Article

Note: Consolidated Freightways Corporation (Debtor/Applicant) operated a major trucking and freight network in the North America and International freight services between the US and 80 countries, carrying loads of less than a truckful. It had approximately 18,500 employees, and operated approximately 37,000 vehicles together with a complex system of facilities to support this operation.

In connection with these operations, Debtor obtained transportation, workman's compensation, and general liability insurance policies from United Stated Fidelity and Guaranty Company, USF&G Specialty Insurance Company, and Fidelity and Guaranty Insurance Company (collectively, "Insurer"). To assure payment of premiums and various deductible provisions, Debtor executed an indemnity agreement executed by Debtor/Applicant which was collateralized by a US$25,000,000 bond and a letter of credit issued by ABN Amro Bank (Issuer) in the amount of US$62,000,000.

When Debtor/Applicant later filed for bankruptcy, K. Morgan Enterprises, Inc. became Trustee. In bankruptcy proceedings, Insurer filed an amended claim against Debtor alleging damages or losses under the insurance policies, asserting an unsecured nonpriority claim in the amount of US$115,780,919. Trustee responded by filing a motion seeking disallowance of this claim, in large part because Insurer had failed to reduce the claim by the amount it collected from the indemnity agreement collateral, which included the full amount of the letter of credit. Insurer missed the deadline to respond to Trustee's motion and failed to appear at the hearing. The bankruptcy court ruled in favor of Trustee at the hearing, dismissing Insurer's amended claim, with prejudice. Insurer subsequently also missed the deadline to appeal the ruling.

Shortly thereafter, Insurer filed a motion for reconsideration of the ruling, alleging that its failure to file a response and appear at the hearing was the result of excusable neglect on the part of its counsel. The United States Bankruptcy Court for the Central District of California, Riverside Division, Carroll, J., denied Beneficiary's motion, stating that "[t]he absence of bad faith and a significant delay do not trump an attorney's lack of diligence, particularly when reconsideration would prejudice the opposing party and unduly delay the administration of the bankruptcy case."

[JEB/gdb]

COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE

The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.