Chapter 11 Strategies After Truck Ins. Exchange v. Kaiser Gypsum: Insurer Rights in Policyholder Bankruptcies

Truck Insurance held that an insurance company with financial responsibility for a bankruptcy claim is a "party in interest" with a right to be heard in the case because it may be directly and adversely affected by the reorganization plan. Bankruptcy attorneys can expect this rationale to be put forward increasingly in Chapter 11.

Policyholder bankruptcies have the potential to impact insurer rights and obligations in a variety of ways, including: altering the parties rights under insurance policies, altering the relationship between and among policyholders known after a bankruptcy filing as “debtors,” insurers, and claimants; creating the potential for assignment of insurance proceeds, possibly accelerating the obligations of insurers, impacting self-insured retentions, and altering the manner in which claims are defended. Bankruptcy also creates opportunities for insurers such as obtaining channeling injunction protection and broad releases.

Insurance neutrality provisions often are included in plans of reorganization. Properly worded and deployed, they can provide some protection for insurers from having their insurance policy rights impaired. However, some insurers contend that even the best of these provisions cannot guarantee that insurer rights are not altered as part of the bankruptcy process. Insurers argue that often such provisions are insufficient and have been improperly employed to limit insurer standing to raise issues and challenge matters impacting their rights.

Billions of dollars reside in asbestos and mass tort trusts resulting from bankruptcies, and many insurers believe that the bankruptcy process and bankruptcy trusts have been used to perpetuate mass fraud. Debtors and claimants often complain that insurer participation can delay approval and operation of a plan of reorganization, increase expenses, and frustrate the process. Courts in the respective federal circuits have taken different approaches to insurer standing prior to Truck Insurance. Counsel representing various parties in the bankruptcy process will want to consider the impact of the Supreme Court decision and strategies going forward.

Listen as this experienced panel discusses the broad and unanticipated implications of Truck Insurance on insurers, debtors, injured plaintiffs, and other key bankruptcy participants.

1. Overview of Truck Insurance Exchange v. Kaiser Gypsum Co. Inc.
2. Possible ways to address specific objections raised by Truck Insurance
3. Strategies going forward

The panel will consider these and other key issues:

• Whether and how the Truck Insurance decision will alter the landscape of Chapter 11 proceedings that involve policyholders facing mass tort and other multiple-victim claims?
• Can all insurers take advantage of Truck Insurance or just those who actually have accepted financial responsibility for claims?
• What is the role and content of insurance neutrality provisions in the wake of Truck Insurance?
• What is the role and content of the standing doctrine in the wake of Truck Insurance?
• Is the next step for insurers to try to create/find an argument that their interest can be leveraged into a voting right? Is the right to object tantamount to the right to vote?
• Can a plan to which insurers do not consent be confirmed?
• If insurers raise coverage issues, will bankruptcy courts weigh in on policy interpretation or insurance law?
• What does the duty to cooperate look like for a debtor-in-possession?
• What impact will additional insurer participation have on settlement and resolution of claims and on the substance of trust distribution procedures?
• Will additional participation of insurers delay proceedings, alter resolution, and decrease the fraud, duplicative recoveries, excessive compensation, and compensation to uninsured claimants that insurers contend is taking place?