In the term's insurance-related case, the United States Supreme Court held that additional suits were barred against an insurer that participated in a 1986 settlement of asbestos claims and contributed to a trust fund. See Travelers Indemn. Co. v. Bailey, No. 08-295 (U.S. June 18, 2009) [here]. We previously reviewed the Travelers case here.
Before the reorganization, Travelers faced suits by third parties, such as Manville factory workers, seeking compensation under Manville's policies. In 1986, the Bankruptcy Court approved an agreement which enjoined the lawsuits against Johns-Manville Corporation's insurers, including Travelers. The reorganization plan created the Manville Personal Injury Settlement Trust to pay asbestos claims against Manville. Travelers paid $80 million into the Trust.
Over decade later, plaintiffs started filing asbestos actions against Travelers in various state courts under state consumer-protection statutes and for violation of common law duties by failing to warn about the dangers of asbestos. In 2002, Travelers invoked the terms of the 1986 Bankruptcy Orders, seeking to enjoin 26 direct actions pending in state courts. The Bankruptcy Court issued a temporary restraining order. After mediation, a settlement was reached in some of the suits, with Travelers paying $400 million, contingent upon entry of a Clarifying Order by the Bankruptcy Court stating that the direct action suits were prohibited by the 1986 Orders.
Some individual claimants and Chubb Indemnity Insurance Company appealed. The District Court affirmed, but the Second Circuit reversed, ruling that the Bankruptcy Court had no authority to block the direct actions because they involved insurers and not Manville.
The Supreme Court, in a decision by Justice Souter, reversed the Second Circuit. The direct action suits against Travelers fell within the scope of the 1986 Orders, which became final over two decades ago. Further, the Bankruptcy Court retained jurisdiction to enforce its prior injunctions and issue the Clarifying Order. It was error for the Second Circuit to reevaluate the Bankruptcy Court's exercise of jurisdiction in 1986. The time to assert a challenge was on direct appeal of the 1986 Orders.
