Bankruptcy Court Enforced 20-Year Old Orders Barring Asbestos Claims Against Insurance Company

By:  Amanda Hoffman

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

            In In re Johns-Manville Corporation,[i] the United States Bankruptcy Court for the Southern District of New York enforced orders it issued in 1986, confirming a plan (the “Plan”) of reorganization for Johns-Manville.  Pursuant to the Plan, a settlement agreement was reached in which insurers contributed $770 million to a trust benefitting asbestos personal injury claimants.[ii]  In exchange, the insurers of Johns-Manville, including long-time insurer Marsh USA (“Marsh”), were relieved of all liability related to their insurance of Johns-Manville and the insurers would be protected from claims via injunctive orders of the Bankruptcy Court.[iii] Marsh contributed $29.75 million to the trust in exchange for the injunction, which barred future claimants from bringing action against Marsh as an insurer of Johns-Manville.[iv]  This settlement agreement was approved by the court, resulting in the court entering a confirmation order of the Plan (the “Confirmation Order), and an Insurance Settlement Order, together known as the “1986 Orders”.[v]   Under the 1986 Orders, Johns-Manville and its insurers were released from further liability, but present and future claimants could claim against the trust.[vi]  Part of the settlement agreement included the appointment of a legal representative by the Bankruptcy Court, in order to ensure the rights of future claimants.[vii]

             Parra contracted asbestosis after handling asbestos, and sued certain producers, distributors, and insurers of asbestos products, including Marsh.[viii]  Parra alleged these parties knew or should have known about asbestos-related health hazards.[ix]  Parra filed suit in 2009 claiming Marsh had conspired with other industry related companies to withhold information concerning the dangers of asbestos.[x]  According to Parra, Marsh should be held liable for “negligent undertakings, conspiracy, aiding, and abetting courses of conduct.”[xi]  Parra alleged that Marsh has a “unique” relationship with Johns-Manville, in that Marsh functioned as Johns-Manville’s insurance department, beyond just its broker, maintaining over a forty-year relationship.[xii]  Marsh filed a motion to enforce the 1986 Confirmation Order (“the Motion”) asserting that Parra’s claims are “squarely within” the injunction protection in the 1986 Orders.[xiii]  Parra believed that in order for Marsh’s Motion to be procedurally effective, Marsh would have had to file an adversary proceeding, as per Federal Rule of Bankruptcy Procedure 7001(7).[xiv]  This claim made by Parra was held unfounded.[xv]  The bankruptcy court granted Marsh’s Motion, stating that Marsh is relieved of all liability, consistent with the Confirmation Order.[xvi]

            The core of the parties’ dispute centered on whether the claims set forth in the complaint were barred by the injunctive provisions of the 1986 Orders.[xvii]  The bankruptcy court interpreted the 1986 Order, declaring that the determining factor is not the intent of the parties, but the intent of the issuing court.[xviii]  In U.S. v. Spallone, the United States Court of Appeals for the Second Circuit stated that a lower court’s interpretation of a document is restricted to the “four corners” of the document unless the court must resolve ambiguities.[xix]  As the Supreme Court had determined that the injunctive provisions of the 1986 Orders were not ambiguous,[xx] the bankruptcy court construed the language “related to” broadly, determining that claims against Marsh did relate to Marsh’s insurance coverage of Johns-Manville, and were therefore barred by the injunction.[xxi]

            Parra further contended that the future claimants’ legal representative may have represented him with respect to his claims against Johns-Manville, but the future claimants’ representative did not represent him with respect to his claims against settling insurers, such as Marsh, for such insurer’s independent misconduct.[xxii]  Here, however, the court found that limiting the role of the future claimants’ representative would be inappropriate, as nothing in the bankruptcy court’s order appointing the future claimants’ representative limited the scope of his representation to only claims against Johns-Manville, and not against Johns-Manville’s insurers.[xxiii]  The court further explained that Parra cited no authority and provided no compelling reason for why the representative would be authorized to represent Parra with respect to claims against Johns-Manville but not against the settling insurers, in this case, Marsh.[xxiv]  Since the future claimants’ representative represented Parra against Johns-Manville and Johns-Manville’s insurers (such as Marsh), Parra did receive proper due process as the future claimants’ representative received constitutionally sufficient notice.[i]