Thorpe Insulation Co. v. Motor Vehicle Causality Co.

Non-Settling insurance carriers have standing to appeal § 543(g) bankruptcy reorganization plans when the Court is able to order modification or reversal of the plan and the plan has potentially adverse effects on insurance providers.

Thorpe Insulation Company (Thorpe) distributed, installed, and repaired asbestos products leading to a substantial number of employees filing asbestos-related claims. Thorpe purchased insurance policies with many companies that covered “product claims” including asbestos related injuries. These companies handled the defense and settlement of the asbestos suits. Thorpe filed a § 534(g) joint plan of reorganization, a special bankruptcy provision for companies facing asbestos related litigation. By establishing the plan, Thorpe reached settlements with thirteen insurers providing for funding of the trust in exchange for release of insurance claims and protections of 524(g) injunctions. The plan includes an insurance neutral clause with a number of exceptions. The bankruptcy and district court affirmed the plan and two “non-settling” insurance carriers appealed arguing that the plan was not made in good faith and did not comply with § 524(g). Thorpe argued that the “non-settling” insurance carriers were unable to appeal because the appeal is moot and they do not have standing. The Ninth Circuit held that the claim was not constitutionally or equitably moot because the Court could reverse plan confirmation or require modification, thereby giving relief to the “non-settling” insurance companies. The Court also concluded that the plan may economically affect “non-settling” insurance carriers in substantial ways and therefore have standing. They found that the plan is not insurance neutral when it may have a substantial economic impact on insurers. The plan allows claims against non-settling insurance carriers, allows the trust to seek indemnification from the insurers, and terminates their ability to brings claims against the other settling insurers. REVERSED AND REMANDED.