Daileader v. Certain Underwriters at Lloyds London Syndicate 1861

23-690
Daileader v. Certain Underwriters at Lloyds London Syndicate 1861
In the
United States Court of Appeals
For the Second Circuit
________
AUGUST TERM 2023
ARGUED: SEPTEMBER 19, 2023
D ECIDED: MARCH 18, 2024
No. 23-690
TIMOTHY D AILEADER ,
Plaintiff-Appellant,
v.
C ERTAIN UNDERWRITERS AT L LOYDS L ONDON S YNDICATE 1861,
Subscribing to Policy No. ANV122398A, C RUM & FORSTER S PECIALTY
INSURANCE COMPANY , C ERTAIN UNDERWRITERS AT LLOYDS,
Subscribing to Policy Number, DOH00746111, S TAR S TONE S PECIALTY
INSURANCE COMPANY ,
Defendants-Appellees.
________
Appeal from the United States District Court
for the Southern District of New York.
________
Before: W ALKER , C HIN, AND N ARDINI , Circuit Judges.
________
Plaintiff-Appellant Timothy Daileader was the independent
director and manager of an affiliated group of companies (together,
“Oaktree”) in distress. Defendants-Appellees Certain Underwriters
at Lloyds London Syndicate 1861, along with the other Defendants-

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Appellees, provided Oaktree with directors and officers liability
insurance. Daileader is now defending himself in litigation involving
Oaktree and seeks coverage from Syndicate 1861 for his defense.
Syndicate 1861 denied Daileader’s insurance claim. Daileader then
sought a preliminary injunction to enforce Syndicate 1861’s duty to
defend. The district court (Gardephe, J.) denied Daileader’s motion,
and Daileader appealed. We hold that the district court did not abuse
its discretion in doing so. We therefore AFFIRM the district court’s
order.
________
RAYMOND A. MASCIA J R . (William G. Passannante,
Ethan W. Middlebrooks, on the brief), Anderson
Kill P.C., New York, NY, for Plaintiff-Appellant
Timothy Daileader.
RAFAEL RIVERA, JR . (Gary L. Gassman, on the brief),
Cozen O’Connor, New York, NY, for Defendants-
Appellees Certain Underwriters at Lloyds London
Syndicate 1861, Subscribing to Policy No.
ANV122398A.
________
J OHN M. WALKER , J R ., Circuit Judge:
Plaintiff-Appellant Timothy Daileader was the independent
director and manager of an affiliated group of companies (together,
“Oaktree”) in distress. Defendants-Appellees Certain Underwriters
at Lloyds London Syndicate 1861, along with the other Defendants-
Appellees, provided Oaktree with directors and officers liability
insurance. Daileader is now defending himself in litigation involving

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Oaktree and seeks coverage from Syndicate 1861 for his defense.
Syndicate 1861 denied Daileader’s insurance claim. Daileader then
sought a preliminary injunction to enforce Syndicate 1861’s duty to
defend. The district court (Gardephe, J.) denied Daileader’s motion,
and Daileader appealed. We hold that the district court did not abuse
its discretion in doing so. We therefore AFFIRM the district court’s
order.
BACKGROUND
Daileader’s dispute began with Oaktree’s troubles. Oaktree’s
three affiliated healthcare companies were owned by Daniel
McCollum. Starting in 2015, the United States and several qui tam
relators brought suit against McCollum and Oaktree, alleging that
Oaktree had been fraudulently mismanaged. McCollum eventually
admitted in a civil proceeding to violating the Anti-Kickback Statute,
42 U.S.C. § 1320a-7b. App’x 176, 208. He also entered a plea
agreement in a criminal prosecution for conspiracy to pay illegal
kickbacks and to defraud government healthcare programs. App’x
210. In January 2018, with litigation against Oaktree pending,
Oaktree defaulted on multiple loans. Between July and December
2018, Oaktree’s lenders appointed Daileader as the independent
director and/or manager of the various Oaktree entities.1 Daileader
assumed these roles through his employer, Drivetrain, LLC, which
1 In July 2018, Daileader was appointed as sole director and sole manager of
Oaktree Medical Centre, PC and LabSource, LLC. In December 2018, he was
appointed as co-manager with McCollum of Oaktree Medical Center, LLC. In June
2019, he became Oaktree Medical Center’s sole manager, when the lenders
removed McCollum as a co-manager.

