Non-Settling Insurers Now Have a Seat at the Bankruptcy Table
Justice Sonia Sotomayor delivered the Supreme Court’s unanimous opinion1 in Truck Insurance Exchange v. Kaiser Gypsum Company, Inc., et al. (Case No. 22-1079) (“Kaiser Gypsum”). Reversing the opinion of the United States Court of Appeals for the Fourth Circuit in In re Kaiser Gypsum Co., Inc., 60 F.4th 73 (4th Cir. 2023), the Court held that, pursuant to section 1109(b) of the Bankruptcy Code, “[a]n insurer with financial responsibility for a bankruptcy claim is sufficiently concerned with, or affected by, the proceedings to be a ‘party in interest’ that can raise objections to a reorganization plan.” In doing so, the Court rejected, as “conceptually wrong” and making “little practical sense,” the “insurance neutrality” doctrine that denies insurers the status of parties in interest in confirmation-related matters if the proposed plan neither increases the insurer’s pre-petition obligations nor impairs its rights under the insurance policies it has issued to the debtors. Kaiser Gypsum is an asbestos mass tort Chapter 11 case. A plan of reorganization (“KG Plan”) was confirmed on September 12, 2021. The KG plan provided, inter alia, for uninsured claims to be administered by an asbestos claims trust (“KG Asbestos Trust”), while insured claims were to be resolved through the tort system and paid (less a small deductible) by the debtors’ primary liability insurer,...