                  FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

BILTMORE ASSOCIATES, LLC, as           
Trustee of the Visitalk Creditors
Trust,
                Plaintiff-Appellant,
                v.
TWIN CITY FIRE INSURANCE
COMPANY, an Indiana corporation;             No. 06-16417
GREAT AMERICAN INSURANCE
COMPANY, a New York                           D.C. No.
corporation; CAROLINA CASUALTY             CV-05-04220-FJM
INSURANCE COMPANY; OLD REPUBLIC
INSURANCE COMPANY, a
Pennsylvania corporation; NORTH
AMERICAN SPECIALTY INSURANCE
COMPANY, a New Hampshire
corporation,
             Defendants-Appellees.
                                       




                            8563
8564          BILTMORE ASSOCIATES v. TWIN CITY FIRE



BILTMORE ASSOCIATES, LLC, as             
Trustee of the Visitalk Creditors
Trust,
                Plaintiff-Appellant,
                v.
TWIN CITY FIRE INSURANCE
COMPANY, an Indiana corporation;               No. 07-16036
GREAT AMERICAN INSURANCE
COMPANY, a New York                             D.C. No.
                                             CV-05-04220-FJM
corporation; CAROLINA CASUALTY
                                                OPINION
INSURANCE COMPANY; OLD REPUBLIC
INSURANCE COMPANY, a
Pennsylvania corporation; NORTH
AMERICAN SPECIALTY INSURANCE
COMPANY, a New Hampshire
corporation,
             Defendants-Appellees.
                                         
          Appeal from the United States District Court
                   for the District of Arizona
         Frederick J. Martone, District Judge, Presiding

                   Argued and Submitted
           May 15, 2008—San Francisco, California

                       Filed July 10, 2009

       Before: Andrew J. Kleinfeld and N. Randy Smith,
       Circuit Judges, and Richard Mills,* District Judge.

                  Opinion by Judge Kleinfeld

  *The Honorable Richard Mills, United States District Judge for the
Central District of Illinois, sitting by designation.
            BILTMORE ASSOCIATES v. TWIN CITY FIRE        8567




                         COUNSEL

Andrew S. Jacob, Shughart Thompson & Kilroy, P.C., Phoe-
nix, Arizona, for the appellant.

Michael F. Perlis, Stroock & Stroock & Lavan LLP, Los
Angeles, California, for appellee Twin City Fire Insurance
Company.

E. J. Kotalik, Jr., Peshkin & Kotalik, P.C., Phoenix, Arizona,
for appellee Old Republic Insurance Company.
8568          BILTMORE ASSOCIATES v. TWIN CITY FIRE
Mark G. Worischeck (briefed), Sanders & Parks, P.C., Phoe-
nix, Arizona, for appellee Carolina Casualty Insurance Com-
pany.

Greg S. Comol (briefed), Lewis Brisbois Bisgaard & Smith
LLP, Phoenix, Arizona, for appellee Great American Insur-
ance Company.

Gena L. Sluga (briefed), Harper Christian Dichter Graif, PC,
Phoenix, Arizona, for appellee North American Specialty
Insurance Company.


                              OPINION

KLEINFELD, Circuit Judge:

   This is an insurance coverage dispute arising in the context
of bankruptcy. It turns on the insured versus insured exclu-
sion. We also resolve an associated attorneys’ fees dispute.

                               I.   Facts.

   The district court dismissed the case for failure to state a
claim on which relief could be granted, under Rule 12(b)(6).
The complaint was supplemented by attachment of the insur-
ance policies at issue to the defendants’ motions.1 The com-
plaint and the insurance policies control the outcome.

   Visitalk, an Arizona corporation, purchased directors and
officers liability insurance from Reliance Insurance Company
   1
     A court may consider documents, such as the insurance policies, that
are incorporated by reference into the complaint. Van Buskirk v. CNN,
Inc., 284 F.3d 977, 980 (9th Cir. 2002). There was a dispute about whether
two endorsements, nos. 99 and 100, could properly be considered. The
endorsements do not matter to the insured versus insured exclusion, which
controls the outcome.
              BILTMORE ASSOCIATES v. TWIN CITY FIRE                 8569
and Twin City Fire Insurance Company.2 A corporation fre-
quently agrees to protect and indemnify its directors and offi-
cers against claims made against them, such as in
shareholders’ derivative suits, on account of their work for the
company. The policies in this case named Visitalk.com, Inc.,
and its directors and officers as insureds, and promised to pay
losses that Visitalk and the directors and officers became lia-
ble to pay as a result of covered claims:

     I.   INSURING AGREEMENTS

          This policy affords the following cover-
          ages:

          (A)    DIRECTORS’ AND OFFICERS’
                 LIABILITY
                 Except for Loss which the Insurer
                 pays pursuant to Insuring Agreement
                 (B) of this Policy, the Insurer will pay
                 on behalf of the Directors and Offi-
                 cers Loss which the Directors and
                 Officers shall become legally obli-
                 gated to pay as a result of a Claim
                 first made during the Policy Period or
                 the Discovery Period, if applicable,
                 against the Directors and Officers for
                 a Wrongful Act which takes place
                 during or prior to the Policy Period;

          (B)    COMPANY REIMBURSEMENT
                 The Insurer will pay on behalf of the
                 Company Loss for which the Com-
   2
     The complaint alleges that Twin City “succeeded in interest” to the
Reliance policy. The parties dispute whether this issue was sufficiently
pleaded. Because we resolve this case on the insured versus insured exclu-
sion, which is the same in both policies, we do not resolve the dispute
about whether Twin City’s successorship was adequately pleaded.
8570        BILTMORE ASSOCIATES v. TWIN CITY FIRE
                 pany has, to the extent permitted or
                 required by law, indemnified the
                 Directors and Officers, and which the
                 Directors and Officers have become
                 legally obligated to pay as a result of
                 a Claim first made during the Policy
                 Period or Discovery Period, if appli-
                 cable, against the Directors and Offi-
                 cers for a Wrongful Act which takes
                 place during or prior to the Policy
                 Period. . . .