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places investment professionals as independent directors of
financially distressed companies.
Oaktree’s distress soon put Daileader at risk of personal
liability. In September 2019, each of the Oaktree entities filed for
Chapter 7 bankruptcy. In April 2021, the Chapter 7 Trustee sent a
demand letter to Daileader alleging, among other things, that
Daileader had breached his fiduciary duties to Oaktree by failing to
file for Chapter 11 restructuring. The demand letter alleged damages
ranging from $38 million to $925 million. In September 2021, the
Trustee initiated adversary proceedings against Daileader and others
in the U.S. Bankruptcy Court for the District of South Carolina, where
Oaktree’s Chapter 7 bankruptcy case was pending.2
Oaktree had purchased insurance protecting its directors and
officers against some litigation expenses. Non-party Landmark
American Insurance Company sold Oaktree a $1 million primary
directors and officers (“D&O”) policy. Defendants-Appellees each
sold Oaktree a “follow form” excess policy adopting the primary
policy’s terms. Syndicate 1861 provided a first layer of excess
coverage up to $1 million; the other excess insurers cumulatively
provided another $8 million in coverage. Each of these policies
includes a “duty to defend.” This means, among other things, that
the insurance covered certain litigation costs arising from suits
against Oaktree’s directors and officers. The parties do not dispute
that Daileader is among those insured by Oaktree’s D&O policies.
2 The Trustee filed three substantively identical adversary complaints, one for each
of the three Oaktree entities.

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The parties do dispute whether the policies cover the current
adversary proceedings. From the outset, primary insurer Landmark
agreed to defend Daileader. But after Landmark’s insurance was
exhausted, Syndicate 1861 denied Daileader coverage, invoking the
policies’ “Bankruptcy/Insolvency Exclusion” provision. In general
terms, that provision excludes from coverage any claim against
Daileader arising from a wrongful act alleged to have contributed to
Oaktree’s bankruptcy. See App’x 54. According to Syndicate 1861,
the Trustee had alleged in its adversary complaints that Daileader’s
wrongful acts caused Oaktree to lose money and, ultimately, to file
for Chapter 7 bankruptcy.
On March 18, 2022, Daileader sued Syndicate 1861 and the
other excess insurers in the U.S. District Court for the District of South
Carolina, invoking that court’s federal-question, bankruptcy, and
supplemental jurisdiction. Daileader sought a preliminary injunction
directing Syndicate 1861 to defend him in the adversary proceedings.
He argued that (1) the Bankruptcy/Insolvency Exclusion did not
apply to the claims in the adversary proceedings, and (2) insofar as
the Exclusion did apply, it was an “ipso facto clause” that could not be
enforced consistent with the federal Bankruptcy Code. On June 27,
2022, Daileader’s suit was transferred to the U.S. District Court for the
Southern District of New York.
On April 20, 2023, the district court denied Daileader’s
preliminary-injunction motion. The court concluded that Daileader
(1) was seeking a mandatory rather than a prohibitory injunction, and
therefore needed to meet a heightened standard to obtain preliminary
relief; (2) had not shown he would be irreparably harmed by denial
of such relief; and (3) had not shown he was likely to prevail on the
merits of his claim. Daileader timely appealed.

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On November 15, 2023, we summarily affirmed the district
court’s order, explaining that “at minimum, Daileader [had] not
establish[ed] that irreparable harm would result in the absence of an
injunction.” Daileader v. Certain Underwriters at Lloyds London
Syndicate 1861, No. 23-690-cv, 2023 WL 7648381, at *1 (2d Cir. Nov. 15,
2023). We indicated that an opinion would follow in due course. We
now provide that opinion and explain that the district court was
correct on all three issues.3 The district court therefore did not abuse
its discretion in denying Daileader’s motion for a preliminary
injunction.
D ISCUSSION
We “review[] a district court’s legal rulings de novo and its
ultimate denial of a preliminary injunction for abuse of discretion.”
N. Am. Soccer League, LLC v. U.S. Soccer Fed’n, Inc., 883 F.3d 32, 36 (2d
Cir. 2018). “A district court abuses its discretion when it rests its
decision on a clearly erroneous finding of fact or makes an error of
law.” Id. (internal quotation marks and citation omitted).
Our decision here rests ultimately upon federal law. The
Syndicate 1861 policy provides that New York law will govern
questions concerning its validity, interpretation, performance, and
enforcement. App’x 111. We therefore follow New York law in
analyzing the policy. However, “[t]he question whether a
preliminary injunction should be granted is generally one of federal
3 On December 11, 2023, after we had issued our order summarily affirming the
district court, Daileader informed this court through counsel that he had entered
into a settlement agreement with the Trustee in the adversary proceedings, which
he claimed rendered this appeal moot. We disagree. “[T]he mootness doctrine
does not require . . . that we . . . refrain from issuing this opinion.” In re Grand Jury
Investigation, 399 F.3d 527, 528 n.1 (2d Cir. 2005).

