Appeals court upholds I.B.C. insurance claim ruling

by Eric Schroeder
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KANSAS CITY — The U.S. 8th Circuit Court of Appeals on Dec. 13 upheld an earlier ruling by Judge Howard F. Sachs of the U.S. District Court for the Western District of Missouri denying the claims of unsecured creditors in the Interstate Bakeries Corp. bankruptcy who were seeking $56 million from I.B.C.’s insurers.

U.S. Bank National Association, I.B.C.’s creditors’ trustee, filed the lawsuit against several insurance companies, including Federal Insurance.

U.S. Bank earlier had sued Paul Yarrick for allegedly understating I.B.C.’s workers’ compensation reserve by $40 million in financial statements to the Securities and Exchange Commission. Mr. Yarrick, who was I.B.C.’s treasurer before the company filed for bankruptcy, settled with U.S. Bank for $56 million with the stipulation that I.B.C.’s insurers would pay the settlement.

But in October 2010, Judge Sachs ruled that Federal Insurance did not have to pay because of exclusions in the insurance plan. The ruling effectively eliminated the $56 million settlement, a finding that was upheld by the U.S. 8th Circuit Court of Appeals on Dec. 13.

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