The United States Supreme Court Applies Equitable Principles in Favor of Insurers in Enforcing Settlement Trust Order by Bankruptcy Court of Questionable Jurisdiction

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The Supreme Court in Travelers Indemnity Company v. Bailey, 57 U.S. ___ (2009) last week reversed a Second Circuit opinion that could have caused insurance companies concerns when contributing to a settlement fund to resolve mass tort claims in Bankruptcy Court.

More than 20 years ago, in 1986, a federal bankruptcy court issued an order that discharged one of the largest producers of products containing asbestos, Johns-Manville Corporation, and each of its insurers from all future tort liability arising under the company’s indemnity policies. Johns-Manville’s primary indemnity insurer, Travelers, deposited $80 million (the full value of their policies) into a settlement trust for all potential claimants, which was intended to cut-off all of Travelers’ future liability due to relationship with the company.

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