Where a primary insurer attempted to block the reorganization plan of its insureds for current and future asbestos personal-injury liabilities, but the plan preserved the insurer’s coverage defenses and the debtors’ obligations under their policies, the insurer lacked standing to object to the plan.
This appeal involves a primary insurer’s attempts to block its insureds’ Chapter 11 reorganization plan, which establishes a trust under 11 U.S.C. § 524(g) for current and future asbestos personal-injury liabilities. The district court concluded in relevant part that the primary insurer, Truck Insurance Exchange, was not a “party in interest” under 11 U.S.C. § 1109(b), and thus lacked standing to object to the plan.
Under this circuit’s “well-established” doctrine of bankruptcy appellate standing, only a party “directly and adversely affected pecuniarily” by a bankruptcy order may appeal that order. The court finds that Truck has standing to appeal the district court’s conclusion that it lacked § 1109(b) standing, either as an insurer or as a creditor, to challenge the plan in the first instance.
By finding that Truck was not a party in interest under § 1109(b), the district court denied Truck standing to otherwise object to the plan in the first instance. Truck’s seeking review of that determination therefore does not equate to an appeal of the “substance” of the plan, which would trigger the rigorous requirements of bankruptcy appellate standing. Rather, it’s an appeal of an adverse § 1109(b) standing determination. That being the case, the bankruptcy appellate-standing doctrine is not implicated.
A plan is insurance neutral if it “does not materially alter the quantum of liability that the insurer would be called to absorb.” If a plan is insurance neutral, the objecting insurer ordinarily is not a party in interest under § 1109(b) and thus lacks standing to challenge the substance of the plan.
Here, the district court held that the plan was insurance neutral because it expressly preserved Truck’s coverage defenses and the debtors’ assistance-and-cooperation obligations under the policies, thereby placing Truck in the same position as it was pre-bankruptcy. In response, Truck asserts that the plan finding impermissibly alters Truck’s policy rights by barring Truck from asserting future coverage defenses based on the debtors’ bankruptcy conduct. And second, Truck contends that the plan reflects a scheme between the debtors and the claimant representatives to expose Truck to fraudulent claims in the tort system.
Regarding Truck’s first argument, the court agrees with the district court that the debtors did not breach their assistance-and-cooperation obligations under the Truck policies by proffering a reorganization plan that lacked Truck’s desired fraud-prevention measures. The court likewise agrees that the debtors did not breach the implied covenant of good faith and fair dealing as that claim is premised on the same conduct just discussed.
Truck’s second argument — that the plan is not insurance neutral because it facilitates fraudulent claims against Truck in the tort system — fares no better. The basis for this claim is the plan’s lack of fraud-prevention measures for insured claims that are to be resolved in the tort system. But what Truck fails to acknowledge is that it was not entitled to those measures before the bankruptcy proceeding. By not instituting Truck’s desired anti-fraud measures, therefore, the plan in no way alters Truck’s pre-bankruptcy “quantum of liability”; it merely retains Truck’s decades-old pre-petition coverage obligations (and defenses). Accordingly, Truck, in its capacity as an insurer, is not a party in interest under § 1109(b) and therefore lacks standing to challenge the plan in that capacity.
Aside from its status as the debtors’ insurer, Truck argues that it is a party in interest with standing to challenge the plan because it is (or at least was prior to confirmation of the plan) one of the debtors’ creditors. But Truck does not raise any objections relating to its interests as a creditor, which is no surprise given that its only claim is fully satisfied under the plan.
Rather, Truck’s objections either relate to its interests as an insurer or don’t implicate its interests at all. In these circumstances, Truck has failed to allege any injury in fact as a creditor—and an unimpaired one at that— giving it Article III standing to object to aspects of a reorganization plan that in no way relate to its status as a creditor but instead implicate only the rights of third parties (who actually support the plan).
In re: Kaiser Gypsum Company, Case No. 21-1858, Feb. 15, 2023. 4th Cir. (Agee), from WDNC at Charlotte (Mullen). Allyson Newton Ho for Appellant. C. Kevin Marshall, Kevin C. Maclay and Edwin J. Harron for Appellees. VLW 023-2-039. 25 pp.