Federal District Court for the Eastern District of Louisiana Grants Motion to Stay as to All Parties Where Insurer for Certain Defendants Declared Insolvent

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U.S. District Court for the Eastern District of Louisiana, July 15, 2021

In an action by the plaintiff, former employee of a shipyard, for injuries related to asbestos inhalation and subsequent mesothelioma, the shipyard’s insurer moved to stay all proceedings due to the insurer’s being placed into liquidation in the Commonwealth Court of Pennsylvania as a result of insolvency.

Bedivere Insurance Company, which included by merger Lamorak—the insurer for the several defendants in the action—was declared insolvent and placed in liquidation in March 2021. The insurer moved to permanently stay the action on the basis of the Liquidation Order issued by the Pennsylvania court, which ordered that actions against Bedivere itself were stayed and should be pursued by a claim against its estate pursuant to Pennsylvania law. The insurer also argued that it was entitled to an automatic stay for six months under Louisiana law as to the insureds for which it was providing a defense, and finally that the court should issue a stay under its inherent authority.

The plaintiff, while not disputing that staying claims against the insurer was appropriate, argued that the motion should be denied as to all defendants other than the insurer itself, or in the alternative that the claims related to the insurer and its insureds should be severed and its motion dismissed as moot. All the defendants opposed severance on the basis that the plaintiff’s claims against all defendants arise from the same transaction or occurrence and concern common questions of law or fact.

The court granted the stay as to the insurer, noting Fifth Circuit precedent that allowing a claimant to proceed in federal court while a state insolvency proceeding would “usurp the state’s control over the liquidation proceeding” in contradiction of the federal policy that control of the insurance business remains in the hands of the states and the Full Faith and Credit Clause. The court further granted the stay as to the insureds of the insolvent insurer, holding that staying claims against the insurer but allowing claims against the insureds to proceed would be prejudicial to the insured parties and would frustrate judicial economy, as all the claims arose from the same transaction or occurrence, namely the asbestos exposure of plaintiff while employed by the shipyard. The court also cited judicial economy and undue prejudice to the parties in declining the plaintiff’s motion to sever.

The chief judge granted the motion to enforce the stay, then stayed and administratively closed the action, setting a status conference in lieu of continuing a trial date.

Read the full decision here.