Unanimous Supreme Court rules in favor of airline in bankruptcy decision | Insurance business America
Insurers could save millions as the court gives policyholders more say when they are in Chapter 11
Insurance News
By Matthew Sellers
In a major decision, the United States Supreme Court has ruled in favor of Truck Insurance Exchange (Truck), recognizing its status as an “interested party” in the Kaiser Gypsum Company, Inc. bankruptcy reorganization proceeding.
The decision reverses the Fourth Circuit’s earlier decision and has significant implications for the role of insurers in bankruptcy cases that involve significant financial liabilities.
Kaiser Gypsum Company, Inc. and its parent company, Hanson Permanente Cement, Inc., both faced massive liabilities from asbestos-related claims, resulting in them filing for Chapter 11 bankruptcy.
As primary insurer, Truck Insurance Exchange is liable for up to $500,000 per asbestos claim under its Kaiser Gypsum policies covering periods from 1965 to 1983. Truck objected to the proposed restructuring plan, arguing that it lacked the necessary disclosure requirements to prevent fraudulent claims, which could cost the insurer millions of dollars.
Justice Sonia Sotomayor, who delivered the court’s opinion, emphasized that Section 1109(b) of the Bankruptcy Code permits the hearing of any “interested party” in Chapter 11 proceedings.
The Supreme Court concluded that an insurer with financial responsibility such as Truck is considered a “party in interest” due to the potential direct and adverse effects of the restructuring plan.
The lower courts had rejected Truck’s objections, asserting that the plan was “insurance neutral” and did not change Truck’s pre-bankruptcy obligations or rights. However, the Supreme Court found this approach flawed, finding that Section 1109(b) is designed to determine who has the right to participate based on the potential impact, not the details of the plan’s benefits.
What are the implications for insurers?
This decision highlights the role of insurers in insolvency proceedings where their financial interests are at significant risk. The ruling ensures that insurers can raise objections and actively participate in negotiations to protect their interests from potentially harmful recovery plans.
Here are some key points from the decision:
- Broad definition of “party in interest”: The Court reiterated that Section 1109(b) should be interpreted broadly to allow parties with a direct financial interest to participate.
- Financial Responsibility Impact: Insurers with financial obligations arising from insolvency claims are directly affected and therefore have the right to be heard.
- Rejection of the doctrine of “insurance neutrality”: The court rejected the notion that insurers could object only if their contractual rights were directly altered by the plan.
Justice Samuel Alito, who was widely criticized for flying an upside-down U.S. flag in his yard, did not participate in the review or decision of this case.
What do you think about this story? Please share your comments below.
similar posts
Stay up to date with the latest news and events
Join our mailing list, it’s free!
Source link
2024-06-07 15:32:57
www.insurancebusinessmag.com
