The Supreme Court ruled unanimously on June 6 that an insurance company has standing to challenge a bankruptcy reorganization plan that it claims will leave it open to paying fraudulent asbestos exposure claims.
The Supreme Court's decision in the case could affect mass tort bankruptcies in which organizations such as the Boy Scouts of America and various Roman Catholic dioceses use bankruptcy courts to deal with liabilities arising out of personal injury claims.
Truck Insurance had objected to Kaiser's bankruptcy plan because it failed to provide anti-fraud protections regarding the insured claims, which could mean that the insurer would be responsible for invalid claims.
The Fourth Circuit previously affirmed the ruling of the U.S. Bankruptcy Court for the Western District of North Carolina, which held in 2020 that the insurer didn't have standing to contest the plan because it wasn't a "Party in interest," according to bankruptcy law.
At issue was the "Bankruptcy standing" doctrine, which, along with the associated "Insurance neutrality" rule, prevents an insurer from participating in bankruptcy unless the insurer can show that the plan formally alters the "Quantum of liability" under the insurer's contracts.
The insurance neutrality rule prevents the insurer from objecting to a reorganization plan even when, as in this case, the insurer bears near-exclusive financial responsibility for the claims under the plan, according to the insurer's petition filed with the Supreme Court.
In the new opinion, Justice Sotomayor wrote that the Bankruptcy Code permits any "Party in interest" to "Raise" and "Be heard on any issue" in a Chapter 11 bankruptcy proceeding.
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