently are insured under 

D&O insurance policies issued for the policy period May 20, 2018 to May 20, 2020 (the “2018 

Policies”).1

The 2018 Policies provide the Debtors and their directors and officers with $300 

million in total available coverage limits. The first $200 million in D&O insurance coverage 

under the 2018 Policies is available to the Debtors as entities (e.g., for securities claims) and the 

Debtors’ individual directors and officers for a wide variety of claims. The next $100 million in 

available coverage under the 2018 Policies is dedicated to the individual directors and officers 

and cannot be accessed by the Debtors themselves. This D&O-dedicated insurance is referred to 

as Side A “DIC” (difference in conditions) coverage (the “Side A Coverage”). The coverage 

limits under the 2018 Policies are not available for claims that are found to be related to previous 

claims noticed during prior policy periods. 

The Side A Coverage also provides for two reinstatement limits of $90 million 

each. If the Side A Coverage is exhausted by a claim or series of related claims, and a new and 

 

1

 The policy period for the 2018 Policies initially was one year. Prior to the Petition Date, the 

Debtors extended the policy period to 2020. 

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unrelated claim is asserted against the Debtors’ directors and officers, $90 million of coverage 

would be “reinstated” and made available to respond to the subsequent claim or series of claims. 

In the event another new and unrelated claim or series of claims is asserted, then a second 

reinstatement would be made available to provide an additional $90 million of coverage. Again, 

the additional coverage limits under the Side A Coverage reinstatements are not available for 

claims that are found to be related to previous claims. Moreover, as discussed in further detail 

below, the 2018 Policies and the reinstatement limits prioritize payment of new claims arising 

from pre-chapter 11 wrongful acts over payment of new claims arising from post-chapter 11 

wrongful acts. 

In addition to the 2018 Policies, the Debtors’ prior D&O insurance policies issued 

for the period May 20, 2017 to May 20, 2018 (the “2017 Policies”), provide the Debtors and the 

directors and officers with $250 million in total coverage limits, the first $200 million of which is 

shared and the next $50 million in Side A DIC coverage. 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. 

Prior to the Petition Date, certain claims were brought against the Debtors’ 

directors and officers arising from the 2017 and 2018 Northern California wildfires. See, e.g.,

Lentine v. Williams, Case No. CGC-17-562553 (Cal. Super. Ct.). The Debtors provided notice of 

these claims under the 2017 Policies and the 2018 Policies, as appropriate. Specifically, claims 

first asserted during the policy period of the 2017 Policies were noticed under the 2017 Policies. 

Claims first asserted during the policy period of the 2018 Policies were noticed under both the 

2017 Policies and 2018 Policies. 

b. The Current Directors and Officers May Lack Coverage Under 

the 2018 Policies Under Certain Circumstances 

The Debtors’ primary D&O insurer has acknowledged defense coverage for the 

claims arising from the 2017 and 2018 Northern California wildfires, subject to a reservation of 

rights (as is customary). Based on correspondence from and discussions with the Debtors’ D&O 

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insurers, however, it is unclear whether the insurers ultimately will treat claims arising from the 

2017 wildfires and the 2018 wildfires as a single “Claim” (as defined in the 2017 Policies), and at 

least one carrier has indicated an intention to do so. If the D&O insurers take the position that 

claims from the 2017 and 2018 wildfires constitute a single “Claim,” they may contend that all 

the wildfire claims trigger coverage only under the 2017 Policies. Under these circumstances, in 

the unfortunate event of a postpetition wildfire, the insurers may similarly attempt to treat any 

new claims as part of the same single “Claim” triggering only the 2017 Policies. Under these 

circumstances, the available coverage under the 2017 Policies could be exhausted as a result of 

the prepetition claims noticed to the insurers, which would leave no coverage under the 2017 

Policies for the New Directors and Officers.2

Alternatively, claims arising from the 2018 wildfires may be found to be distinct 

from the prior claims. Under these circumstances, coverage under the 2018 Policies would be 

available to respond to claims arising from the 2018 wildfires, which may significantly impair or 

exhaust the 2018 Policies. If postpetition claims are asserted against the New Directors and 

Officers, and the 2018 Policies are impaired or exhausted, and the reinstatements are also 

unavailable for any reason, the New Directors and Officers could lack insurance coverage to pay 

for the defense and indemnification of any postpetition claims. 