The policies excluded from this coverage various claims, such
as personal injury, defamation, and, central to this case,
claims brought by Visitalk itself against its own officers or
directors. There is an exception to this exclusion for stock-
holder derivative actions and claims by former officers and
directors for wrongful termination, discrimination or sexual
harassment:

    V.   EXCLUSIONS
         The Insurer shall not be liable to make any pay-
         ment for Loss in connection with any Claim
         made against the Directors and Officers . . .:

         (D)     brought or maintained by or on behalf
                 of an Insured in any capacity or by an
                 security holder of the company
                 except:

           (1)     a Claim, including, but not limited
                   to, a security holder class or deriva-
                   tive action that is instigated and
                   continued totally independent of,
                   and totally without the solicitation
                   of, or assistance of, or active partic-
                   ipation of, or intervention of an
                   Insured;
              BILTMORE ASSOCIATES v. TWIN CITY FIRE                  8571
              (2)   an Employment Practice Claim3 by
                    a former Director or a present or
                    former Officer;

              (3)   a claim for contribution or indem-
                    nity if the Claim directly results
                    from another Claim that is other-
                    wise covered under this Policy; or

              (4)   a claim by any employee(s) of the
                    Company described in IV.(D)(2) of
                    the Policy.

This case turns on the exclusion from coverage quoted above,
commonly called the “insured versus insured” exclusion.
Basically, if Visitalk sues its directors or officers itself, they
have no liability coverage. Some covered claims, such as
shareholders’ derivative actions, are excepted from the exclu-
sion, even though they are at least in theory on behalf of the
corporation. But the exception to the exclusion only applies
if the claims are “instigated and continued totally independent
of” the corporation.

   The exclusion was put at issue when, after two years in
business, Visitalk filed a chapter 11 bankruptcy petition. Visi-
talk, as “debtor and debtor in possession,” sued some of its
recently discharged officers and directors for breaches of their
fiduciary duties. The attorney representing Visitalk as debtor
in possession told the insurers that officers and directors of
Visitalk had looted the company. He asserted that they had
charged grossly excessive amounts as expenses for inappro-
priate things, such as “personal expenses, strippers, lavish
  3
    The policies define an Employment Practice Claim as “any Claim for
or arising out of . . . any actual or alleged wrongful dismissal, discharge
or termination (either actual or constructive) of employment, sexual
harassment of an employee, unlawful employment discrimination, wrong-
ful failure to hire or promote, or failure to grant tenure.”
8572         BILTMORE ASSOCIATES v. TWIN CITY FIRE
trips, and gifts” of no value to the company, and failed to
institute appropriate financial controls to prevent this sort of
thing. He claimed that the directors and officers purchased
unnecessary software and usurped corporate opportunities. He
also claimed that the directors had paid one officer more than
a million dollars to cover up the inappropriate issuance of
warrants to other officers to purchase Visitalk’s common
stock. The insurers declined to cover the claims.

   This case arises out of a variation on what insurance litiga-
tors often call the “confession of judgment, assignment of
rights, covenant not to execute” technique. Sometimes when
a liability insurer denies coverage and declines to defend, the
injured party sues the insured tortfeasor, and they agree on a
confession of judgment, assignment of rights, and covenant
not to execute. That way the insured party obtains protection
from having to pay anything, and the injured party steps into
the insured’s shoes in order to sue the liability insurer. The
injured party may be able to get more than the policy limits
from the insurer, if he prevails on coverage, because damages
for bad faith denial of coverage and punitive damages are in
the nature of tort damages, not limited by the insurance con-
tract.

   Visitalk filed a chapter 11 reorganization plan which
assigned its claims against the directors and officers to a trust
established for its creditors (the ‘Visitalk Creditors Trust’)
and named Biltmore as trustee. Biltmore and four directors
and officers against whom Visitalk had asserted claims then
agreed to settle Visitalk’s claims for about $175 million. The
four directors and officers assigned to the creditors’ trust their
rights against the liability insurers. The complaint does not
say whether the confession of judgment and assignment of
rights was coupled with the typical covenant not to execute
against the settling directors and officers personally. But the
existence of such a covenant does not matter here. Basically,
Visitalk sued its directors and officers for breach of their fidu-
ciary duties, the directors and officers liability insurers
              BILTMORE ASSOCIATES v. TWIN CITY FIRE                8573
refused coverage under the insured versus insured exclusion,
Visitalk assigned the claims to its creditors’ trust, and Bilt-
more, as trustee, then settled with four directors and officers
for a confession of judgment of $175 million and an assign-
ment of whatever claims the directors and officers had against
the insurers.

   Biltmore, as trustee for the creditors’ committee, then sued
the insurance companies on the basis of these claims.4 The
district court dismissed the case because the complaint failed
to set forth sufficient facts to show that the named defendant,
Twin City, had obligated itself as successor to Reliance to
cover the Reliance policy period, and failed to allege suffi-
cient facts to show that the underlying claims were made
within the Twin City policy period. The district court also
relied in part on a local rule governing motions practice. The
district court awarded attorneys’ fees to the insurers and
against Biltmore personally, under Arizona’s statute adopting
the English rule for contract cases.5 Biltmore timely appeals
both decisions.6

   We affirm the dismissal of the complaint, but on different
grounds (also urged in district court and fully briefed here),
that the insured versus insured exclusion applies. We do not
decide whether the district court’s grounds for dismissal were
correct. We remand the award of attorneys’ fees to clarify that
Biltmore is not personally liable, because it was acting as rep-
resentative of the trust and was not personally at fault.
  4
   There are multiple insurance companies involved in this case because
several layers of coverage were issued by multiple carriers.
  5
   Ariz. Rev. Stat. Ann. § 12-341.01(A) (2003).
  6
   No. 06-16417 is the merits appeal, No. 07-16036 is the attorneys’ fees
appeal.
8574             BILTMORE ASSOCIATES v. TWIN CITY FIRE
           II.    The insured versus insured exclusion.

   In appeal number 06-16417, Biltmore appeals the dismissal
of its complaint for failure to state a claim. We review the
12(b)(6) dismissal de novo.7 We can affirm on any ground
supported by the record.8 We conclude that insured versus
insured exclusion in the relevant policies bars coverage for
Biltmore’s claims, because a post-bankruptcy debtor in pos-
session acts in the same capacity as the pre-bankruptcy debtor
for the purpose of directors and officers liability insurance.
There are two issues; (1) what the insured versus insured
exclusion means, and (2) how bankruptcy law affects its
application.