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law . . . , though state law issues are sometimes relevant to the
decision to grant or deny.” Baker's Aid, a Div. of M. Raubvogel Co. v.
Hussmann Foodservice Co., 830 F.2d 13, 15 (2d Cir. 1987); accord 11A
Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal
Practice and Procedure § 2943 (3d ed. 2023).
I. The District Court Applied the Correct Standard for Issuing
a Preliminary Injunction.
In general, “[a] plaintiff seeking a preliminary injunction must
establish that he is likely to succeed on the merits, that he is likely to
suffer irreparable harm in the absence of preliminary relief, that the
balance of equities tips in his favor, and that an injunction is in the
public interest.” JTH Tax, LLC v. Agnant, 62 F.4th 658, 667 (2d Cir.
2023) (internal quotation marks and citation omitted). Only the first
two of these factors are relevant here. These requirements are
demanding, for “[a] preliminary injunction is an extraordinary
remedy never awarded as of right.” Id. at 666–67 (internal quotation
marks and citation omitted).
In some situations, the likelihood-of-success and irreparable-
harm requirements become more demanding still, requiring that the
plaintiff “show a clear or substantial likelihood of success on the merits
and make a strong showing of irreparable harm.” New York ex rel.
Schneiderman v. Actavis PLC, 787 F.3d 638, 650 (2d Cir. 2015)
(emphases added) (internal quotation marks and citations omitted).
One situation when this heightened standard applies is when the
plaintiff “seeks a so-called ‘mandatory injunction,’” JTH Tax, 62 F.4th
at 667, rather than a “prohibitory” one, N. Am. Soccer League, 883 F.3d
at 36. At their most basic, the former typically requires the non-

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movant to take some action, whereas the latter typically requires the
non-movant to refrain from taking some action. See id.
Whether an injunction is “mandatory” or “prohibitory” is
sometimes unclear. In “borderline cases,” essentially identical
injunctions “can be phrased either in mandatory or prohibitory
terms.” Id. at 36 n.4 (internal quotation marks and citation omitted).
We have therefore explained that “[p]rohibitory injunctions maintain
the status quo pending resolution of the case; mandatory injunctions
alter it.” Id. at 36. In this context, the “status quo” is really the “status
quo ante” – that is, “the last actual, peaceable[,] uncontested status
which preceded the pending controversy.” Id. at 37 & n.5 (internal
quotation marks and citation omitted).
We observed in Tom Doherty Associates, Inc. v. Saban
Entertainment, Inc. that “breach of contract cases” such as this one can
often provoke disputes about the “status quo.” 60 F.3d 27, 34 (2d Cir.
1995). That is because “[a] plaintiff’s view of the status quo is the
situation that would prevail if its version of the contract were
performed. A defendant’s view of the status quo is its continued
failure to perform as the plaintiff desires.” Id. Thus, “[t]o a breach of
contract defendant, any injunction requiring performance may seem
mandatory.” Id.
The parties here disagree as to the status quo ante along much
these lines. Daileader notes that Landmark paid for his defense
expenses in the adversary proceedings up until the coverage limit of
that first-layer policy was exhausted. He therefore argues that the
Syndicate’s refusal to continue paying under its own policy upset the
status quo of ongoing payments. By contrast, Syndicate 1861
observes that it “never paid defense costs to Daileader and . . .
consistently denied coverage.” Appellees’ Br. 11. Thus, it contends

