Truck Insurance Exchange v. Kaiser Gypsum Co., 602 U.S. ___ (2024)
The case involves Truck Insurance Exchange (Truck), the primary insurer for companies that manufactured and sold products containing asbestos. Two of these companies, Kaiser Gypsum Co. and Hanson Permanente Cement (Debtors), filed for Chapter 11 bankruptcy after facing thousands of asbestos-related lawsuits. As part of the bankruptcy process, the Debtors proposed a reorganization plan that created an Asbestos Personal Injury Trust (Trust) to handle all present and future asbestos-related claims. Truck, contractually obligated to defend each covered asbestos personal injury claim and to indemnify the Debtors for up to $500,000 per claim, opposed the Plan, arguing that it exposed them to millions of dollars in fraudulent claims due to different disclosure requirements for insured and uninsured claims.
The District Court confirmed the Plan, concluding that Truck had limited standing to object to the Plan because it was “insurance neutral,” meaning it did not increase Truck’s prepetition obligations or impair its contractual rights under its insurance policies. The Fourth Circuit affirmed this decision, agreeing that Truck was not a “party in interest” under §1109(b) of the Bankruptcy Code because the plan was “insurance neutral.”
The Supreme Court of the United States reversed the Fourth Circuit's decision, holding that an insurer with financial responsibility for bankruptcy claims is a “party in interest” under §1109(b) of the Bankruptcy Code and may raise and appear and be heard on any issue in a Chapter 11 case. The Court reasoned that §1109(b)’s text, context, and history confirm that an insurer such as Truck with financial responsibility for a bankruptcy claim is a “party in interest” because it may be directly and adversely affected by the reorganization plan. The Court also rejected the “insurance neutrality” doctrine, stating that it conflates the merits of an objection with the threshold party in interest inquiry. The case was remanded for further proceedings consistent with the Supreme Court's opinion.
An insurer with financial responsibility for bankruptcy claims is a “party in interest” that may object to a Chapter 11 plan of reorganization.
SUPREME COURT OF THE UNITED STATES
Syllabus
TRUCK INSURANCE EXCHANGE v. KAISER GYPSUM CO., INC., et al.
certiorari to the united states court of appeals for the fourth circuit
No. 22–1079. Argued March 19, 2024—Decided June 6, 2024
Petitioner Truck Insurance Exchange is the primary insurer for companies that manufactured and sold products containing asbestos. Two of those companies, Kaiser Gypsum Co. and Hanson Permanente Cement (Debtors), filed for Chapter 11 bankruptcy after facing thousands of asbestos-related lawsuits. As part of the bankruptcy process, the Debtors filed a proposed reorganization plan (Plan). That Plan creates an Asbestos Personal Injury Trust (Trust) under 11 U. S. C. §524(g), a provision that allows Chapter 11 debtors with substantial asbestos-related liability to fund a trust and channel all present and future asbestos-related claims into that trust. Truck is contractually obligated to defend each covered asbestos personal injury claim and to indemnify the Debtors for up to $500,000 per claim. For their part, the Debtors must pay a $5,000 deductible per claim, and assist and cooperate with Truck in defending the claims. The Plan treats insured and uninsured claims differently, requiring insured claims to be filed in the tort system for the benefit of the insurance coverage, while uninsured claims are submitted directly to the Trust for resolution.
Truck sought to oppose the Plan under §1109(b) of the Bankruptcy Code, which permits any “party in interest” to “raise” and “be heard on any issue” in a Chapter 11 bankruptcy. Among other things, Truck argues that the Plan exposes it to millions of dollars in fraudulent claims because the Plan does not require the same disclosures and authorizations for insured and uninsured claims. Truck also asserts that the Plan impermissibly alters its rights under its insurance policies. The District Court confirmed the Plan. It concluded, among other things, that Truck had limited standing to object to the Plan because the Plan was “insurance neutral,” i.e., it did not increase Truck’s prepetition obligations or impair its contractual rights under its insurance policies. The Fourth Circuit affirmed, agreeing that Truck was not a “party in interest” under §1109(b) because the plan was “insurance neutral.”
Held: An insurer with financial responsibility for bankruptcy claims is a “party in interest” under §1109(b) that “may raise and may appear and be heard on any issue” in a Chapter 11 case. Pp. 7–15.
(a) Section 1109(b)’s text, context, and history confirm that an insurer such as Truck with financial responsibility for a bankruptcy claim is a “party in interest” because it may be directly and adversely affected by the reorganization plan. Pp. 7–13.
