(CN) – A multimillion-dollar settlement between insurance companies and asbestos manufacturer Johns-Manville Corp. barred litigants from suing Travelers Indemnity, one of the nation’s largest insurers, years after Manville’s 1986 bankruptcy reorganization, the U.S. Supreme Court ruled on Thursday.
For about 60 years, Manville was the largest supplier of raw asbestos and the largest manufacturer of asbestos-containing products in the United States. Around the 1970s, studies began to link asbestos to respiratory disease, prompting thousands of lawsuits against Manville and its insurers, including Travelers.
The barrage of litigation forced Manville to file for bankruptcy protection in the early 1980s.
The bankruptcy court set up a trust that would pay all asbestos claims against Manville. It has since paid out more than $3.2 billion to more than 600,000 claimants.
The parties making claims on the trust were not limited to consumers; they included Manville factory workers, retailers and even insurers, who pointed fingers at one another in an attempt to escape liability.
These claims were settled in 1986 when insurers agreed to fork out the bulk of the initial trust by paying $770 million to the bankruptcy estate, $80 million of which came from Travelers. In exchange, insurers obtained an injunction from the bankruptcy court that barred all insurance-related claims stemming from their association with Manville.
“There would have been no such payment without the injunction at the heart of the present dispute,” Justice Souter wrote.
However, more than a decade later, Travelers faced new lawsuits filed under state consumer-protection laws. These so-called “direction actions” accused Travelers of conspiring with asbestos manufacturers and other insurers to hide the dangers of asbestos exposure.
Travelers agreed to pay another $445 million to settle 26 direct actions on the condition that the bankruptcy court clarify that the direct actions were, in fact, prohibited by the initial settlement order.
The bankruptcy court agreed that these actions were inextricably intertwined with the Manville litigation. It noted that after the injunction, “certain plaintiffs’ lawyers violated the letter and spirit of this court’s rulings by simply deleting the term ‘Manville’ from their complaints – but leaving the substance unchanged.”
The court concluded that direct actions “are – and always have been – permanently barred” by the 1986 orders.
The 2nd Circuit reversed the district court’s approval of the settlement, saying the bankruptcy court lacked jurisdiction to enjoin state-law claims.
The Supreme Court again reversed on a 7-2 vote, taking the bankruptcy court’s view.
“The bankruptcy court correctly understood that the direct actions fall within the scope of the 1986 orders, as suits of this sort always have,” Souter wrote.
In a dissent joined by Justice Ginsburg, Justice Stevens argued that the injunction should be limited to claims stemming from Manville’s misconduct, not insurers’ misconduct.