A.     The meaning of the exclusion.

   As shareholder’s derivative suits and class actions against
directors and officers became more common, people began to
demand that companies indemnify them against the risks of
liability if they were to serve as directors and officers. Corpo-
rations accordingly bought liability insurance for their direc-
tors and officers to induce qualified people to serve.9 Insured
versus insured exclusions are boilerplate in these and other
kinds of liability policies.10 Directors and officers liability pol-
icies are colloquially called “D & O insurance.” The exclu-
sion arose in D & O policies as a reaction to several lawsuits
in the mid-1980s in which insured corporations sued their
own directors to recoup operational losses caused by improvi-
dent or unauthorized actions.11 Such lawsuits created prob-
  7
    Cholla Ready Mix, Inc. v. Civish, 382 F.3d 969, 973 (9th Cir. 2004).
  8
    Adams v. Johnson, 355 F.3d 1179, 1183 (9th Cir. 2004).
  9
    See generally Michael D. Sousa, Making Sense of the Bramble-Filled
Thicket: The “Insured vs. Insured” Exclusion in the Bankruptcy Context,
23 Emory Bankr. Dev. J. 365, 372-77 (2007).
  10
     Barry R. Ostrager & Thomas R. Newman, 2 Handbook on Insurance
Coverage Disputes § 20.02[g], at 1384 (14th ed. 2008).
  11
     See, e.g., Nat’l Union Fire Ins. Co. v. Seafirst Corp., No. C85-396R,
1986 WL 1174695, at *6 (W.D. Wash. Mar. 19, 1986) (“After carefully
              BILTMORE ASSOCIATES v. TWIN CITY FIRE                 8575
lems of moral hazard, collusion, and unintended expansion of
coverage. The reasonable expectations of the parties were that
they were protecting against claims by outsiders, not intra-
company claims.

   [1] The exclusion at issue in this case provides “[t]he
Insurer shall not be liable to make any payment for Loss in
connection with any Claim made against the Directors and
Officers . . . brought or maintained by or on behalf of an
Insured in any capacity.” This is not the gobbledygook it
sounds like to the uninitiated on an overly rapid reading.
Insurance against shareholders derivative suits and employ-
ment claims is essentially liability insurance. The trigger for
liability insurance is a claim by someone not under the control
of the insured himself. By contrast, people buy casualty insur-
ance against the risks created by their own bad luck or care-
lessness. Thus, one buys fire insurance and gets indemnified
even for carelessly leaving a lit candle untended and burning
down one’s own house. And one buys automobile compre-
hensive and collision coverage to get indemnified for care-
lessly damaging one’s own car.

   Though there is overlap, many of the risks that affect the
price of liability insurance differ from the risks that affect
casualty insurance, particularly moral hazard and collusion.
For example, almost nobody intentionally induces someone
else to collide with his car, but someone might have an inter-
est in burning down his own house if he owed more on it than
it was worth. Companies have traditionally purchased “fidel-
ity bonds” to insure the company against employees’ dishones-
ty.12 Thus if an employee was “bonded” and stole from the

reviewing the language of the policy, the court concludes that the policy
plainly and unambiguously covers direct actions by Seafirst itself against
its own directors and officers. According to the policy terms, National
Union must pay for loss suffered as a result of ‘any claim or claims’
against the directors and officers.”).
   12
      David L. Bickelhaupt, General Insurance 748-50 (9th ed. 1974); Wil-
liam R. Vance & Buist M. Anderson, Handbook on the Law of Insurance
§ 197 (3d ed. 1951).
8576          BILTMORE ASSOCIATES v. TWIN CITY FIRE
company, the insurance company that had issued the bond
would have to indemnify the company for the loss.

   Because risks such as collusion and moral hazard are much
greater for claims by one insured against another insured on
the same policy than for claims by strangers, liability policies
typically exclude them from coverage. Allowing such claims
would turn liability insurance into casualty insurance, because
the company would be able to collect from the insurance com-
pany for its own mistakes, since it acts through its directors
and officers. The exclusion protects of course against collu-
sion, and also against the risk of selling liability insurance for
what amounts to a fidelity bond. If the exclusion were
ignored, then those companies who only want to pay for pro-
tection against third party claims they cannot control would
have to bear the additional financial burden of paying for
claims over which companies have more control.

   [2] Biltmore does not (and could not) argue that the excep-
tions to the insured versus insured exclusion apply. The claim
is not by a fired director for wrongful termination or one of
the other excepted employment practice claims, and the claim
is not brought “by . . . a security holder,” as the exception to
the exclusion for shareholders’ derivative actions requires.
The only question before us on the language of the exclusion
is whether the underlying suit was “brought or maintained on
behalf of an Insured in any capacity.”

   [3] Appellant argues that this claim is on behalf of the cred-
itors and brought by the creditors’ trustee, Biltmore, so it is
not “brought or maintained on behalf of an Insured in any
capacity.” We conclude that this argument is mistaken. First,
the underlying lawsuit, for which coverage is sought, alleged
that the directors and officers of Visitalk breached their statu-
tory and fiduciary duties. A cause of action for mismanage-
ment belongs to the corporation.13 Shareholders and creditors
  13
     Ross v. Bernhard, 396 U.S. 531, 538-39 (1970); Hidalgo v. McCauley,
70 P.2d 443, 445-46 (Ariz. 1937); Realty Exch. Corp. v. Cadillac Land &
Dev. Co., 475 P.2d 522, 545-46 (Ariz. Ct. App. 1970). See generally 18B
Am. Jur. 2d Corporations § 1597.
              BILTMORE ASSOCIATES v. TWIN CITY FIRE               8577
can bring a suit for mismanagement only derivatively, on
behalf of the corporation. True, the directors and officers have
coverage for derivative claims, but not for claims by Visitalk.
Coverage is excluded if Visitalk sues them, and it did. The
lawsuit was “instigated and continued” by Visitalk. That the
creditors rather than the shareholders will get whatever money
the insurer pays does not avoid the exclusion. Creditors get
much, most, or even all of the money any business collects,
as part of the business’s overhead, which is why a landlord is
always happy to see diners in his tenant’s restaurant.

