California Federal Appellate Panel Rules that Insurers May Deny Claims Without Violating Bankruptcy's Automatic Stay

In Benz vs DTRIC Insurance Company (In re Benz), 2007 DAR 5158 (9th Cir BAP 2007), filed March 28, 2007 and published April 18, 2007, the Bankruptcy Appellate Panel for the 9th Circuit ruled that an insurer may determine its obligations under an insurance policy [here, an automobile policy], and act consistently therewith [i.e., by declining or refusing to continue to defend or indemnify an insured/Chapter 7 Debtor], without violating the Automatic Stay of 11 USC Section 362(a) that arises upon the bankruptcy filing. An insurer still may not cancel any insurance policy issued to the debtor in bankruptcy, and should not sue the debtor for declaratory relief over coverage, without first obtaining consent of the bankruptcy court.  However, this recent decision should allow carriers to adjust claims and reject clearly uncovered claims without involving the bankruptcy court.