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that being compelled to pay Daileader’s defense costs would alter that
status quo.
We agree with the Syndicate. The Syndicate has never paid for
any of Daileader’s defense costs. Therefore, the “actual” status quo
ante between the parties to this lawsuit was one of non-payment. N.
Am. Soccer League, 883 F.3d at 37 (internal quotation marks omitted).
This status quo was also “peaceable” and “uncontested.” Id. (internal
quotation marks omitted). It is true that Landmark had paid for
Daileader’s expenses. But Landmark’s payment decision could not
bind the Syndicate. Nor did the Syndicate ever agree that its policy
would cover Daileader’s costs in the adversary proceedings. The
parties’ rights and obligations under the policy were therefore
unsettled. Accordingly, Daileader’s suggestion that an injunction
would only “enforce what Syndicate 1861 already was obligated to
do” is unpersuasive. Appellant’s Br. 24. Rather, what the Syndicate
was “obligated to do” is precisely what the parties could have
disputed then and still dispute now. Injunctions to enforce such
contested duties will very often involve “commanding some positive
act” and therefore will be mandatory, not prohibitory.4 Tom Doherty
Assocs., 60 F.3d at 34. This case presents no exception.5
Daileader notes some cases suggesting a contrary result, but
they do not alter our conclusion. Like this case, In re WorldCom, Inc.
4 We emphasize that this analysis applies to affirmative duties, not to generalized
rights. Where the latter are in dispute, an injunction to prevent the exercise of those
rights may well often be prohibitory, rather than mandatory.
5 Though it is not at issue here, we note that our selection of the relevant status quo
might differ if the Syndicate’s conduct were either legally unjustifiable or
undertaken in bad faith. That is because we are inclined to “shut[] out defendants
seeking shelter under a current ‘status quo’ precipitated by their [own]
wrongdoing.” N. Am. Soccer League, 883 F.3d at 37 n.5. Put differently, such a

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Securities Litigation, 354 F. Supp. 2d 455 (S.D.N.Y. 2005), involved a
preliminary injunction to enforce an insurer’s duty to defend. There,
the district court found the injunction to be prohibitory because it
would require the defendant only “to do what it should have done
earlier.” Id. at 463 (internal quotation marks and citation omitted).
But the insurer in WorldCom did not dispute that it owed the claimant
a duty to defend. Rather, the insurer argued that the policy was void
ab initio due to the policyholder’s alleged fraud. See id. at 466–67. The
insurer’s denial thus represented a departure from the presumed
contractual status quo, not an extension of it. Syndicate 1861’s actions
here cannot be similarly characterized.
WorldCom relied upon another pertinent case: Johnson v. Kay,
860 F.2d 529 (2d Cir. 1988). There, we described as prohibitory an
injunction requiring a labor union to distribute mailings supporting a
dissident faction in an upcoming internal referendum. See id. at 541.
We acknowledged that such relief “was mandatory in the sense that
the order required the union to expend funds it perhaps otherwise
would not have spent.” Id. But, consistent with our analysis here, we
reasoned that the union had an obligation antedating any referendum
to “open channels of communication to dissenting views.” Id. That
the union blocked those channels therefore disrupted the relevant
status quo. Moreover, the alternative to the district court’s injunction
might well have been far more onerous: preventing the referendum
altogether. See id. at 540. In this context, requiring “open channels of
communication” demanded relatively little of the union. It would
have made little sense to impose a more stringent standard before
status quo could not be viewed as either “peaceable” or “uncontested.” Id. at 37
(internal quotation marks omitted).

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issuing the less burdensome injunction. Johnson therefore does not
compel us to treat Daileader’s desired injunction as prohibitory.
In sum: Daileader seeks a preliminary injunction to require the
Syndicate to pay for his defense costs. But the last, peaceable status
quo between the two parties was one in which the Syndicate had
never paid those costs. We must therefore evaluate Daileader’s
preliminary-injunction motion under the more stringent standard
applicable to “mandatory” relief.
II. The District Court Did Not Abuse Its Discretion in Denying
Daileader a Preliminary Injunction.
Having determined that Daileader seeks mandatory relief, we
now inquire whether he has (1) “ma[de] a strong showing of
irreparable harm” and (2) “show[n] a clear or substantial likelihood
of success on the merits.” Actavis, 787 F.3d at 650 (internal quotation
marks and citations omitted). We conclude that Daileader has done
neither. Therefore, the district court did not abuse its discretion by
refusing to issue a preliminary injunction.
A. Daileader Has Not Made a Strong Showing of Irreparable
Harm.
We begin with “the single most important prerequisite for the
issuance of a preliminary injunction”: irreparable harm. JTH Tax, 62
F.4th at 672 (internal quotation marks and citation omitted).
Daileader’s burden here is substantial. Even under the
ordinary standard for prohibitive relief, the party seeking a
preliminary injunction must demonstrate that irreparable harm is not
only “possib[le]” but “likely.” Winter v. Nat. Res. Def. Council, Inc., 555
U.S. 7, 22 (2008) (emphasis omitted). Under the heightened standard