   [4] Second, the claim has to be made by an insured party
for it to have any contractual basis in the insurance policies.
The named insured and others insured are defined in all the
policies here to be Visitalk, Inc., and its directors and officers,
and no one else. None of the insurance companies issued any
policies to Biltmore, or to Visitalk’s creditors. Sometimes a
promisee buys insurance to protect against a potential debtor’s
risk, as when a concert promoter buys life insurance on a star,
but Visitalk’s creditors bought no insurance on Visitalk and
its principals. The creditors have no independent contractual
claim against the insurance companies, because they are not
insureds.

   [5] Third, the claim for which coverage is sought was
indeed “instigated and continued” by Visitalk, as a chapter 11
“debtor and debtor in possession.” The First Amended Com-
plaint says in paragraphs 22 and 24 that Visitalk filed a com-
plaint in the underlying case against the four directors and
officers, and then assigned its claims to the creditors’ trust
with Biltmore as trustee. Biltmore sued the insurers as
assignee of the directors’ and officers’ claims for failure to
cover and its bad faith in so doing. An assignee of a claim
against an insurance company can have no stronger claim
than the assignor who assigned the claim.14 Biltmore has to
  14
    Bassidji v. Goe, 413 F.3d 928, 939 (9th Cir. 2005); Stephens v. Tex-
tron, Inc., 619 P.2d 736, 739 (Ariz. 1980); Carpenter v. Superior Court,
422 P.2d 129, 131 (Ariz. 1966).
8578          BILTMORE ASSOCIATES v. TWIN CITY FIRE
step into an insured’s shoes as assignee to have any claim
against their insurers, since Biltmore is not an insured. And in
those shoes, it is barred by the exclusion. Biltmore cannot
jump into the insureds’ shoes to bring the lawsuit, out of their
shoes to claim not to be suing as though it were the insureds,
and then back into their shoes to get compensatory and puni-
tive damages for the insurers’ failure to cover their liabilities.

B.     Bankruptcy.

   The additional feature of this case is bankruptcy. Biltmore
argues that Visitalk, the chapter 11 debtor in possession that
brought the underlying suit, is not the same entity as Visitalk,
the insured corporation. Several bankruptcy decisions around
the country, including one in this circuit, treat a post-
bankruptcy entity as different from the debtor before it went
into chapter 11 for purposes of the insured versus insured exclu-
sion.15 Several others hold that they are the same entity for
   15
      Unified W. Grocers, Inc. v. Twin City Fire Ins. Co., 457 F.3d 1106,
1116-17 (9th Cir. 2006) (bankruptcy trustee of subsidiary different entity
than subsidiary itself); Alstrin v. St. Paul Mercury Ins. Co., 179 F. Supp.
2d 376, 403-05 (D. Del. 2002) (Chapter 11 estate representative distinct
entity from debtor); Grafenauer v. Mukamal (In re Laminate Kingdom,
LLC), Nos. 07-10279, 07-01792, 2008 WL 704396, at *3-4 (Bankr. S.D.
Fla. Mar. 13, 2008) (Chapter 7 trustee is distinct entity from debtor);
Cohen v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. (In re County Seat
Stores, Inc.), 280 B.R. 319, 324-26 (Bankr. S.D.N.Y. 2002) (trustee
legally distinct entity from debtor, distinguishing trustee from debtor in
possession); Gray v. Executive Risk Indem., Inc. (In re Molten Metal
Tech., Inc.), 271 B.R. 711, 728-31 (Bankr. D. Mass. 2002) (Chapter 11
trustee not same entity as debtor, distinguishing debtor in possession),
aff’d, No. 02-10289, 2002 WL 923936 (D. Mass. May 6, 2002), see also
Narath v. Executive Risk Indem., Inc., No. 01-10122, 2002 WL 924231,
at *2 (D. Mass. Mar. 14, 2002) (same, also arising from Molten Metal’s
insolvency); Rieser v. Baudendistel (In re Buckeye Countrymark, Inc.),
251 B.R. 835, 840-41 (Bankr. S.D. Ohio 2000) (Chapter 7 trustee not the
same entity as debtor); Rigby v. Underwriters at Lloyd’s, London, 907 So.
2d 1187, 1188-89 (Fla. Dist. Ct. App. 2005) (Chapter 7 trustee, listed as
insured, still different entity from debtor), review granted sub nom. Cer-
               BILTMORE ASSOCIATES v. TWIN CITY FIRE                    8579
this purpose.16 Few cases, and no circuit court decisions, deal
with the specific situation of a chapter 11 debtor in possession.17

