In re Thorpe Insulation Company: The Non-Settling Insurers Strike Back


On January 24, 2012, Judge Ronald M. Gould of the U.S. Court of Appeals for the Ninth Circuit held that an appeal filed by certain insurance companies with respect to a plan confirmation order was not moot and that such insurance companies had standing to object to the plan, notwithstanding the Debtors’ contention that the plan was “insurance neutral” because it did not affect insurer’s legal rights.  The Ninth Circuit remanded the plan confirmation to the Bankruptcy Court for further consideration.  This decision highlights the fact that a plan of reorganization can be reopened after confirmation, to deal with certain issues, including concerns raised by insurers.  In re Thorpe Insulation Company, Case No. 10-56543 (9th Cir. 2012).

The Debtors financial problems stemmed from Thorpe’s involvement in the distribution and repair of asbestos insulation products between 1948 and 1972.  Since 1948, Thorpe’s insurers had paid over $180 million defending or indemnifying Thorpe.  Due to the seemingly endless onslaught of asbestos-related claims, Thorpe and its affiliates were filed for bankruptcy protection in October 2007.

In May 2008, the Debtors filed a plan of reorganization centered around the section 524(g) of the Bankruptcy Code, which sets forth unique provisions for the resolution of present and future asbestos claims.  Specifically, the plan called for the creation of an asbestos trust and the issuance of multiple, sweeping injunctions that barred present claimants and future claimants from asserting asbestos related claims, including claims for contribution, against the Debtors and directly or indirectly liable third parties (e.g. the Debtors’ insurance companies).  Such claims were channeled under the plan to a “Trust Advisory Committee” which was tasked with overseeing claims allowance and valuation and directing distributions from asbestos trust.  However, the injunctions only protected the insurers with whom the Debtors had reached a settlement.  Moreover, although the plan was allegedly insurance neutral, the plan expressly limited the insurance defenses available to the “Non-Settling Insurers.”

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