Insurer Must Pay $500M to Resolve Asbestos Case

MANHATTAN (CN) - Insurers for the now-defunct top manufacturer of asbestos must pay more than $500 million to resolve settlement agreements in longstanding tort litigation, the 2nd Circuit ruled on Tuesday.

For about 60 years, Johns-Manville Corp. was the largest supplier of raw asbestos and the largest manufacturer of asbestos-containing products in the United States. Studies linking asbestos to respiratory disease in the 1970s spurred thousands of lawsuits against Manville and its insurers, including Travelers Indemnity and Travelers Casualty and Surety Company.

In 1982, Manville filed for bankruptcy protection and reorganization.

Late U.S. Bankruptcy Judge Burton Lifland set up a trust that would pay all asbestos claims against Manville, which, as of five years ago, paid out more than $3.2 billion to more than 600,000 claimants.

The parties still, however, contest the interpretation of a settlement reached in 1986.

Under its terms, insurers agreed to contribute $770 million to the bankruptcy estate, $80 million of which came from Travelers. The bankruptcy court issued an injunction in return barring all insurance-related claims stemming from their association with Manville.

These injunctions did not stop new "direct action" lawsuits against Travelers under the consumer-protection laws of several states, most of which alleged the insurer's wrongdoing rather than of Manville's.

Travelers agreed to pay another $445 million to settle 26 direct actions on the condition that the bankruptcy court issue a "clarifying order" stating that the direct actions were prohibited by the initial settlement order.

While the bankruptcy judge endorsed the settlement, disputes over his jurisdiction to issue such an order went up to the Supreme Court, which affirmed his decision in 2009.

"The bankruptcy court correctly understood that the direct actions fall within the scope of the 1986 orders, as suits of this sort always have," former Justice David Souter wrote at the time for the majority.

The ruling did not end litigation over the interpretation of the clarifying order.

On Tuesday, a unanimous panel of the 2nd Circuit found that Travelers must pay more than $500 million, more than $65 million of which was pre-judgment interest.

U.S. Circuit Judge Ralph Winter wrote for the panel that it "would defy logic" not to consider the clarifying order final.

Lawyers for the parties did not immediately respond to a request for comment.

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