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Supreme Court lets insurer object to asbestos bankruptcy plan

The high court said there should be a broad interpretation of who has a stake in bankruptcy proceedings, ruling that an insurance provider liable for paying asbestos claims can have a say in a construction materials company's bankruptcy plan.

WASHINGTON (CN) — In a ruling on Thursday, the Supreme Court expanded who can object to bankruptcy settlements, giving an insurance company a say in how to settle asbestos injury claims.

The unanimous ruling said Truck Insurance Exchange could object to a construction company’s Chapter 11 bankruptcy reorganization plan.

“An insurer with financial responsibility for bankruptcy claims can be directly and adversely affected by the reorganization proceedings in these and many other ways, making it a ‘party in interest’ in those proceedings,” Justice Sonia Sotomayor wrote for the court. 

The Barack Obama appointee said Truck will have to pay the vast majority of its liability claims — up to $500,000 per claim for thousands of asbestos-injury claims. The current plan, Sotomayor said, would leave Truck alone in carrying that financial burden. 

“That potential financial harm — attributable to Truck’s status as an insurer with financial responsibility for bankruptcy claims — gives Truck an interest in bankruptcy proceedings and whatever reorganization plan is proposed and eventually adopted,” Sotomayor wrote. 

Facing a flood of asbestos exposure and environmental liability lawsuits, Kaiser Gypsum Company and Hanson Permanente Cement filed for Chapter 11 bankruptcy in 2016. The companies’ reorganization plan created a $50 million trust to pay asbestos claims. Kaiser Gypsum and Hanson Permanente would be shielded from future lawsuits under the deal.

The trust would pay the deductibles for insured claims, but the liability claims themselves would be covered by the companies’ insurance provider, Truck. Truck would be responsible for the same claims it covered prebankruptcy, but any liability claim was capped at $500,000.

Truck didn’t like the plan, so it proposed one of its own. Truck wanted to further limit payment caps and change its prebankruptcy rights and obligations.

The bankruptcy court rejected Truck’s proposal and held that the insurer could not object to the original plan because it was not a party of interest in the bankruptcy. The Fourth Circuit affirmed, but the Supreme Court has now reversed the appeals court's ruling.

Sotomayor said courts must determine on a case-by-case basis whether parties have a stake in a bankruptcy reorganization. She said insurers like Truck have financial responsibility for the claim and should be considered a party of interest. 

The provision, Sotomayor said, intended to broadly define who has a voice in bankruptcy proceedings to make sure that a wide range of individuals and minority interests were represented. 

“Broad participation promotes a fair and equitable reorganization process,” Sotomayor wrote. “The Bankruptcy Code seeks to prevent ‘the danger inherent in any reorganization plan proposed by a debtor’ that ‘the plan will simply turn out to be too good a deal for the debtor’s owners.’” 

Justice Samuel Alito did not participate in the ruling. The George W. Bush appointee did not provide an explanation for his recusal.

Follow @KelseyReichmann
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