This potential lack of coverage is exacerbated by certain priority of payment 

provisions in the 2018 Policies (and the 2017 Policies). Even in a situation where the 2018 

Policies are triggered, the 2018 Policies prioritize payment of claims alleging wrongful acts by 

the Debtors’ board and/or officers prior to the Petition Date. Specifically, if the amount of Loss 

(defined in the 2018 Policies to include, without limitation, defense expenses, settlements, and 

judgments) under the 2018 Policies exceeds the available coverage limits, the 2018 Policies 

 

2

 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. 

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prioritize the payment of any Loss first to claims arising from alleged wrongful acts prior to the 

commencement of the Chapter 11 Cases and then to any Loss for claims arising from alleged 

wrongful acts after the commencement of the Chapter 11 Cases. These priority-of-payment 

provisions create a risk to the New Directors and Officers that the $300 million in coverage limits 

available under the 2018 Policies may be exhausted by claims relating to the prepetition period 

before claims, if any, relating to the postpetition period arise or can be paid. 

If the $300 million in coverage limits currently available under the 2018 Policies 

were to be exhausted through payment of claims arising from prepetition conduct, as stated 

above, the Side A Coverage would provide up to $90 million in reinstatement limits only for any 

new, unrelated claim, and then another $90 million in reinstatement limits for a second unrelated

claim. As stated, it is not clear what position the carriers may take with respect to coverage in the 

unfortunate event of any subsequent, postpetition wildfires. In addition, a similar prioritization of 

payment risk also exits with respect to the reinstatement limits because the reinstatement limits 

also prioritize payment of new claims arising from prepetition wrongful acts over new claims 

arising from postpetition wrongful acts. 

c. The Debtors’ Efforts to Procure Additional Insurance Coverage 

for the New Directors and Officers 

Because of the prioritization risk under the 2018 Policies, including with respect to 

the reinstatement limits, and the risk of exhaustion of the 2017 Policies and/or 2018 Policies on 

account of existing claims, the Debtors have explored ways to secure additional D&O insurance 

limits dedicated to claims, if any, that may be asserted against the New Directors and Officers 

with respect to post-chapter 11 conduct. Such coverage would be available to the extent the 2018 

Policies are exhausted through the payment of claims arising from any pre-bankruptcy wrongful 

acts or are otherwise unavailable to pay claims asserted during the Chapter 11 Cases. The 

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

these risks: (i) traditional insurance; (ii) an Isosceles Trust; and (iii) the EIS Policy. 

The Debtors’ insurance broker, Marsh USA, Inc. (“Marsh”), spent significant 

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time compiling and reviewing proposals from various insurers for additional Side A DIC 

coverage. The quotes Marsh received, however, were very costly. For example, as set forth in 

the Markland Declaration, based on the proposals obtained by Marsh, to obtain an additional 

$100 million in limits for the Debtors’ new directors, the premium would be in the range of 

approximately $20 million (20% of limits), and this amount would be fully earned, which means 

no premium would be returned to the Debtors, even if the policies were never accessed. 

Furthermore, based on the Marsh proposals, to obtain an additional $100 million in limits for only 

the Debtors’ new directors and the newly appointed CEO of PG&E Corp. (but no other officers) 

would be even more costly – with a premium in the range of approximately $30 million (30% of 

limits). Further, as set forth in the Markland Declaration, many of the traditional insurance 

proposals included defense cost sub-limits, which would restrict the amount of coverage available 

for defense expenses incurred in connection with any covered claims. The insurer-proposed 

terms and conditions also lacked clarity regarding coverage that would be available in the event 

claims were to arise from any new (post-petition) wildfire. Lastly, the proposed coverage would 

only be available upon exhaustion of the existing $300 million in limits under the 2018 Policies. 

The Debtors also considered an Isosceles Trust. Isosceles is a Bermuda-based 

company that issues insurance and reinsurance policies. The Isosceles Trust would be selffunded. The full amount of the Debtors’ contribution (e.g., $50 million) plus premium, plus 

interest, and investment proceeds would be available for return to the Debtors if not accessed. 

