March 05, 2015 Articles

New Limits to Bankruptcy Standing in the Seventh Circuit

Learn why the court limited the scope in the context of a debtor's attempt to settle with its primary insurer.

By Devoy Dubuque and David R. Doyle

The concept of “standing” plays an important role in bankruptcy cases because of the myriad parties potentially affected by the proceedings. By limiting the parties that may be heard in a case to “parties in interest,” the doctrine promotes the efficient administration of bankruptcy cases. In the recent case In re C.P. Hall Co., 750 F.3d 659 (7th Cir. 2014), the Seventh Circuit emphasized the limited scope of bankruptcy standing in the context of a debtor’s attempt to settle with its primary insurer. The court held that the debtor’s excess insurer lacked standing to object to the settlement, despite the possibility that the settlement could increase the excess insurer’s liability under its policy with the debtor. The court’s analysis suggests, however, that exceptions to this rule may exist, including when a settlement gives rise to allegations of fraud or alters the insurer’s contractual rights. But a settlement that merely increases the likelihood that an excess insurer will have to pay does not confer standing.

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