The U.S. Supreme Court decided Friday to determine whether the bankruptcy court can bind claimants of a chapter 11 debtor’s liability insurer.
Johns Manville Corp. filed chapter 11 bankruptcy in 1982 after being sued for lung cancer and other health-related damages caused by asbestos, a substance found in insulation and fire retardant building materials. The bankruptcy was resolved by the creation of the Manville Trust, a fund was set up for the asbestos tort victims.
The debtor corporation’s liability insurer, Travelers Companies Inc., was sued. Travelers argues that the claims should be paid from the Manville Trust fund. It agreed to settle with some plaintiffs if the bankruptcy court would approve the settlement and bar further lawsuits. The bankruptcy court approved the settlement, but the U.S. Court of Appeals for the Second Circuit did not, saying the bankruptcy court did not have the broad power over claimants of the debtor’s insurer.
The U.S. Supreme Court will determine the extent of the bankruptcy court’s power in two cases consolidated for hearing: The Travelers Indemnity Co. v. Bailey, 08-295, and Common Law Settlement Counsel v. Bailey, 08-307.
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