The Debtors would fully collateralize the Trust through payment of: (a) a 5% premium ($2.5 

million on $50 million), returnable on termination of the Trust; (b) $15,000-$25,000 one-time 

setup fee; and (c) $100,000 per year in Trust fees and administration. The $100,000 estimated 

annual fee (or $500,000 over the 5-year term of the policy) was the estimated expense of 

“renting” a captive cell from Isosceles. During discussions, however, Isosceles indicated that it 

was unable to retain any risk within the cell, and would need to obtain reinsurance. This created 

issues that were not present with respect to the EIS cell, and the Debtors were of the view that 

such reinsurance would be extremely difficult, if not impossible, to obtain, casting doubt on 

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Isosceles’ ability to consummate the proposed transaction. Moreover, the Debtors did not have 

any prior experience with Isosceles and were uncertain as to how it may operate and handle 

claims. 

IV. THE EIS POLICY 

Ultimately, the EIS Policy was the option favored by the Debtors’ risk 

management team and approved by the Debtors’ management because it is the lowest cost of the 

viable options available to the Debtors and provides the Debtors and their current officers and 

directors with the most effective coverage. 

EIS is a sponsored captive insurance facility that the Debtors would utilize via a 

contractual agreement to participate in a dedicated protected cell. The Debtors have an existing 

relationship with EIS, which facilitates the Debtors insuring other risks, including property loss. 

The Debtors have been securing captive insurance coverage through EIS since May 2017. 

EIS is a wholly-owned stock insurance subsidiary of Energy Insurance Mutual 

Limited (EIM) and was formed to provide a facility that would meet the specific business 

requirements of EIM’s members (including other utilities) for the placement and management of 

alternative risk related products. As described on its website, EIM’s “Mission and Vision” are 

directed toward serving member companies like the Utility and it is committed to providing risk 

solutions specifically needed by its membership, including industry-focused policy language and 

customized risk solutions through EIS. See https://eimltd.com/. EIS was originally incorporated 

in Bermuda on May 27, 1992 under the Companies Act of 1981 as Energy Insurance (Bermuda) 

Ltd. See https://eimltd.com/eis/. Upon completing redomestication requirements and moving 

onshore to South Carolina, EIB was renamed EIS on December 1, 2006. Id.

EIS is licensed to conduct insurance operations in South Carolina and authorized 

to write insurance, reinsurance, or coinsurance for a Member or group of Members through the 

use of “Mutual Business Programs.” EIS contracts with Energy Captive Management LLC 

(ECM), a subsidiary of EIM, as its captive manager to conduct the business of EIS and the 

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Mutual Business Programs.3 Id. 

To secure the EIS Policy, upon Court approval, the Debtors would make a 

premium payment of $10 million (returnable as discussed below) and a capital contribution of 

$40 million for a total of $50 million, to the protected cell. In return, the EIS Policy would 

provide $50 million in Side A DIC insurance limits that would be available to the Debtors’ 

current directors and officers, including the New Directors and Officers, for a term of five years 

or until cancellation at the Debtors’ direction. Funds delivered to EIS would be invested, and the 

Debtors’ representatives would be able to recommend to EIS various options with respect to the 

investments. Net assets of the Mutual Business Program created for this policy would be 

available for distribution to the Debtors upon termination of the policy and/or dissolution of the 

Mutual Business Program, subject to a participation agreement and South Carolina Department of 

Insurance approval (as is customary). If no claims arise against the insured directors and officers, 

then $50 million plus investment income less any tax liability or other expenses incurred would 

be the net assets available for distribution to the Debtors. Because the EIS protected cell structure 

is only available to EIM Mutual Participant Companies, including the Debtors, and is provided as 

a service to them, any expenses are expected to be minimal (e.g., under $100,000 over the 5-year 

term) and would be paid first out of any available investment income. Accordingly, the terms of 

the EIS policy are far superior to the traditional proposals procured by Marsh that would result in 

$20-$30 million in estate funds being paid out to insurers. The Debtors’ premium costs for the 

EIS Policy would be split between PG&E Corp. and the Utility, with the allocation based on the 

percentage of directors and officers from each entity covered by the policy. 

The EIS Policy would provide coverage for any claims if, for any reason, the 2018 

Policy does not provide coverage to the New Directors and Officers. For example, if the current 

 

3

 In 2018, the Captive Insurance Companies Association (CICA) honored EIS with the 

CICA 2018 Outstanding Captive Award stating “The Outstanding Captive Award is presented to 

a captive insurance company or risk retention group that has shown creative uses for a captive, 

been successful in managing the captive in terms of net results and usefulness to its owners, has 

prevailed over difficult times or situations, and has gained acceptance, recognition, and a positive 

reputation among rating agencies, regulators and colleagues in the captive industry.” Id. 

