If a company files for bankruptcy, allegedly as a result of mismanagement, are claims brought by the bankruptcy trustee against the former management of the company covered by insurance?

The answer is yes, if the company maintained Management Liability insurance.

On May 31, 2013, it was announced that XL Insurance had agreed to pay $19 million to the bankruptcy trustee of the now defunct law firm of Dewey & LeBoeuf. Amid a Manhattan district attorney’s probe into the alleged financial improprieties of the firm’s chairman, the firm’s bankruptcy filing left creditors seeking more than $100 million in claims. Dewey & LeBoeuf maintained a $25 million Management Liability policy with XL. The bankruptcy trustee reportedly agreed to accept $6 million less than the policy limits because the defense of the claim was expected to cost millions of dollars, and, under the policy, defense costs reduced the total amount of available coverage.