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applicable here, that party must make a “strong showing” that he will
be irreparably harmed. Actavis, 787 F.3d at 650
Daileader has not met this burden. Injury is not irreparable
when “a monetary award” may provide “adequate compensation.”
Tom Doherty Assocs., 60 F.3d at 37 (internal quotation marks and
citation omitted). Daileader alleges just such an injury. Unless and
until he prevails at trial, he — and not Syndicate 1861 – must pay for
his defense costs in the adversary proceedings. But if Daileader does
ultimately prevail, he would be entitled to damages compensating
just those costs. Of course, Daileader wishes to have those funds now
rather than later. But compensation need only be “adequate” for
preliminary relief to be unwarranted, not perfect.
Daileader claims his defense in the adversary proceedings has
been impaired by Syndicate 1861’s denial of coverage. However, he
has not substantiated this assertion. Daileader’s counsel submitted
an affidavit in the adversary proceedings stating that “Daileader’s
unpaid defense costs . . . exceed $200,000 and are mounting” and that
“Syndicate 1861’s refusal to honor its obligation to pay defense costs
has . . . prevent[ed] . . . counsel from conducting . . . important
depositions, and . . . from conducting a thorough and effective review
of thousands of pages of materials.” App’x 816–18. Even crediting
that statement, (1) Daileader does not contend that he lacks the money
to pay for his defense and (2) it does not follow that he is unable to
pay. Daileader may well have the funds but be unwilling to spend
them and on that issue the affidavit is silent.
In essence, Daileader invites us to announce a new exception to
our usual irreparable-harm principle: “as a matter of law, [t]he failure
to receive defense costs when they are incurred constitutes an
immediate and direct injury,” satisfying the irreparable harm

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requirement. Appellant’s Br. 26 (internal quotation marks omitted)
(quoting WorldCom, 354 F. Supp. 2d at 469). We decline his invitation.
Our discussion of WorldCom above is pertinent once more. That
case involved a prohibitory injunction, not a mandatory one, and
therefore demanded less from the party seeking relief. Moreover, the
insurers in WorldCom challenged the policies’ validity generally, but
not the scope of their duty to defend. See 354 F. Supp. 2d at 466–67.
The policyholder therefore had especially strong reliance interests at
stake in the preliminary enforcement of the duty to defend. See id. at
470. WorldCom remains good law, but it announced no new general
rule with respect to irreparable harm, much less one binding upon
this court.
B. Daileader Has Not Shown a Clear or Substantial
Likelihood of Success on the Merits.
Daileader’s failure to demonstrate irreparable harm suffices for
us to sustain the district court’s order. But he has also not shown a
clear likelihood of success on the merits of his breach-of-contract
claim. This provides a second, independent basis for denying
preliminary relief.
1. Daileader Has Not Clearly Shown that the
Bankruptcy/Insolvency Exclusion Likely Does Not
Apply to the Adversary Proceedings.
Daileader’s principal merits argument concerns the application
of the Bankruptcy/Insolvency Exclusion to the Trustee’s adversary
proceedings. The Bankruptcy/Insolvency Exclusion eliminates
coverage for certain “Claims” against the insured “[a]lleging, arising
out of, based upon, attributable to, or in any way involving, directly