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D&O insurers were to assert that the current D&O policy bars them from paying the New 

Directors’ and Officers’ any amounts, including defense costs, because the 2018 Policy prioritizes 

payment of claims arising from pre-chapter 11 wrongful acts, the EIS Policy would be available 

to provide coverage. 

In terms of claims handling, EIS would not control the defense of any claims. If a 

claim triggering the EIS Policy were tendered, EIS would confer with the Debtors’ risk 

management team concerning the defense of the claim. Once a defense budget is established, EIS 

would place a reserve on its books and issue payments upon instructions from the Debtors. 

In sum, the EIS Policy provides the New Directors and Officers with appropriate 

insurance coverage in the event a claim is asserted against them and the 2018 Policies are not 

available to provide defense or indemnity for such claim. Moreover, the EIS Policy provides a 

mechanism whereby the Debtors’ assets may be invested, and the Debtors may realize a return on 

this investment and a return of unearned premium to the extent the EIS Policy is not drawn down. 

By contrast, a traditional D&O policy would require the payment of premiums that would be lost 

to the Debtors irrespective of whether the policy were accessed, and the scope of coverage would 

be uncertain. 

The Debtors respectfully submit that the EIS Policy is essential to attract and retain 

board members and senior officers and to provide them with adequate coverage to enable them to 

carry out their duties during the pendency of the Chapter 11 Cases and, therefore, the Motion 

should be approved. 

V. BASIS FOR RELIEF REQUESTED 

Pursuant to the Final Order Pursuant to 11 U.S.C. §§ 105(a), 362(d), 363(b), 

363(c), and 364 and Fed. R. Bankr. P. 4001, 6003, and 6004 (i) Authorizing the Debtors to (A) 

Maintain Insurance Policies, Workers’ Compensation Program, and Surety Bond Program and 

(b) Pay All Obligations With Respect Thereto; and (ii) Granting Relief From the Automatic Stay 

With Respect to Workers’ Compensation Claims [Docket No. 695] (the “Final Insurance 

Order”) the Debtors are authorized, in the ordinary course of business to extend, supplement, or 

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otherwise modify their insurance coverage as needed, including through the purchase of new or 

the renewal of existing insurance policies. The Debtors believe that the purchase of coverage for 

the New Directors and Officers is comparable to the coverage provided to the Debtors’ directors 

and officers prior to the Petition Date and, therefore, is authorized under the Final Insurance 

Order. However, recognizing the different structure of the EIS Policy from the Debtors’ existing 

D&O insurance, and out of an abundance of caution, the Debtors seek the Court’s approval to 

purchase the EIS Policy. 

Section 363(c) of the Bankruptcy Code provides, in relevant part, that a debtor in 

possession “may enter into transactions ... in the ordinary course of business, without notice or a 

hearing, and may use property of the estate in the ordinary course of business without notice or a 

hearing.” 11 U.S.C. § 363(c)(1). As outlined above, the maintenance of adequate D&O 

insurance reflects both the Debtors’ pre-petition practices and is customary in the Debtors’ 

industry. Given this, the Debtors believe that securing the EIS Policy falls within the ordinary 

course of business and is therefore authorized pursuant to section 363(c)(1) of the Bankruptcy 

Code. 

To the extent that securing the EIS Policy is considered to be outside of the 

Debtors’ ordinary course of business, section 363(b) of the Bankruptcy Code provides, in relevant 

part, that “[t]he [debtor], after notice and a hearing, may use, sell, or lease, other than in the 

ordinary course of business, property of the estate.” 11 U.S.C. § 363(b)(1). Under section 363 of 

the Bankruptcy Code, a court may authorize a debtor to use estate funds where a sound business 

purpose exists for doing so. See In re Ionosphere Clubs, Inc., 98 B.R. 174, 175 (Bankr. S.D.N.Y. 

