Wrongful Death Claim Unrecoverable from Asbestos Settlement Trust

By: Michael Quintman

St. John’s University School of Law

American Bankruptcy Institute Law Review Staff

Section 524(g) of title 11 of the United States Code (the “Bankruptcy Code”) allows a debtor in a Chapter 11 case to establish a trust for the purpose of settling personal injury claims against the debtor based on exposure to asbestos-containing products.[1] In Darden v. Western Asbestos Settlement Trust, the United States Bankruptcy Court for the Northern District of California held that a 524(g) trust could not pay a wrongful death claim arising under California law because recovery under that law is based on the pecuniary injury suffered by loss of a relative, and not for the asbestos exposure which the trust was created to compensate.[2]

In March 1983, Edward Darden commenced litigation in a California state court against certain asbestos companies for claims arising from asbestos-related diseases.[3] In 1986, in consideration for $1,300, Mr. Darden executed a Compromise and Release (the “Release”), pursuant to which he released Western MacArthur Company from all potential asbestos-related claims.[4] In 2002, Western MacArthur, and certain affiliates (the “Debtors”) filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code with the Bankruptcy Court for the Northern District of California. In 2004, the Bankruptcy Court confirmed the Debtors’ plan of reorganization (the “Joint Plan”), creating the Western Asbestos Settlement Trust (the “Trust”).[5] The Trust, primarily funded by the Debtors’ insurance, created procedures for asbestos claimants (the “Trust Documents”) to submit claims, the evaluation of those claims, and the payment of a percentage of the claims’ respective values.[6] Edward Darden was later diagnosed with mesothelioma and submitted a claim with the Trust which his wife succeeded to before his death.[7] The claim was denied, and in May 2020, Darden’s wife and children (collectively, the “Dardens”) commenced an adversary proceeding seeking declaratory relief that the Trust must compensate them for Edward Darden’s illness and wrongful death, irrespective of the Release.[8] The Trust answered the Dardens’ complaint and asserted cross-claims seeking declaratory relief that it was released from paying the claims, and that wrongful death claims are preempted by the terms of the Joint Plan.[9] On August 5, 2021, the Court determined that the Release signed by Edward Darden barred his family’s recovery from the Trust for Mr. Darden’s asbestos-related injuries, and granted the Trust’s summary judgment motion, dismissing the Darden’s personal injury claims against the Trust while not addressing the separate issue of the family’s wrongful death claims against the Trust.[10] On the remaining issue of the Trust’s liability for the Dardens’ wrongful death claim, the family proceeded with an argument that, notwithstanding the Trust’s release for the family’s personal injury claim against it, a distinct claim against the Trust for wrongful death could proceed based on California law.[11]

It is well established that a confirmed Chapter 11 plan of reorganization creates a contract between the debtors and their creditors.[12] Here, according to the Court, the Trust Documents created a structure for compensating those exposed to asbestos that was fundamentally driven by the claimant’s asbestos-caused medical diagnosis.[13] However, the Joint Plan and the related trust documents did not provide a procedure to address claims that did not arise from exposure to asbestos, such as the Dardens’ wrongful death claim.[14]

California Code of Civil Procedure § 377.60 authorizes a wrongful death action based in a decedent’s heirs own loss of their relative, and is distinct from the injuries of that relative.[15] Accordingly, the Bankruptcy Court noted that “[t]he power to release a wrongful death cause of action on behalf of an heir . . . belongs to the heir, not the decedent.”[16] Because Edward Darden alone signed the Release, the Court ruled the heirs were not bound to it for a wrongful death claim, and granted summary judgment in their favor on whether the Dardens possessed a wrongful death claim.[17] While the Dardens possessed a wrongful death claim, the Court found that the Trust Documents provided no mechanism for compensation based on that cause of action because the claim arose out of the loss of a loved one and not injuries related to asbestos exposure.[18]