(1) Section 1109(b)’s text is capacious. To start, it provides an illustrative but not exhaustive list of parties in interest, all of which are directly affected by a reorganization plan either because they have a financial interest in the estate’s assets or because they represent parties that do. This Court has observed that Congress uses the phrase “party in interest” in bankruptcy provisions when it intends the provision to apply “broadly.” Hartford Underwriters Ins. Co. v. Union Planters Bank, N. A., 530 U.S. 1, 7. This understanding aligns with the ordinary meaning of the terms “party” and “interest,” which together refer to entities that are potentially concerned with, or affected by, a proceeding. The historical context and purpose of §1109(b) also support this interpretation. Congress consistently has acted to promote greater participation in reorganization proceedings. That expansion of participatory rights continued with the enactment of §1109(b). Broad participation promotes a fair and equitable reorganization process. Pp. 7–11.
(2) Applying these principles, insurers such as Truck are parties in interest. An insurer with financial responsibility for bankruptcy claims can be directly and adversely affected by the reorganization proceedings in myriad ways. In this case, for example, Truck will have to pay the vast majority of the Trust’s liability, and §524(g)’s channeling injunction, which stays any action against the Debtors, means that Truck would stand alone in carrying that financial burden. According to Truck, however, a plan that lacks the disclosure requirements for the uninsured claims risks exposing Truck to millions of dollars in fraudulent tort claims. The Government frames Truck’s interest slightly differently, but the result is the same: Where a proposed plan “allows a party to put its hands into other people’s pockets, the ones with the pockets are entitled to be fully heard and to have their legitimate objections addressed.” In re Global Indus. Technologies, Inc., 645 F.3d 201, 204.
Providing Truck an opportunity to be heard is consistent with §1109(b)’s purpose of promoting a fair and equitable reorganization process. Here, the Plan eliminates the Debtors ongoing liability, and claimants similarly have little incentive to propose barriers to their ability to recover from Truck. Truck may well be the only entity with an incentive to identify problems with the Plan. Pp. 11–13.
(b) The Court of Appeals looked exclusively at whether the Plan altered Truck’s contract rights or its “quantum of liability.” This approach, known as the “insurance neutrality” doctrine, is conceptually wrong and makes little practical sense. Conceptually, the doctrine conflates the merits of an objection with the threshold party in interest inquiry. The §1109(b) inquiry asks whether the reorganization proceedings might affect a prospective party, not how a particular reorganization plan actually affects that party. Practically, the doctrine is too limited in its scope. By focusing on the insurer’s prepetition obligations and policy rights, the doctrine wrongly ignores all the other ways in which bankruptcy proceedings and reorganization plans can alter and impose obligations on insurers and debtors. The fact that Truck’s financial exposure may be directly and adversely affected by a plan is sufficient to give Truck a right to voice its objections. Finally, in resisting the text of §1109(b), the Debtors emphasize the risks of allowing “peripheral parties” to derail a reorganization. This “parade of horribles” argument cannot override the statute’s text, and in any event, §1109(b) provides parties in interest only an opportunity to be heard—not a vote or a veto in the proceedings. In all events, the Court today does not opine on the outer bounds of §1109. Difficult cases may require courts to evaluate whether truly peripheral parties have a sufficiently direct interest to be heard. This case is not one of them because insurers such as Truck with financial responsibility for claims are not peripheral parties. Pp. 13–15.
60 F. 4th 73, reversed and remanded.
Sotomayor, J., delivered the opinion of the Court, in which all other Members joined, except Alito, J., who took no part in the consideration or decision of the case.