1989). A debtor’s “...decision to enter into [a transaction] which is outside of the normal course 

of its business, must be based on its reasonable business judgment. The Court may approve [a 

transaction] if [the debtor] has established ‘some articulated business justification’ for the 

transaction.” In re Ernst Home Ctr., Inc., 209 B.R. 974, 979 (Bankr. W.D. Wash. 1997) (citations 

omitted). The business judgment rule is satisfied where “the directors of a corporation acted on 

an informed basis, in good faith and in the honest belief that the action taken was in the best 

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interests of the company.” See, e.g., Official Comm. of Subordinated Bondholders v. Integrated 

Res., Inc. (In re Integrated Res., Inc.), 147 B.R. 650, 656 (S.D.N.Y. 1992) (quoting Smith v. Van 

Gorkom, 488 A.2d 858, 872 (Del. 1985)); see also FDIC v. Castetter, 184 F.3d 1040, 1043 (9th 

Cir. 1999) (the business judgment rule “requires directors to perform their duties in good faith 

and as an ordinarily prudent person in a like circumstance would”). “Where the debtor articulates 

a reasonable basis for its business decisions (as distinct from a decision made arbitrarily or 

capriciously), courts will generally not entertain objections to the debtor’s conduct.” Comm. of 

Asbestos-Related Litigants v. Johns-Manville Corp. (In re Johns-Manville Corp.), 60 B.R. 612, 

616 (Bankr. S.D.N.Y. 1986). Courts construing California law have consistently declined to 

interfere with corporate decisions absent a showing of bad faith, self-interest, or gross negligence, 

and have upheld a board’s decisions as long as such decisions were made in good faith. Scouler 

& Co., LLC v. Schwartz, No. 11-CV-06377 NC, 2012 WL 1502762, at *4 (N.D. Cal. Apr. 23, 

2012); Berg & Berg Enters., LLC v. Boyle, 178 Cal. App. 4th 1020, 1045-46 (2009). 

The Court may also rely on its equitable powers under section 105 of the 

Bankruptcy Code to grant the relief requested in this Motion. Section 105(a) of the Bankruptcy 

Code empowers the Court to “issue any order, process, or judgment that is necessary or 

appropriate to carry out the provisions of this title.” 11 U.S.C. § 105(a); Solidus Networks, Inc. v. 

Excel Innovations, Inc. (In re Excel Innovations, Inc.), 502 F.3d 1086, 1093 (9th Cir. 2007); In re 

Robles, No. 14-51812-ASW, 2014 WL 3715092, at *1 (Bankr. N.D. Cal. July 24, 2014). 

The relief sought in this Motion is necessary for the Debtors to carry out their 

fiduciary duties under sections 1107(a) of the Bankruptcy Code. Under section 1107(a) of the 

Bankruptcy Code “the debtor in possession has the same fiduciary duties and liabilities as a 

Trustee. When the debtor is a corporation, corporate officers and directors are considered to be 

fiduciaries both to the corporate debtor in possession and to the creditors.” Holta v. Zerbetz (In re 

Anchorage Nautical Tours, Inc.), 145 B.R. 637, 643 (B.A.P. 9th Cir. 1992); see also Hansen v. 

Finn (In re Curry & Sorensen, Inc.), 57 B.R. 824, 828 (B.A.P. 9th Cir. 1986) (“[T]he debtor’s 

directors bear essentially the same fiduciary obligation to creditors and shareholders as would a 

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trustee for a debtor out of possession”). 

There are ample business justifications that support the purchase of the EIS Policy. 

This additional $50 million in coverage is critical and appropriate because, as discussed above, 

there are circumstances under which the New Directors and Officers may not have coverage for 

claims that may arise from alleged conduct after the Petition Date. Accordingly, in order to 

attract and retain board members and qualified senior management during the pendency of the 

Chapter 11 Cases, the Debtors respectfully submit that the EIS Policy provides a layer of 

protection that is essential. The Debtors’ directors and officers are focused on the reorganization 

of the Debtors’ businesses, and maximizing value for all of their economic stakeholders. As 

noted above, the Debtors believe that the purchase of the EIS Policy will provide the Debtors’ 

directors and officers with appropriate coverage, indeed coverage that is customarily provided to 

officers and directors in similar capacities. This will inure to the benefit of all parties in interest 

and the value to be derived therefrom will more than offset any cost incurred in purchasing the 

EIS Policy. As noted above, given the structure of the EIS Policy, if no claims are made against 

it, the Debtors are entitled to a return (net of taxes and expenses) of the $50 million premium and 

the capital contributions, as well as any investment income earnt on this amount. Courts in other 

circumstances have authorized and approved the purchase of D&O insurance as a proper exercise 

of the debtor’s business judgement. See, e.g., In re New Bedford Capacitor, Inc., No. 01-14680-

JNF, 2003 WL 25889620, at *5 (Bankr. D. Mass. June 27, 2003) (approving debtor’s motion to 

purchase a “tail” policy extending the term of the debtor’s executive protection “claims made” 

policy for directors and officers); In re Nat’l R.V. Holdings, Inc., No. 6:07-bk-17941-DS (Bankr. 

