A trip to the Supreme Court for the “Insurance Neutrality” Doctrine
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The decision in Truck Ins. Exch. v. Kaiser Gypsum Co. (In re Kaiser Gypsum Co.), 60 F.4th 73 (4th Cir. 2023) was decided by the Fourth Circuit, and the appeal was accepted by the United States Supreme Court for hearing in October 2023. You can find an alert regarding the ruling by the Fourth Circuit here.
The Fourth Circuit’s ruling stems from the chapter 11 bankruptcy cases filed by Hanson Permanente Cement, Inc., an affiliate of Kaiser Gypsum Company, Inc.,
and the former (collectively, “Kaiser”). In order to address tort liabilities related to asbestos and the environment, Kaiser filed for bankruptcy in 2016.
Kaiser was listed as a defendant at the time of filing in state courts all over the nation in about 14,000 asbestos-related cases.
The ruling overruled Trust Insurance Exchange (“Truck”), Kaiser’s insurer, which had objected to the proposed chapter 11 plan.
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Truck objected to the plan, claiming Kaiser had violated its insurance policy’s “duty to cooperate” by neglecting to secure certain safeguards against duplicate or fraudulent claims that could have been made against Truck’s insurance.
As per Truck’s claim, Kaiser was obligated by contract to assist Truck in obtaining these protections and to cooperate in “assisting in effecting settlements.”
Contrary to Truck’s assertion, the Fourth Circuit determined that the obligation to cooperate only extended to “traditional litigation activities,” not discussions of chapter 11 plans.
The Fourth Circuit determined that Truck was not a “party” since the plan did not affect Truck’s rights and obligations in any way or breach Kaiser’s obligation to cooperate.
in interest” and did not have the legal authority to challenge Kaiser’s proposal in light of the “insurance neutrality” theory.
A common law bankruptcy standing doctrine known as “insurance neutrality” prohibits insurers from intervening in chapter 11 plan proceedings.
If a plan doesn’t “increase the insurer’s pre-petition obligations or impair the insurer’s pre-petition policy rights,” it qualifies as “insurance neutral.”
Insurance companies have no standing to object to an insurance neutral plan other than to argue that it isn’t insurance neutral because their rights and obligations remain unaffected.
Truck filed an appeal of the Fourth Circuit’s ruling with the US Supreme Court, claiming that a ruling would reconcile the Fourth and Seventh Circuits’ authority disparities—the former two rejecting insurer standing on the basis of the doctrine, while the latter two allow insurer
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stance. Respondents and representatives of asbestos claimants contended that Truck was trying to restrict its liability under the policies it had sold to Kaiser by filing this appeal.
On October 13, 2023, the Supreme Court granted Truck’s petition for certiorari. “Whether an insurer with financial responsibility for a bankruptcy claim is a “party in interest” that may object to a Chapter 11 plan of reorganization” is the question that is put forth.
The Supreme Court’s ruling could have far-reaching effects as it could settle the Circuit Court’s disagreement and define the insurers’ standing in chapter 11 insured cases.
Unknown is the exact date of the decision, but it is expected to be made prior to the Supreme Court’s June 2024 recess. Up until then, parties ought to think about this matter when deciding where to submit a chapter 11 lawsuit.
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