tain Underwriters at Lloyd’s of London v. Rigby, 917 So. 2d 192 (Fla.),
review dismissed as improvidently granted, 934 So. 2d 1183 (2006); Cirka
v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., No. 20250, 2004 WL
1813283, at *7-9 (Del. Ch. 2004) (creditor’s committee not same entity or
assignee of debtor in possession, which was specifically covered by the
insured versus insured exclusion at issue).
   16
      Nat’l Union Fire Ins. Co. v. Olympia Holding Corp., 148 F.3d 1070
(11th Cir. 1998) (unpublished table disposition) (affirming partial sum-
mary judgment that exclusion bars coverage for a bankruptcy’s trustee
claim against former directors and officers) (11th Circuit Rule 36-2 says
that “[u]npublished opinions are not considered binding precedent, but
they may be cited as persuasive authority.”), aff’g, inter alia, No. 94-2081,
1996 WL 33415761, at *6-7 (N.D. Ga. June 4, 1996); Reliance Ins. Co.
of Ill. v. Weis, 5 F.3d 532 (8th Cir. 1993) (unpublished table disposition)
(affirming “on the basis of the well-reasoned opinion of the district
court.”), aff’g 148 B.R. 575, 581-83 (E.D. Mo. 1992) (bankruptcy plan
agent is assignee of debtor’s claims, “no significant legal difference”
between debtor and debtor’s bankruptcy estate); Federal Ins. Co. v. Suru-
jon, No. 07-22819, 2008 WL 2949438, at *6 & n.5 (S.D. Fla. July 29,
2008) (reorganized post-bankruptcy company same entity as pre-
bankruptcy debtor); Stratton v. Nat’l Union Fire Ins. Co. of Pittsburgh,
Pa., No. 03-12018, 2004 WL 1950337, at *4-6 (D. Mass. Sept. 3, 2004)
(reorganized post-bankruptcy company successor entity of pre-bankruptcy
debtor).
   17
      Compare Terry v. Federal Ins. Co. (In re R.J. Reynolds-Patrick
County Mem’l Hosp., Inc.), 315 B.R. 674, 678-82 (W.D. Va. 2003) (litiga-
tion trustee, assignee of debtor in possession, same entity as debtor, distin-
guishing bankruptcy trustee) with HA 2003, Inc. v. FDIC (In re HA 2003,
Inc.), 310 B.R. 710, 717-19 (Bankr. N.D. Ill. 2004) (Debtor in possession
not same entity as pre-bankruptcy debtor under exception to insured ver-
sus insured exclusion for claims “brought by or on behalf of a bankruptcy
trustee, magistrate or any other person appointed by a bankruptcy court or
judge, or authorized under applicable law to act on behalf of a debtor”)
and Pintlar Corp. v. Fid. & Cas. Co. of N.Y. (In re Pintlar), 205 B.R. 945,
947-48 (Bankr. D. Idaho 1997) (litigation trustee, assignee of debtor in
possession, not same entity as debtor under terms of trust precluding debt-
or’s successor entities from receiving any benefit from the prosecution of
claims), aff’d sub nom. Cigna Ins. Co. v. Gulf USA Corp., No. 97-250,
1997 WL 1878757, at *3-5 (D. Idaho Sept. 11, 1997). See also Federal
8580            BILTMORE ASSOCIATES v. TWIN CITY FIRE
   [6] We conclude that for purposes of the insured versus
insured exclusion, the prefiling company and the company as
debtor in possession in chapter 11 are the same entity. The
bankruptcy code defines a Chapter 11 debtor in possession as
the debtor.18 The debtor, in turn, is defined as the “person or
municipality concerning which a case under this title has been
commenced.”19 Bankruptcy cases can be filed only with
respect to pre-bankruptcy persons.20 Thus the debtor in pos-
session is the debtor, and the debtor is the person, Visitalk,
that filed for bankruptcy. Applying these statutory provisions
literally, Visitalk, the debtor in possession, is the same person
for bankruptcy purposes as Visitalk, the pre-bankruptcy cor-
poration. There is no good reason to interpret the language
other than literally in this context.

   In NLRB v. Bildisco & Bildisco, the Supreme Court reached
the same conclusion in the labor law context, stating “it is
sensible to view the debtor-in-possession as the same ‘entity’
which existed before the filing of the bankruptcy petition.”21
While the Court divided on other points, it unanimously
agreed that the ‘new entity’ theory should be rejected.22 Bilt-
more argues that Bildisco did not treat the debtor-in-

Ins. Co. v. D’Aniello, No. 05-305, 2006 WL 3386625, at *13 (W.D. Pa.
Nov. 22, 2006) (debtor in possession not the same entity as debtor, claims
brought originally brought by unsecured creditor’s committee by leave of
the district court, then assigned to litigation trust on behalf of creditors, not
debtor in possession).
   We overrule the bankruptcy and district court opinions in Pintlar Corp.
v. Fid. & Cas. Co. of N.Y. (In re Pintlar), 205 B.R. 945 (Bankr. D. Idaho
1997), aff’d sub nom. Cigna Ins. Co. v. Gulf USA Corp., No. 97-250, 1997
WL 1878757 (D. Idaho Sept. 11, 1997), for the reasons stated in this opin-
ion.
   18
      11 U.S.C. § 1101(1) (2006).
   19
      11 U.S.C. § 101(13) (2006).
   20
      Cf. 1 U.S.C. § 1 (2006) (person includes corporate entities).
   21
      465 U.S. 513, 528 (1984).
   22
      Id. at 544 (Brennan, J. concurring in part and dissenting in part).
               BILTMORE ASSOCIATES v. TWIN CITY FIRE                   8581
possession as the same entity as the debtor, because it permit-
ted the debtor-in-possession to reject a labor agreement which
the debtor could not. That argument confuses the right of a
bankrupt to reject an executory contract with the question of
whether it is the promisor under the contract. Bildisco
explains that “[o]bviously, if the [debtor-in-possession] were
a wholly ‘new entity,’ it would be unnecessary for the Bank-
ruptcy Code to allow it to reject executory contracts, since it
would not be bound by such contracts in the first place.’ ”23
The converse applies to the case at bar. Two subsequent, simi-
larly unanimous opinions of the Court treat a bankrupt entity
as the same as the pre-bankruptcy entity.24

   Our own authorities speak variously in different contexts to
whether a chapter 11 debtor in possession should be treated
as a different entity for various purposes. Biltmore points to
two 1993 cases in which we stated that the debtor and debtor-
in-possession are “legally distinct entities,” Hillis Motors, Inc.
v. Hawaii Automobile Dealers’ Ass’n25 and Bonner Mall Part-
nership v. U.S. Bancorp Mortgage Co. (In re Bonner Mall
Partnership).26 Hillis Motors does not involve a debtor in pos-
session or insurance. It concerns application of the automatic
stay provision to the involuntary dissolution of a corporation
  23
      Id. at 528.
  24
      O’Melveny & Myers v. FDIC, 512 U.S. 79, 86 (1994) (FDIC as a bank
receiver under 12 U.S.C. § 1821 is treated as if it were pre-receivership
bank — “The FDIC as receiver ‘steps into the shoes’ of the failed S&L”
and “ ‘any defense good against the original party is good against the
receiver.’ ”) (citations omitted); Commodity Futures Trading Commission
v. Weintraub, 471 U.S. 343 (1985) (Trustee, as bankrupt corporation’s
management, has the power to waiver attorney-client privilege just like
pre-bankruptcy corporation’s management).
   25
      997 F.2d 581, 585 n.6 (9th Cir. 1993).
   26
      2 F.3d 899, 915 (9th Cir. 1993) (“Bankruptcy law is very formalistic
in that it treats the debtor, the debtor-in-possession, and old equity as
legally distinct entities when in reality they may all be one and the same.”)
(emphasis added), cert. granted, 510 U.S. 1039 (1994), aff’d as moot, 513
U.S. 18.
8582          BILTMORE ASSOCIATES v. TWIN CITY FIRE
by a governmental entity.27 Bonner Mall addresses application
of the “new value doctrine” to priorities between a bank and
providers of new capital in a reorganization of a debtor in
possession under chapter 11.28 Neither speaks to insurers’
obligations or the effect of the insured versus insured exclu-
sion in debtor in possession in chapter 11 bankruptcies. Nor
do they speak to the insuperable problem appellant has in this
case, that if Biltmore stands in Visitalk’s shoes, it has no cov-
erage because of the insured versus insured exclusion.