C.D. Cal. March 26, 2008), [Docket No. 385] (authorizing an extension of the debtor’s $10 

million D&O insurance policy); In re Shengdatech, Inc. No. 11-52649-gwz (Bankr. D. Nev. 

September 13, 2011), [Docket Nos. 52 and 115] (authorizing the debtor to purchase a $5 million 

D&O insurance policy covering all post-petition officers and directors of the debtors); In re 

Metro. Mortg. & Sec. Co., No. 04-00757-FPC11 (Bankr. E.D. Wash. April 16, 2004), [Docket 

No. 502 and 571] (authorizing the renewal of a debtor’s D&O insurance policy which included 

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coverage for an interim CEO and CRO appointed post-petition); In re Kahuku Hosp., No. 07-

00176 (Bankr. D. Haw. May 7, 2008), [Docket No. 414] (approving the debtor’s motion to 

purchase an extension of its D&O insurance). 

The Debtors’ directors and officers are engaged in a process designed to maximize 

value for the benefit of the economic stakeholders in these cases. Under the circumstances, they 

are entitled to have customary insurance coverage in place. As a matter of good corporate 

governance, this coverage is necessary and appropriate not only to ensure the ongoing service and 

dedication of the Debtors’ directors and officers, but to ensure that their personal assets and 

livelihood are not exposed. Further, to the extent it is necessary for the Debtors to recruit new 

directors and senior officers, failing to have adequate D&O insurance available is likely to cause 

the Debtors’ significant difficulty in recruiting qualified candidates for these roles. 

For these reasons, the Debtors’ decision to purchase the EIS Policy is in the best 

interest of their estates, creditors, and all parties in interest and represents a reasonable exercise of 

their business judgment. 

VI. REQUEST FOR BANKRUPTCY RULE 6004 WAIVERS 

The Debtors request of the stay of the order granting the relief requested herein 

pursuant to Bankruptcy Rule 6004(h). As explained above, the relief requested herein is 

necessary to ensure that the currently-serving New Directors and Officers have adequate D&O 

Insurance. Accordingly, ample cause exists to justify the waiver of the fourteen-day stay imposed 

by Bankruptcy Rule 6004(h). 

VII. NOTICE 

Notice of this Motion will be provided to (i) the Office of the U.S. Trustee for 

Region 17 (Attn: Anthony R. Vara, Esq. and Timothy Laffredi, Esq.); (ii) counsel to the Creditors 

Committee; (iii) counsel to the Tort Claimants Committee; (iv) the Securities and Exchange 

Commission; (v) the Internal Revenue Service; (vi) the Office of the California Attorney General; 

(vii) the California Public Utilities Commission; (viii) the Nuclear Regulatory Commission; (ix) 

the Federal Energy Regulatory Commission; (x) the Office of the United States Attorney for the 

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Northern District of California; (xi) counsel for the agent under the Debtors’ debtor in possession 

financing facility; (xii) EIS; and (xiii) those persons who have formally appeared in these Chapter 

11 Cases and requested service pursuant to Bankruptcy Rule 2002. The Debtors respectfully 

submit that no further notice is required. 

No previous request for the relief sought herein has been made by the Debtors to 

this or any other court. 

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WHEREFORE the Debtors respectfully request entry of an order granting (i) the relief 

requested herein as a sound exercise of the Debtors’ business judgment and in the best interests of 

their estates, creditors, shareholders, and all other parties in interest, and (ii) such other and further 

relief as the Court may deem just and appropriate. 

Dated: June 10, 2019 

 WEIL, GOTSHAL & MANGES LLP 

 KELLER & BENVENUTTI LLP

 

/s/ Stephen Karotkin 

Stephen Karotkin 

Attorneys for Debtors and Debtors in Possession

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