NEW YORK -- Great American Insurance Co.’s (GAIC) bid to recoup more than $10 million advanced to Bally Total Fitness, Chicago, has failed as a district court judge on Tuesday upheld a bankruptcy court’s earlier ruling rejecting the claim. The $10 million was advanced to Bally for directors and officers coverage.
The news comes a few days after Bally and its senior lenders agreed last week to a restructuring plan that will provide new financing and reduce Bally’s debt by $660 million as the company exits bankruptcy.
In 2001, GAIC issued directors and officers liability coverage to Bally for 2001-2002 and 2002-2003, according to the Internet publication Law360, but later, Bally restated its financial results for the 2000 and 2001 fiscal years. The U.S. Securities and Exchange Commission began investigating Bally after the restatement.
GAIC agreed to Bally’s request to provide coverage, but GAIC put in place an interim fee advancement that allowed it to file a rescission action and seek reimbursement of funds, Law360 reports.
GAIC filed a lawsuit against Bally in January to recover the funds after Bally filed for bankruptcy in December. The lawsuit was filed in the U.S. Bankruptcy Court for the Southern District of New York.
GAIC asked the court for a declaratory judgment that the advanced funds were held in an implied trust and should not be considered part of Bally’s bankruptcy estate, but the bankruptcy court denied that claim. U.S. District Judge Shira Scheindlin also rejected GAIC’s claim on Tuesday, saying that the advanced funds were not held in a trust, Law360 reports.