   The more appropriate precedents are DiSalvo v. DiSalvo (In
re DiSalvo)29 and Teerlink v. Lambert (In re Teerlink Ranch
Ltd.),30 though they too involve different factual circum-
stances. In DiSalvo v. DiSalvo, a debtor personally owed
money to a creditor, but as debtor in possession sued the cred-
itor for abuse of process and other torts.31 The debtor’s pur-
pose was to dump his debt into the pot for unsecured
creditors, but recover outside the bankruptcy for a debt flow-
ing the other way, to himself. We held that “in the chapter 11
context a debtor and debtor in possession are not to be treated
as separate legal entities,” applying the Supreme Court’s anal-
ysis in Bildisco, though we recognized that Bildisco was a
labor law case and DiSalvo was not.32

   Similarly, in Teerlink v. Lambert, we treated the debtor in
  27
      Hillis Motors, 997 F.2d at 585 (“In this appeal, we must decide
whether federal bankruptcy law prohibited the DCCA from involuntarily
dissolving Hillis pursuant to state law in 1986.”); see also id. at 592
(“Bankruptcy does not grant debtors rights greater than those they would
receive outside bankruptcy.”).
   28
      Bonner Mall P’ship, 2 F.3d at 901 (“This case requires us to decide
whether the new value ‘exception’ to the absolute priority rule surives the
enactment of the Bankruptcy Reform Act of 1978 . . . .”).
   29
      219 F.3d 1035 (9th Cir. 2000).
   30
      886 F.2d 1233 (9th Cir. 1989).
   31
      DiSalvo, 219 F.3d at 1037-39.
   32
      Id. at 1038 (citing Bildisco, 465 U.S. at 528).
              BILTMORE ASSOCIATES v. TWIN CITY FIRE                 8583
possession as “still the same old debtor satisfying the same
old debt.”33 This quotation was the holding of Teerlink, reject-
ing the debtor in possession’s argument that “it was no longer
a debtor paying its own debt, but a hypothetical judicial lien
creditor paying a stranger’s debt.”34 That argument resembles
Biltmore’s, that for purposes of the insured versus insured
exclusion, Visitalk as debtor in possession is a different entity
than it was before bankruptcy. As in Bildisco, DiSalvo, and
Teerlink, Visitalk in chapter 11 and out of it “are not to be
treated as separate entities”35 for purposes of what its directors
and officers owe Visitalk.

   [7] It is certainly true that the interests differ once a debtor
goes into bankruptcy. Prior to Visitalk’s bankruptcy, the
underlying lawsuit belonged to Visitalk as a corporation.
Once it filed its voluntary bankruptcy petition, ownership of
the cause of action fell into the bankruptcy estate.36 Visitalk
became the debtor in possession of the bankruptcy estate,
empowered to act as a trustee and required to act as a fidu-
ciary for its creditors and shareholders.37 The differences in
the fiduciary responsibilities of Visitalk’s management on
account of bankruptcy, however, do not make Visitalk a dif-
ferent entity for purposes of the insured versus insured exclu-
sion.38
  33
      Teerlink, 886 F.2d at 1236.
  34
      Id. at 1235.
   35
      DiSalvo, 219 F.3d at 1038; see also Bildisco, 465 U.S. at 528; Teer-
link, 886 F.2d at 1236.
   36
      11 U.S.C. § 541 (2006).
   37
      11 U.S.C. §§ 1107, 1104 (2006).
   38
      Before bankruptcy, the principals must exercise their business judg-
ment to act in the best interest of the shareholders. See Ariz. Rev. Stat.
Ann. § 10-830 (2004); see generally 3A Fletcher Cyc. Corp. § 1036. In
bankruptcy, the principals must exercise their business judgment to act in
the best interest of the bankruptcy estate. Bennett v. Williams, 892 F.2d
822, 824 (9th Cir. 1989); see generally 7 Collier’s on Bankruptcy
¶ 1108.07 (15th ed. 2008).
8584         BILTMORE ASSOCIATES v. TWIN CITY FIRE
   Biltmore argues that Visitalk, as debtor in possession,
brought the underlying suit as representative of the creditors
of the bankruptcy estate, so the insured versus insured exclu-
sion does not apply. This argument presupposes that a suit
brought as representative of the creditors is brought on their
behalf, conflating ‘for the benefit of’ and ‘on behalf of.’ Just
because the “creditors could have asserted fiduciary duty
claims outside the bankruptcy context similar to those pressed
by the Trustee, . . . does not prove that the Trustee is asserting
‘creditors’ claims’ . . . . Rather, it is simply because state law
often permits creditors to pursue derivative claims on an
insolvent corporation’s behalf.”39 Even if Visitalk, as debtor
in possession, is acting in the capacity of representative for
the creditors, it is advancing their interests by bringing suit on
behalf of the pre-bankruptcy corporation. The suit is for the
benefit of the creditors, but on behalf of the pre-bankruptcy
corporation.

   It may be (we do not know) that every penny recoverable
from the liability insurers would go to the creditors of Visitalk
and its principals. But that might happen even if there were
no bankruptcy, and a debtor owed creditors every penny it
could recover. In a sense, when any business obtains revenue,
its success is on behalf of its employees and suppliers as well
as (or more than) its owners, but that does not avoid the
insured versus insured exclusion. The liability insurance that
the corporation and its principals bought to protect against
shareholders’ derivative suits cannot be turned into an avail-
able pot for the corporation’s creditors by enforcing the insur-
ers’ obligations while disregarding the parties’ agreement to
limit those obligations to exclude insured versus insured
claims.