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or indirectly, in whole or in part” certain “[w]rongful [a]ct[s].” App’x
54.6
The Trustee alleged that Daileader “made no attempt to
coordinate a sale or refinance of the Debtors and did not even begin a
6 The Exclusion states:
The Insurer shall not be liable to make any payment for Loss under this policy in
connection with any Claim made against the Insured:
1. Alleging, arising out of, based upon, attributable to, or in any way
involving, directly or indirectly, in whole or in part, any Wrongful Act
that is alleged to have caused, directly or indirectly, in whole or in part:
a. The bankruptcy or insolvency of the Insured Organization; [or]
b. The Insured Organization’s filing of a petition, or a petition being
filed against the Insured Organization pursuant to the federal
Bankruptcy Code or any similar state law . . . .
2. Alleging, arising out of, based upon, attributable to, or in any way
involving, directly or indirectly, in whole or in part, the Insured
Organization having sustained a financial loss due to a Wrongful Act
by or on behalf of any Insured Person that actually or allegedly
occurred before the date that the Insured Organization or other party
sought protection of the Insured Organization[’]s assets . . . .
3. Brought or maintained on behalf of any creditor or debt-holder of the
Insured Organization, or any Claim arising out of any actual or
alleged Wrongful Act, where such Wrongful Act actually or allegedly
results in the Insured Organization’s failure, refusal or inability to pay
debts or amounts due and owing, including but not limited to Claims
alleging misrepresentation in connection with any extension of credit
or in connection with the purchase or sale of a debt instrument, or
Claims alleging any Wrongful Acts where such Wrongful Acts
actually or allegedly result in the deterioration in the value of any debt
instrument or security as a result of, wholly or in part the bankruptcy
or insolvency of the Insured Organization.
App’x 54 (words and phrases in bold represent terms defined by the policy).

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corporate restructuring.” App’x 292. Instead, “[a]s the Debtors’
assets were quickly depleted and the liabilities grew, [Daileader and
his codefendants] collected professional fees totaling nearly $5
million.” Id. When “there were no more funds to pay those fees,”
Daileader filed for chapter 7 liquidation on behalf of the debtors. Id.;
see also id. at 315–17. These allegations underlay seven causes of
action, some under state law and others under the Bankruptcy Code.
See id. 317–39.
The crucial issue, then, is whether the adversary proceedings
were “Claims” excluded from coverage. Citing New York contract
law, Daileader argues that if the policy provides coverage against any
of the Trustee’s causes of action, then Syndicate 1861 must defend
against them all. Relying upon the contract, the Syndicate insists
upon the inverse: if the policy excludes from coverage any of the
Trustee’s causes of action, then the Syndicate need not defend
Daileader against any of them.
We believe that Syndicate 1861 has the better argument. As
relevant here, the policy defines a “Claim” as a “civil . . . proceeding,”
rather than as a cause of action within a proceeding. App’x 63.
Moreover, the Bankruptcy/Insolvency Exclusion applies to “any
Claim . . . [a]lleging, arising out of, based upon, attributable to, or in
any way involving, directly or indirectly, in whole or in part, any”
otherwise-excludable “Wrongful Act.” App’x 54. Daileader does not
– and could not – seriously dispute that the Trustee alleged
“Wrongful Acts” within the meaning of the policy. Thus, the
adversary proceedings were civil proceedings arising in part out of

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otherwise-excludable conduct – precisely what the Exclusion
contemplates.
This plain contractual language defeats Daileader’s invocation
of general New York contract principles. Daileader contends that an
exclusion to a duty to defend applies only where allegations lie
“wholly within the exclusion.” Appellant’s Br. 42 (quoting Westpoint
Int’l, Inc. v. Am. Int’l S. Ins. Co., 71 A.D.3d 561, 562 (1st Dep’t 2010)
(internal quotation marks omitted)). Westpoint further indicates that
defining “‘Claim’ to mean lawsuit” does not automatically permit
denying coverage where some allegations may be covered and others
not. 71 A.D.3d at 562. But the exclusion in Westpoint was not so
sweeping as the one at issue here: it did not extend to claims “in any
way involving . . . in whole or in part” the conduct in question. App’x
54; see Westpoint Int’l, Inc. v. Am. Int’l S. Ins. Co., No. 116832/07, 2009
WL 2207520 (N.Y. Sup. Ct. July 13, 2009) (quoting the exclusion). In
this case, New York contract law’s powerful default rules have likely
been overcome by the policy’s express terms.
2. Daileader Has Not Clearly Shown That the
Bankruptcy/Insolvency Exclusion Likely Violates the
Bankruptcy Code.
Daileader also contends that, to the extent the
Bankruptcy/Insolvency Exclusion does apply to the adversary
proceedings, it cannot be enforced consistent with the Bankruptcy
Code.
“The Bankruptcy Code generally prohibits enforcement of ipso
facto clauses—contract clauses that modify or terminate an executory
contract due to a debtor’s filing of a bankruptcy petition.” In re
Lehman Bros. Holdings Inc., 970 F.3d 91, 98 (2d Cir. 2020) (per curiam).
One provision giving effect to this prohibition is 11 U.S.C. § 541(c)(1).

