The Supreme Court recently granted certiorari in Travelers Indemnity Co. v. Baily, Case No. 08-295 (cert. granted Dec. 12, 2008). Although Travelers is a bankruptcy case, it addresses whether a settlement with an insured and its insurers bars future direct action claims against the insurance companies.
The insured, Johns-Manville Corporation, was reorganized in 1986 under protection of the bankruptcy court. Hundreds of thousands of asbestos-related claims were placed into a special trust fund for the benefit of injured workers and their families. Tens of millions of dollars were placed into trust for payment of asbestos claims by Travelers and other insurers in exchange for protection from future claims. The Second Circuit approved the plan in 1986.
The Petitioners sought relief when asbestos claimants attempted to evade the settlement by suing Travelers under direct actions statutes. The bankruptcy court which fashioned the Manville plan of reorganization enjoined the suits. The district court affirmed. But a different panel of the Second Circuit from that which previously approved the plan held the bankruptcy court lacked authority to enter a confirmation order that extended beyond the "res" of the debtor's estate, i.e. the insurance policy proceeds.
The issues before the Supreme Court include whether the Second Circuit erred in deciding that federal bankruptcy relief can be overridden by rights allegedly created under state law. The full question presented as set forth on the Supreme Court's website is here.
Hawaii does not have a statutory direct action against insurers. See Olokele Sugar Co. v. McCabe, Hamilton & Renny Co., 53 Haw. 69, 72, 487 P.2d 769, 773 (1971).