   [8] Biltmore argues that this analysis creates windfall for
the insurance companies, because creditors would have a cov-
  39
   Smith v. Arthur Andersen, LLP, 421 F.3d 989, 1006 (9th Cir. 2005)
(emphasis added).
               BILTMORE ASSOCIATES v. TWIN CITY FIRE                  8585
ered claim before the bankruptcy against the principals of an
insolvent corporation, but not after. That is not quite right,
because before bankruptcy, the creditor would first have to
demand that the insolvent corporation bring the claim,40 and
if the corporation did, then the insured versus insured exclu-
sion would still bar recovery. Bankruptcy does not erect the
bar to recovery, the insurance policy does. All bankruptcy did
to the creditors was impose the automatic stay and require
them to advance their claims within the bankruptcy proceed-
ing;41 it did not change the insurance policies.

   [9] We therefore affirm the dismissal of the complaint. The
alternative position would create a perverse incentive for the
principals of a failing business to bet the dwindling treasury
on a lawsuit against themselves and a coverage action against
their insurers, bailing the company out with the money from
the D & O policy if they win and giving themselves covenants
not to execute if they lose. That is among the kinds of moral
hazard that the insured versus insured exclusion is intended to
avoid.

  40
    Ariz. Rev. Stat. Ann. § 10-742 (2004); see also Fed. R. Civ. P.
23.1(a).
  41
    A creditor can demand that the debtor in possession bring an action
on its behalf. If the debtor in possession refuses, the creditor “may appear
and be heard” on the issue in the bankruptcy proceeding. 11 U.S.C.
§ 1109(b) (2006). After such a hearing, the court must allow the creditors’
committee to sue independent of the debtor in possession if the failure to
bring suit does not adequately protect the creditor’s interests or the chose
in action is of inconsequential value to the estate. 11 U.S.C. §§ 362(d)(1),
554(b) (2006). Compare Terry v. Federal Ins. Co. (In re R.J. Reynolds-
Patrick County Mem’l Hosp., Inc.), 315 B.R. 674, 678-82 (W.D. Va.
2003) (litigation trustee, assignee of debtor in possession, same entity as
debtor) with Federal Ins. Co. v. D’Aniello, No. 05-305, 2006 WL
3386625, at *13 (W.D. Pa. Nov. 22, 2006) (litigation trustee, assignee of
unsecured creditor’s committee that brought suit by leave of the district
court, not same entity as debtor in possession).
8586          BILTMORE ASSOCIATES v. TWIN CITY FIRE
                       III.    Attorneys’ fees.

   In appeal number 07-16036, Biltmore contests the
$88,565.59 attorneys’ fees award in favor of the insurers. The
fees were awarded under the Arizona fee shifting statute for
contract cases,42 not as a sanction.43 Biltmore does not chal-
lenge whether the fees were properly awarded at all, nor does
it challenge the amount. Its challenge goes to whether fees
could properly be awarded against Biltmore personally, rather
than in its representative capacity. The judgment says that it
is against “Biltmore Associates, L.L.C., as Trustee of the
Visitalk Creditors Trust,” but the judge denied Biltmore’s
motion to bar execution against its own assets.

   Biltmore makes two arguments on appeal. First, relying on
bankruptcy law, it contends that our decision in Metcalf v.
Golden (In re Adbox, Inc.)44 barred the district court from
properly imposing judgment against its personal assets
because it acted solely in the representative capacity of a
bankruptcy trustee. Second, relying on the general law of
trusts, Bilmore posits that because it captioned its pleading
“Biltmore Associates, L.L.C., as Trustee of the Visitalk Cred-
itors Trust,” and because it was acting for the creditors’ trust,
fees should have been awarded only against the trust. We deal
with each of these arguments in turn.

A.     Bankruptcy trustees.

     Biltmore’s bankruptcy law argument has no merit, because
  42
      Ariz. Rev. Stat. Ann. § 12-341.01(A) (2003) (“In any contested action
arising out of a contract, express or implied, the court may award the suc-
cessful party reasonable attorney fees.”).
   43
      Ariz. Rev. Stat. Ann. § 12-341.01(C) (2003) (“The court shall award
reasonable attorney fees in any contested action upon clear and convincing
evidence that the claim or defense constitutes harassment, is groundless
and is not made in good faith.”).
   44
      488 F.3d 836 (9th Cir. 2007).
              BILTMORE ASSOCIATES v. TWIN CITY FIRE           8587
Biltmore is not a bankruptcy trustee. A bankruptcy proceed-
ing may be crowded with trustees, perhaps the trustees under
deeds of trust on real property seeking relief from the stay so
that they can foreclose, trustees for minors and for inter vivos
trusts trying to keep assets out of the bankruptcy estate, and
trustees for decedents, but they are not all the same. Biltmore
was not appointed as trustee of the bankruptcy estate. Visi-
talk, the bankrupt, remained a debtor in possession.

   [10] The creditors’ committee hired Biltmore as its trustee.
Under 11 U.S.C. § 1102, the United States Trustee appoints
a committee of the creditors holding unsecured claims, to pro-
vide access to information for unsecured creditors not on the
committee and to solicit and receive comments from them.45
The creditors committee can hire attorneys, accountants, and
other agents to perform services for it.46 In this case, the credi-
tors’ committee retained Biltmore Associates, L.L.C., as a
trustee, with the approval of the bankruptcy court. The com-
mittee provided that the trustee would “hold all, right, title
and interest in and to the causes of action on behalf of the
beneficiaries of the Creditors’ Trust,” and could “sue and be
sued in a representative capacity for the trust.” This lawsuit
took place outside the bankruptcy court, as an ordinary civil
action for breach of contract between a trustee on behalf of a
beneficiary against promissors, the insurance companies. No
bankruptcy authority of which we are aware provides immu-
nity to a trustee hired by the creditors’ committee, as opposed
to the chapter 11 trustee appointed by the court. Metcalf v.
Golden (In re Adbox, Inc.)47 and the other authorities cited by
Biltmore only speak to chapter 11 trustees appointed by the
court.
  45
     11 U.S.C. § 1102(a)(1), (b)(3) (2006).
  46
     11 U.S.C. § 1103(a) (2006).
  47
     488 F.3d 836 (9th Cir. 2007).
8588           BILTMORE ASSOCIATES v. TWIN CITY FIRE
B.     Trustees generally.

