Bankruptcy Injunction Extends to Debtor’s Insurers

W.R. Grace & Co. (Grace), a Chapter 11 bankruptcy debtor, at one time operated a vermiculite mine, and related mining activities released asbestos-containing dust into the atmosphere. It began facing asbestos-related lawsuits in the 1970s.

Grace filed a voluntary Chapter 11 bankruptcy in 2001, and a plan of reorganization was confirmed in 2014. The plan created a trust for the payment of asbestos personal injury claims. As part of a settlement agreement, one of Grace’s liability, excess, and workers’ compensation insurers, Continental Casualty Company and Transportation Insurance Company (CNA) agreed to pay $84 million into the trust. The plan also included an injunction pursuant to § 524(g) of the Bankruptcy Code, which made the trust the sole recourse for anyone bringing an asbestos personal injury claim against Grace or its insurers.

Subsequently, several claimants brought suit against CNA in Montana, where the mine had been located, alleging that CNA breached duties to them by failing to design adequate industrial hygiene systems for Grace, failing to test or monitor the effectiveness of dust control in the mine, and failing to warn claimants of potential hazards to their health.

CNA filed an adversary complaint in the bankruptcy court alleging that the claims in Montana violated the § 524(g) injunction. The Montana claimants argued that the injunction did not prohibit their actions because they did not seek proceeds from the debtor’s insurance policies or any other part of the debtor’s bankruptcy estate, and therefore the bankruptcy court lacked jurisdiction to enjoin their actions. They further argued that an exception to the injunction for workers’ compensation claims applied.

The court sided with CNA on both issues. As to its jurisdiction to enjoin the suits, the court reasoned that § 524(g) allows bankruptcy courts to enjoin actions against parties related to the debtor, specifically including insurers, to the extent such parties are alleged to be directly or indirectly liable for the conduct of, claims against, or demands on the debtor. The court concluded that the Montana actions alleged that CNA was indirectly liable for Grace’s conduct. Further, the court noted that the settlement agreement between CNA and Grace would require Grace to indemnify CNA for any damages awarded against it in the Montana actions, and that the Montana actions therefore affected the debtor’s bankruptcy estate.

The court then ruled that the workers’ compensation exception applies only to workers’ compensation claims, not workers’ compensation policies. The Montana claims were not workers’ compensation claims; therefore, the exception did not apply.

Read the full decision here.