The U.S. Supreme Court on June 6 unanimously held in Truck Insurance Exchange v. Kaiser Gypsum Company Inc. that insurers with financial responsibility for bankruptcy claims are a “party in interest” that may object to a reorganization plan under Chapter 11 of the Bankruptcy Code.

In 2016, building material manufacturer Kaiser Gypsum Co. and its parent company Hanson Permanente Cement (hereinafter collectively, Kaiser) filed for Chapter 11 bankruptcy after facing numerous asbestos lawsuits. Kaiser proposed a reorganization plan under Section 524(g) of the Bankruptcy Code, which allows a Chapter 11 debtor with substantial asbestos-related liability to establish a trust that assumes that liability.

Kaiser’s resulting Asbestos Personal Injury Trust ultimately treated insured and uninsured claims differently. Under the plan, uninsured claims were submitted directly to the trust for resolution and, to prevent fraud, claimants were required to identify all related claims and file a release authorizing the trust to obtain documentation from other asbestos trusts about their submitted claims. Insured claims, however, were to be filed in the tort system without the disclosure requirements applicable to uninsured claims.

Truck Insurance Exchange — Kaiser’s primary insurer for asbestos-related claims — objected to Kaiser’s Asbestos Personal Injury Trust as it did not require the same disclosures and authorizations for insured and uninsured claims. According to Section 119(b) of the Bankruptcy Code, a “party-in-interest” may “appear and be heard on any issue” in a Chapter 11 proceeding, including on a reorganization plan. The bankruptcy court, however, concluded that Truck could not object to the Asbestos Personal Injury Trust because Truck was not a party-in-interest. The district court and Fourth Circuit both affirmed.

In a unanimous 8-0 opinion, the Supreme Court reversed, holding that “Section 119(b)’s text, context, and history confirm that an insurer such as Truck with financial responsibility for a bankruptcy claim is a ‘party in interest’ because it may be directly and adversely affected by the reorganization plan.” The court explained that the plain meaning of “party in interest” refers to “entities that are potentially concerned with or affected by a proceeding” and that the historical context and purpose of Section 1109(b) supports that interpretation because “Congress consistently has acted to promote greater participation in reorganization proceedings,” which promotes fairness in the proceedings. Thus, the court concluded that insurers with financial responsibility for bankruptcy claims are parties in interest.

It is now clear that insurance companies have a say in how asbestos injury claims are settled. Going forward, insurers can lodge objections to asbestos bankruptcy plans by showing that they have financial responsibility for bankruptcy claims.