As a follow-up to our recent post about the Imerys Talc bankruptcy proceedings (the chapter 11 cases filed by a supplier of talc to cosmetic and other companies, like Johnson & Johnson), last week the Imerys Debtors brought suit in their Chapter 11 cases against two affiliated coal companies.

The new adversary proceeding relates to the ownership of insurance policies with proceeds estimated in the hundreds of millions of dollars.  The Debtor claims that pursuant to an agreement entered into in 1992, it owns the policies despite that the policies previously provided coverage to the coal mining companies (Cyprus Mines Corp & Cyprus Amax Minerals Co) between 1961 and 1986.

Prior to the Debtors’ filing suit, the Cyprus entities filed an emergency motion in the Debtors’ bankruptcy case seeking relief from the automatic stay to use the insurance policies and proceeds to cover their own costs and legal fees related to approximately 700 pending and future lawsuits in which plaintiffs claim that talc contained asbestos and caused cancer.  Generally, the automatic stay (section 362 of the Bankruptcy Code) prevents creditors from taking action against the debtor’s assets.

Before filing its chapter 11 case, Imerys had been involved in the Cyprus lawsuits and had been defending & indemnifying Cyprus.  In Cyprus’s emergency motion, the Cyprus entities claim that the Debtors’ bankruptcy filing was a “surprise” and that the any liability imposed on Cyprus in these lawsuits rests with the Debtors.  In the new adversary Complaint, the Debtors seek injunctive and declaratory relief that (1) the Debtors own all of the rights to the insurance policies and (2) the automatic stay prohibits the Cyprus companies from accessing the proceeds of such policies.

As these issues are just taking shape, we will continue to monitor them.  Insurance policies are often at the center of various bankruptcy litigation matters, including directors and officers liability and fiduciary claims, and accordingly, this case may result in new precedent and decisions out of the Delaware Bankruptcy Court that is relevant to our practice more broadly.  Stay tuned.

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