Supreme Court Allows Insurer to Contest Asbestos Bankruptcy Deal

Matthew Vadum
By Matthew Vadum
June 6, 2024Judiciary
Supreme Court Allows Insurer to Contest Asbestos Bankruptcy Deal
The Supreme Court in Washington on April 2, 2024. (Madalina Vasiliu/The Epoch Times)

The Supreme Court ruled unanimously on June 6 that an insurance company has standing to challenge a bankruptcy reorganization plan that it claims will leave it open to paying fraudulent asbestos exposure claims.

The court’s 8-0 opinion, in Truck Insurance Exchange v. Kaiser Gypsum, was written by Justice Sonia Sotomayor. Justice Samuel Alito did not participate in the case.

The oral argument on March 19 focused on whether Truck Insurance has legal standing in Kaiser Gypsum’s Chapter 11 bankruptcy reorganization plan considering that it will be liable for claims against the company.

The plan would compel the insurer to cover many of the 14,000 or so claims made against Kaiser for as much as $500,000 per claim.

Asbestos is a fire-resistant mineral whose fibers used to be commonly employed in construction and other industries.

Although it had been used for thousands of years and was once called a “miracle mineral,” it was later discovered that it can cause lung cancer, mesothelioma, and asbestosis.

Over time, regulators cracked down on asbestos, and its use is now banned in many industries around the world.

The last asbestos mine in the United States closed in 2002, although Russia continues to mine the fibrous mineral.

Billions of dollars of claims related to asbestos-caused injuries are filed each year in the United States.

The Supreme Court’s decision in the case could affect mass tort bankruptcies in which organizations such as the Boy Scouts of America and various Roman Catholic dioceses use bankruptcy courts to deal with liabilities arising out of personal injury claims.

The parties who are sued often look to insurers to cover their costs.

The appeal was from a decision by the U.S. Court of Appeals for the 4th Circuit which held that the petitioner, Truck Insurance, lacked legal standing to object to Kaiser Gypsum’s Chapter 11 reorganization blueprint.

Truck Insurance had objected to Kaiser’s bankruptcy plan because it failed to provide anti-fraud protections regarding the insured claims, which could mean that the insurer would be responsible for invalid claims.

The 4th Circuit previously affirmed the ruling of the U.S. Bankruptcy Court for the Western District of North Carolina, which held in 2020 that the insurer didn’t have standing to contest the plan because it wasn’t a “party in interest,” according to bankruptcy law.

At issue was the “bankruptcy standing” doctrine, which, along with the associated “insurance neutrality” rule, prevents an insurer from participating in bankruptcy unless the insurer can show that the plan formally alters the “quantum of liability” under the insurer’s contracts.

The insurance neutrality rule prevents the insurer from objecting to a reorganization plan even when, as in this case, the insurer bears near-exclusive financial responsibility for the claims under the plan, according to the insurer’s petition filed with the Supreme Court.

The two related companies, the respondents, Kaiser Gypsum and Hanson Permanente Cement Inc., manufactured construction materials containing asbestos.

Truck Insurance was their primary insurer.

Since 1978, the two companies have been named in more than 38,000 asbestos-related lawsuits nationwide.

The companies filed for bankruptcy protection in 2016 with 14,000 claims still outstanding at that time and the possibility of future claims remaining, according to the Fourth Circuit.

This is a developing story. It will be updated.

From The Epoch Times

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