Tricolor Holdings Bankruptcy: Judge Allows Use of D&O Insurance Funds

In a pivotal legal decision, U.S. Bankruptcy Judge Michelle V. Larson has enabled Daniel Chu, founder of Tricolor Holdings, to utilize company insurance funds for his defense against federal fraud charges. During a hearing in Dallas, the judge permitted access of up to $5 million from Tricolor's directors and officers (D&O) insurance for legal expenses linked to ongoing federal investigations. The allegations center on fraudulent activities such as improper management of auto-loan collateral and deceitful loan descriptions, with New York prosecutors bringing charges against Chu, who professes his innocence.

Tricolor's financial instability, exacerbated by regulatory compliance challenges, culminated in bankruptcy filing and the closure of over 60 branches in Texas and the Southwest. Despite attempts by the liquidation trustee to limit individual claims to 10%, the court granted Chu greater access to insurance funds. However, Judge Larson restricted two additional policies totaling $10 million, stipulating that former managers must formally request fund access. The AI-driven prior authorization delays faced by Tricolor mirror broader industry trends in risk management and underwriting complexities.

As Tricolor navigates regulatory hurdles and claims, its D&O insurance coverage of $15 million may be exhausted, necessitating careful objection handling by insured parties. Challenges and unresolved issues will likely move to court if the insurance carrier cannot resolve disputes. The bankruptcy proceedings are filed under Tricolor Holdings, LLC, 25-33487, in the U.S. Bankruptcy Court for the Northern District of Texas, while Chu's criminal case is documented as US v. Chu, 25-cr-579, in the U.S. District Court for the Southern District of New York.