Judgment REVERSED and case REMANDED. Sotomayor, J., delivered the opinion of the Court, in which all other Members joined, except Alito, J., who took no part in the consideration or decision of the case. |
Judgment REVERSED and case REMANDED. Sotomayor, J., delivered the opinion of the Court, in which all other Members joined, except Alito, J., who took no part in the consideration or decision of the case. |
Judgment REVERSED and case REMANDED. Sotomayor, J., delivered the opinion of the Court, in which all other Members joined, except Alito, J., who took no part in the consideration or decision of the case. |
Argued. For petitioner: Allyson N. Ho, Dallas, Tex.; and Anthony A. Yang, Assistant to the Solicitor General, Department of Justice, Washington, D. C. (for United States, as amicus curiae.) For debtor respondents: C. Kevin Marshall, Washington, D. C. For claimant respondents: David C. Frederick, Washington, D. C. |
Letter of United States submitted. |
Letter from the Solicitor General filed. |
Reply of Truck Insurance Exchange submitted. |
Reply of petitioner Truck Insurance Exchange filed. (Distributed) |
Motion for divided argument filed by respondents GRANTED. Justice Alito took no part in the consideration or decision of this motion. |
Motion of the Solicitor General for leave to participate in oral argument as amicus curiae and for divided argument GRANTED. Justice Alito took no part in the consideration or decision of this motion. |
CIRCULATED |
Record received from the United States Court of Appeals for the Fourth Circuit. The record is electronic and is available on PACER. |
Amicus brief of American Association for Justice submitted. |
Motion of United States for leave to participate in oral argument and for divided argument submitted. |
Amicus brief of Bankruptcy Experts submitted. |
Amicus brief of Co-Chairs of The American Bankruptcy Institutes’ Commission to Study the Reform of Chapter 11 submitted. |
Amicus brief of United Policyholders submitted. |
Brief amicus curiae of American Association for Justice filed. |
Motion of United States for leave to participate in oral argument and for divided argument submitted. |
Brief amicus curiae of United Policyholders filed. |
Motion of the Solicitor General for leave to participate in oral argument as amicus curiae and for divided argument filed. |
Brief amici curiae of Bankruptcy Experts filed. |
Brief amici curiae of Co-Chairs of The American Bankruptcy Institutes, et al. filed. |
Motion of Kaiser Gypsum Company, Inc. and Hanson Permanente Cement, Inc. for divided argument submitted. |
Motion for divided argument filed by respondents. |
SET FOR ARGUMENT on Tuesday, March 19, 2024. |
Record requested from the United States Court of Appeals for the Fourth Circuit. |
Brief of Official Committee of Asbestos Personal Injury Claimants submitted. |
Brief of Kaiser Gypsum Company, Inc. and Hanson Permanente Cement, Inc. submitted. |
Brief of Debtor-Side Respondents filed. |
Brief of respondents Official Committee of Asbestos Personal Injury Claimants, et al. filed. |
Motion to further extend the time to file respondents' brief on the merits granted and the time is extended to and including January 24, 2024. |
Motion of Official Committee of Asbestos Personal Injury Claimants for an extension of time submitted. |
Motion for a further extension of time to file respondents' brief on the merits filed. |
Brief amici curiae of American Property Casualty Insurance Association, et al. filed. |
Brief amicus curiae of United States filed. |
Amicus brief of American Property Casualty Insurance Association and Complex Insurance Claims Litigation Association submitted. |
Amicus brief of United States submitted. |
Brief amici curiae of Anthony J. Casey, et al. filed. |
Amicus brief of Anthony J. Casey, et al. submitted. |
Joint Appendix submitted. |
Brief of Truck Insurance Exchange submitted. |
Joint appendix (volumes I and II) filed. (Statement of costs filed) |
Brief of petitioner Truck Insurance Exchange filed. |
Joint appendix (volumes I andII) filed. (Statement of costs filed) |
Motion to extend the time to file the briefs on the merits granted. The time to file the joint appendix and petitioner's brief on the merits is extended to and including December 7, 2023. The time to file respondents' brief on the merits is extended to and including January 17, 2024. |
Motion of Truck Insurance Exchange for an extension of time submitted. |
Motion for an extension of time to file the briefs on the merits filed by petitioner. |
Petition GRANTED. Justice Alito took no part in the consideration or decision of this petition. |
DISTRIBUTED for Conference of 10/13/2023. |
DISTRIBUTED for Conference of 10/6/2023. |
Reply of petitioner Truck Insurance Exchange filed. (Distributed) |
Brief of respondents Kaiser Gypsum Company, Inc., et al. in opposition filed. |
Brief of respondent Official Committee of Asbestos Personal Injury Claimants in opposition filed. |
Motion to extend the time to file a response is granted and the time is extended to and including September 5, 2023, for all respondents. |
Motion to extend the time to file a response from August 7, 2023 to September 5, 2023, submitted to The Clerk. |
Response Requested. (Due August 7, 2023) |
DISTRIBUTED for Conference of 9/26/2023. |
Brief amici curiae of Anthony J. Casey, et al. filed. |
Petition for a writ of certiorari filed. (Response due June 5, 2023) |