Originally published in Law 360 - June 7, 2011.

The Third Circuit recently reached a sharply divided en banc decision concerning insurer standing to object to a debtor-policyholder’s bankruptcy plan in In re Global Industrial Technologies Inc., No. 08-3650 (3d Cir. May 4, 2011) (“GIT”). Some insurers have portrayed GIT as a major reversal in the law recognizing limited insurer standing to object to policyholder bankruptcy plans. Upon analysis, however, GIT is a narrow ruling that is unlikely to be followed outside the Third Circuit. Indeed, courts outside of the Third Circuit may find that GIT’s dissenting majority got the issue right.

Even if the insurers’ broader reading of GIT were warranted, however, it may well turn out to be a decision those insurers rue, as it would likely result in substantially increased litigation of insurance-related issues, with increased risk to insurers, in asbestos-related bankruptcies.

In GIT, the Third Circuit reiterated its prior holding in Combustion Engineering, 391 F.3d at 200-01, that where a bankruptcy plan includes “insurance neutrality” language, insurers lack bankruptcy standing to object to portions of a bankruptcy plan that do not directly affect their interests. Slip. Op. at 26. The GIT court, however, found that a plan that gave life to dormant silica claims cannot be said to be insurance neutral. See id. (“The Plan’s promise of an APG Silica Trust appears to have staggeringly increased — by more than 27 times — the pre-petition liability exposure” for silica claims.)

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