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That subsection provides that “an interest of the debtor in property
becomes property of the estate . . . notwithstanding any provision in
an agreement . . . that is conditioned on the insolvency or financial
condition of the debtor” or the commencement of a bankruptcy
proceeding, and “that effects or gives an option to effect a forfeiture,
modification, or termination of the debtor’s interest in property.” 11
U.S.C. § 541(c)(1).
Daileader argues that the Bankruptcy/Insolvency Exclusion is
an ipso facto clause preempted by § 541(c)(1). Among those “Claims”
against the insured for which the Exclusion eliminates coverage are
those “involving” a “[w]rongful [a]ct” “alleged to have caused”
Oaktree’s “bankruptcy or insolvency.” App’x 54. In Daileader’s
view, both the Syndicate 1861 policy and the proceeds therefrom are
“property of the [Oaktree bankruptcy] estate.” 11 U.S.C. § 541(c)(1).
If that is so, then the estate’s property interest cannot be “forfeit[ed],
modifi[ed], or terminat[ed]” by the Exclusion. Id. Syndicate 1861
concedes that the Oaktree estate holds a property interest in the
policies themselves. Appellees’ Br. 55. But it contends that the
proceeds of those policies are not property of the estate. If the
Syndicate is correct on this point, then § 541(c)(1) does not prohibit
the Exclusion’s enforcement.
The parties do not direct us to any decisions of this court
bearing precisely upon whether or when a bankruptcy estate holds a
property interest in the proceeds of a D&O policy, for purposes of an
analysis under 11 U.S.C. § 541(c)(1). Nor have we identified any
ourselves.
We think it most significant that, when we heard this appeal,
the Oaktree estate’s claim to the D&O policy proceeds depended
upon highly uncertain conditions precedent. Cf. In re Adelphia

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Commc'ns Corp., 298 B.R. 49, 53 (S.D.N.Y. 2003) (“Claiming the debtors
now have a property interest in [D&O policy] proceeds . . . . would be
akin to a car owner with collision coverage claiming he has the right
to proceeds from his policy simply because there is a prospective
possibility that his car will collide with another tomorrow. . . .”). It
was conceivable that Oaktree’s estate might have a property interest
in the policy proceeds for the purpose of satisfying a settlement or
judgment against Daileader resulting from the adversary
proceedings. But there had been no such monetary resolution in
those proceedings, and Daileader’s liability had not been established.
The estate’s potential claims, if any, did not create a property interest
in the proceeds.
Similar considerations apply to the “Rauch Action,” a suit filed
against an Oaktree entity by a former Oaktree employee. Landmark
has accepted its duty to defend in that case, see App’x 1113–19, as it
did in these adversary proceedings. But Syndicate 1861 has not yet
done so. Nor has it needed to do so, because, to our knowledge,
Landmark’s policy has not yet been exhausted in the Rauch Action,
which was stayed pending Oaktree’s bankruptcy proceedings. See
Appellant’s Br. 55 – 56. Here, too, the Oaktree estate’s interest in the
policy proceeds remained speculative.
We conclude that Daileader did not clearly show that the
proceeds of Syndicate 1861’s policy had become “property of the
[Oaktree] estate.” 11 U.S.C. § 541(c)(1). The Bankruptcy/Insolvency
Exclusion therefore properly remained in effect following Daileader’s
preliminary-injunction motion.
Matters may be different as this case proceeds. After oral
argument before this court, Daileader’s counsel informed us that
Daileader and the Trustee had entered into a settlement agreement

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No. 23-690
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that fully resolved all issues in the adversary proceedings, and which
had been approved by the Bankruptcy Court for the District of South
Carolina. We express no view as to whether that agreement has
accorded the Oaktree estate a property interest in the proceeds of
Syndicate 1861’s policy. We entrust consideration of that question,
insofar as it remains disputed, to the district court.
C ONCLUSION
We find no error, much less abuse of discretion, in the district
court’s denial of Daileader’s motion for a preliminary injunction.
Accordingly, we AFFIRM the district court’s order.

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