   [11] Biltmore’s second argument, that the general law of
trusts shields its personal assets from liabilities incurred while
acting as a representative for the trust, is correct. Trustees
used to be personally liable, albeit with indemnity rights, for
obligations incurred on behalf of the trust.48 But this doctrine
has changed. Over the last few decades, the law has become
more protective of trustees.49 The Uniform Trust Code, in
force in Arizona, provides that the trustee is personally liable
only if he is personally at fault for the obligation.50 Otherwise,
the trustee is liable only in his representative capacity.

   Haskett v. Villas at Desert Falls, Inc.51 speaks to this issue,
albeit in California rather than Arizona. The California Court
of Appeal applied a California statute (identical to Arizona’s)
to a nearly identical set of facts. A trustee filed a contract
claim against an individual and a corporation.52 The complaint
was dismissed, with attorneys’ fees and costs awarded against
  48
      Restatement (Second) of Trusts §§ 261, 265 (1959); Richardson v.
Cortner, 105 So. 2d 456, 456 (Miss. 1958) (“When a party brings . . . a
suit in his name in such representative capacity (trustee in a chattel deed
of trust), he is individually liable for costs, insofar as the opposite party
and the officers of the court are concerned.”).
   49
      See Restatement (Second) of Trusts §§ 265 cmt. a, 271A cmt. a (1959)
(both noting “the modern trend” limiting a trustee’s personal liability); see
generally, e.g., George Gleason Bogart et al., The Law of Trusts and
Trustees § 732 (describing the evolution from the “Orthodox Common
Law Rule—No Direct Representative Liability” to the “Statutory Trend
Toward Direct Representative Liability”).
   50
      Ariz. Rev. Stat. Ann. § 14-11010(B) (West Supp. 2008) (“A trustee is
personally liable . . . for obligations arising from ownership or control of
trust property . . . only if the trustee is personally at fault.”); Unif. Trust
Code § 1010(b), 7C U.L.A. 227 (Supp. 2003) (same). While the revision
to the Arizona Trust Code only became effective this year, it continues the
previous limitation of liability found in Arizona Revised Statutes Anno-
tated § 14-7306(B) (2005) (repealed 2009).
   51
      108 Cal. Rptr. 2d 888 (Ct. App. 2001).
   52
      Id. at 892-93.
               BILTMORE ASSOCIATES v. TWIN CITY FIRE                    8589
the trustee.53 The California Court of Appeal determined that
the “trustee cannot be held personally liable . . . unless the
party seeking to impose such personal liability on the trustee
demonstrates that the trustee intentionally or negligently acted
or failed to act in a manner that established a personal fault.”54
The court reached this conclusion based on California Probate
Code § 18001, which contains the exact same language as
Arizona Revised Statutes § 14-11010, “A trustee is personally
liable for obligations arising from ownership or control of
trust property only if the trustee is personally at fault.”55 The
court explicitly rejected the argument that an “innocent third
party creditor should not have to be concerned with the source
of the fund that will be used to pay his claim.”56

   The District of Columbia Circuit and several state courts
have reached similar conclusions. In Pete v. United Mine
Workers of America Welfare and Retirement Fund of 1950,
the District of Columbia Circuit said that the “[t]rustees are
before the court in their fiduciary capacities and thus bear no
personal liability for the shifted attorney’s fees.”57 The highest
courts of Maine and Missouri as well as intermediate courts
in New York, Oregon, and Florida have held likewise.58
  53
      Id.
  54
      Id. at 898 (emphasis in original).
   55
      Id. at 897 (emphases in original).
   56
      Id. at 899.
   57
      517 F.2d 1275, 1279, 1292-93 (D.C. Cir. 1975) (en banc).
   58
      In re Estate of Ricci, 827 A.2d 817, 825-26 (Me. 2003) (clarifying that
a personal representative of a deceased spouse is not personally liable for
the plaintiff ’s attorney’s fees in a former spouse’s successful suit to
enforce a support agreement); Jesser v. Mayfair Hotel, Inc., 360 S.W.2d
652, (Mo. 1962) (“The judgment should have run against the four surviv-
ing trustees not in their individual or personal capacity but as trustees rep-
resenting the voting trust estate since the allowance of attorneys’ fees and
expenses was proper as a charge or expense of the trust estate.”) (emphasis
added); Skolnick v. Goldberg, 737 N.Y.S.2d 601, 602 (N.Y. App. Div.
2002) (“Since defendant’s decedent could only have brought and main-
8590           BILTMORE ASSOCIATES v. TWIN CITY FIRE
   [12] Biltmore’s prosecution of the lawsuit was not tortious
or otherwise unlawful. The costs award against Biltmore, act-
ing as the creditors’ committee trustee, was an ordinary cost,
imposed on account of the statutory fee shifting provision in
contract cases.59 The district court did not impose the fees as
a sanction or for misconduct or negligence.60 Thus, Biltmore
is entitled not to be liable for the money personally. The lia-
bility should, on remand, be imposed on Biltmore in its capac-
ity as trustee of the Visitalk Creditors Trust.

                            IV.    Conclusion

   In appeal number 06-16417, we AFFIRM dismissal of the
complaint because the insured versus insured exclusion bars
coverage for claims brought as the assignee of the debtor in
possession. In appeal number 07-16036, we REMAND the
award of attorneys’ fees for clarification that Biltmore is only
liable in its capacity as representative of the trust. Costs in
favor of appellees in appeal number 06-16417, and in favor
of appellant in appeal number 07-16036.




tained the complained of action in her representative capacity, and not in
her individual capacity, she cannot be held personally liable for any costs
connected with the action.”); McNeely v. Hiatt, 909 P.2d 191, 197 (Or. Ct.
App. 1996) (“It is an entirely different matter affirmatively to order that
the fees of another person be paid by someone who is, in effect, not a
party to the lawsuit.”); cf. Taylor v. Richmond’s New Approach Ass’n, 351
So. 2d 1094, 1096 (Fla. Dist. Ct. App. 1977) (distinguishing Illinois land
trusts from other trust forms, and holding that Illinois land trustees could
be held personally liable for attorneys’ fees, in contrast to trustees of ordi-
nary trusts).
   59
      Ariz. Rev. Stat. Ann. § 12-341.01(A) (2003).
   60
      Ariz. Rev. Stat. Ann. § 12-341.01(C) (2003).
