Justices of the U.S. Supreme Court questioned Kaiser Gypsum about why it seemingly doesn’t want its insurer, which objects to the defunct cement maker’s Chapter 11 plan, to be heard in court.
At a hearing Tuesday, the justices heard oral arguments on whether Kaiser insurer Truck Insurance Exchange, which has financial responsibility for most of the bankruptcy claims, is a party in interest that may object to the chapter 11 plan.
Kaiser Gypsum, which was named in thousands of asbestos lawsuits, filed for bankruptcy in 2016. The bankruptcy plan provided for an asbestos settlement trust funded with $49 million from an affiliate, and opened the door for claimants to pursue more money from Kaiser’s insurance policies.
Truck Insurance Exchange has been seeking to overturn a ruling by a federal appeals court that rejected the carrier’s challenge to the restructuring of Kaiser. The insurer says it has the right to be heard because it potentially faces millions of dollars in financial liabilities as it defends 14,000 known pending asbestos claims, and untold future ones, against Kaiser.
The insurer’s opposition centered on arguments that the Kaiser Gypsum bankruptcy plan would allow asbestos injury plaintiffs to pursue fraudulent claims against its policies. Insurance companies have made similar arguments in bankruptcy cases of the Boy Scouts of America and some Catholic dioceses involving sexual-abuse claims.
The insurer has said Congress intended for the reorganization process to have broad participation. Truck wants asbestos claimants to submit to fraud-prevention measures before recovering on their claims.
Kaiser has expressed concerns about allowing its restructuring in bankruptcy court to be derailed.
On Tuesday, Justice Amy Coney Barrett asked Kaiser lawyer Kevin Marshall: “Why are you fighting this so hard? Why do you want Truck to not even be heard?”
Marshall said Kaiser has a good deal with creditors and wants “to be done with bankruptcy.”
“Truck is coming in to try to blow up the deal we have,” he said.
Justice Brett Kavanaugh said Kaiser doesn’t want Truck to be heard.
“You don’t want the fraud prevention provisions but don’t want them to be heard on that,” he said.
George Singer, a Holland & Hart partner who practices commercial law including bankruptcies, said the justices didn’t seem receptive to Kaiser’s position. Singer said neither he nor his firm has any stake in the outcome.
“They really challenged that side with aggressive questions about a party’s right to be heard in a bankruptcy proceeding that seem to foreshadow the united view of the position of that case,” he said. “They don’t seem to be buying debtors’ position that the insurance company funding the lion’s share of the plan shouldn’t have at least have a voice in proceeding.”
Truck had pushed Kaiser Gypsum to add additional antifraud measures to its plan, but the company declined to make such changes, according to the decision from the U.S. Court of Appeals for the Fourth Circuit.
The Fourth Circuit, however, found that the bankruptcy plan didn’t diminish the rights that Truck would normally have to defend itself against insurance claims. Truck is obligated to investigate and defend any claim, even those that are groundless or fraudulent, in the normal course of business, the Fourth Circuit said in its opinion.