Supreme Court to Hear Insurer’s Challenge to Kaiser Gypsum Bankruptcy Plan

The U.S. Supreme Court agreed to hear a case in which an insurance company is challenging a bankruptcy reorganization plan that it says doesn’t protect it against fraudulent claims tied to asbestos exposure.

Source: WSJ | Published on October 17, 2023

Supreme Court on SEC fraud cases

The U.S. Supreme Court agreed to hear a case in which an insurance company is challenging a bankruptcy reorganization plan that it says doesn’t protect it against fraudulent claims tied to asbestos exposure.

Truck Insurance Exchange is seeking to overturn a ruling by a U.S. appeals court that rejected the insurer’s challenge and allowed the bankruptcy reorganization plan of defunct cement maker Kaiser Gypsum to go forward.

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. Insurers have appealed the Boy Scouts of America’s bankruptcy settlement, and are challenging the plan put forward by the Diocese of Camden in New Jersey over similar issues.

Kaiser Gypsum, owned by Germany’s Heidelberg Materials, stopped operating in 1978 and has solely focused on addressing asbestos claims since that time. The company, 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.

The insurer’s objections focused on the disparate treatment under the plan of insured and uninsured claimants. The plan requires uninsured claimants to go through a process to show that their claims were valid and didn’t duplicate claims against asbestos settlement trusts created by other companies. But it  doesn’t require insured claimants to be subjected to the same scrutiny. Truck contended that Kaiser Gypsum’s bankruptcy plan would expose the insurer to millions of dollars in fraudulent claims.

Truck pushed Kaiser Gypsum to add 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 take away the rights Truck would normally have to defend itself against insurance claims even if there was no bankruptcy plan. 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.