United States: Third Circuit Remands W.R. Grace Decision Concerning Plan Channeling Injunction And Insurance Providers, Providing Additional Insights For Third Parties And Claimants

The Bottom Line

In the wake of asbestos bankruptcies brought on by mass tort liabilities, reorganization plan structures, like that in Johns-Mansville, often funneled asbestos-related claims into a settlement trust, while a "channeling injunction" largely barred claims against the debtor and, in some cases, against certain third parties that had contributed funds to the trust. Congress enacted Section 524(g) of the Bankruptcy Code in order to provide additional clarity regarding the propriety of these channeling injunctions, codifying the required elements for a valid channeling injunction. In a recent Third Circuit decision arising out of the W.R. Grace bankruptcy proceedings, In re W.R. Grace & Co. (Continental Casualty Co. v. Carr), 900 F.3d 126 (3d Cir. 2018), the Third Circuit has provided additional guidance regarding statutory requirements that must be met in order to properly direct claims pursuant to a channeling injunction in accordance with Section 524(g), specifically with respect to insurance companies that have provided insurance to a debtor.  The Court, in vacating the Bankruptcy Court's decision that certain asbestos claims brought against W.R. Grace's insurers may be enjoined, held that the Bankruptcy Court must consider applicable state law principles in connection with a determination as to whether claims fall within the permissible scope of an injunction under Section 524(g)(4). 

What Happened?

Following the bankruptcy filing of W.R. Grace, a settlement trust (the "Asbestos PI Trust") was established to compensate asbestos claimants, and a related injunction (the "Injunction") was approved by the Bankruptcy Court that effectively funneled asbestos claims to the trust and barred claimants from seeking compensation directly from the debtor and certain other identified parties. In connection with the W.R. Grace plan of reorganization, two of W.R. Grace's insurance providers, Continental Casualty Company and Transportation Insurance Company (referred to collectively as "CNA") and W.R. Grace entered into a settlement agreement that called for CNA to contribute $84 million over six years to the Asbestos PI Trust, a portion of which could be reimbursed to CNA for expenditures CNA makes on account of personal injury asbestos claims that are not channeled to the Asbestos PI Trust. 

By way of background, Section 524(g)(4) provides, among other things, that in connection with a plan of reorganization, claims against certain third parties, like insurers, may be enjoined if certain specified conditions are met.  Specifically, Section 524(g)(4)(A)(ii) provides, in relevant part:

[A third-party-claims channeling] injunction may bar any action directed against a third party who is identifiable from the terms of such injunction . . . and is alleged to be directly or indirectly liable for the conduct of, claims against, or demands on the debtor to the extent such alleged liability of such third party arises by reason of [ ] the third party's provision of insurance to the debtor or a related party.

In the instant case, the Injunction, which applied "only to the extent[] provided by [S]ection 524(g)," stated in relevant part:

[T]he sole recourse of the Holder of an Asbestos [Personal Injury] Claim . . . shall be to the Asbestos PI Trust . . .[,] and such Holder shall have no right whatsoever at any time to assert its Asbestos PI Claim . . . against . . . any other Asbestos Protected Party . . . . [A]ll such Holders permanently and forever shall be stayed, restrained, and enjoined from taking any and all legal or other actions or making any Demand against any Asbestos Protected Party . . . for the purpose of, directly or indirectly, claiming, collecting, recovering, or receiving any payment, recovery, satisfaction, or any other relief whatsoever on, of, or with respect to any Asbestos PI Claims . . . other than from the Asbestos PI Trust . . . .

A group of plaintiffs suffering from asbestos exposure (the "Plaintiffs") sought to hold CNA liable under various Montana state law negligence theories. Under the governing insurance documents, CNA was granted the right to inspect certain of W.R. Grace's facilities and the equipment and machinery housed in the facilities. The Plaintiffs argued, among other things, that CNA thereby undertook a duty of care, which it allegedly breached by negligently failing to properly inspect Grace's Libby operations and otherwise to provide proper warnings and other industrial hygiene services to the Plaintiffs. CNA, in response, sought to bar the Plaintiffs' claims through the enforcement of the channeling injunction contained in the W.R. Grace plan of reorganization, as CNA was effectively defined as an "Asbestos Protected Party" under the Injunction. 

Faced with the Plaintiffs' negligence claims, CNA filed a complaint in the Bankruptcy Court seeking a declaration that the negligence claims must be channeled to the Asbestos PI Trust on account of the Injunction. The Bankruptcy Court ultimately ruled in favor of CNA, denying the Plaintiffs' motion to dismiss CNA's complaint and granting summary judgment in favor of CNA.

The Third Circuit, in analyzing the issues presented, focused its attention on two primary questions: Whether the Injunction applied to the Plaintiffs' negligence claims against CNA, and whether under Section 524(g)(4), the negligence claims were barred by the Injunction.

With respect to the issue whether the Injunction, by its terms, applied to claims brought against CNA, the Plaintiffs argued that the Injunction did not bar the negligence claims against CNA because the CNA workers' compensation and employer's liability policies were not expressly included among the policies identified by the Injunction. The Court, however, looked to the applicable catch-all provision providing that the Injunction covered all "known and unknown policies" provided by CNA to W.R. Grace, and determined that the Injunction did indeed apply to the negligence claims.

Turning next to the issue whether under Section 524(g)(4) the negligence claims were properly barred by the Injunction, the Court looked to the three-pronged test set forth in its decision in Combustion Engineering. In Combustion Engineering, the Court determined that under Section 524(g), three prongs must be satisfied in order to permit a channeling injunction to bar actions against third parties. The three-prong test looks to (i) whether the third party is identified as protected in the injunction, (ii) whether the claims brought against the third party seek to hold that third party "directly or indirectly liable for the conduct of, claims against, or demands on" the debtor, and (iii) whether the third party's alleged liability "arises by reason of" one of four identified relationships in Section 524, including the provision of insurance to a debtor.

The first prong (identification) was not contested by the parties, as CNA was expressly identified in the Injunction as a covered party.   

On the issue whether the negligence claims brought by the plaintiffs seek to hold CNA "directly or indirectly liable" for W.R. Grace's conduct, the Court looked to whether the insurer's liability was "wholly separate" from W.R. Grace's liability or instead "depends on it."  This question, according to the Third Circuit, requires a court to analyze the relevant claims and defenses under applicable state law.  Noting that the parties had not submitted any briefing (either in the lower court or before the Third Circuit) regarding which state's law applied or what the relevant examination should be under the applicable state law, the Third Circuit remanded this issue back to the Bankruptcy Court for further briefing and determinations regarding the applicable state law principles on the direct-indirect liability of CNA.  The Third Circuit, however, expressly recognized the underlying policy embedded in Bankruptcy Code Section 524 of incentivizing insurers to contribute to personal injury trusts in order to reduce uncertainty about continuing liability and obligations regarding future personal injury claimants. 

With respect to the final prong, whether the insurer's alleged liability "arises by reason of" its provision of insurance to W.R. Grace, CNA argued that the Plaintiffs' must establish a "but-for" causational relationship between the provision of insurance and the Plaintiffs claims, whereas the Plaintiffs argued that they need only establish that the liability arose from the "legal consequence" of the insurers relationship with W.R. Grace (in other words, that "the relationship, in light of the debtor's conduct or the claims asserted against it, [is] a legal cause of or a legally relevant factor to the third party's alleged liability").  Again, the Third Circuit concluded that the Bankruptcy Court is required to look to applicable state law "to determine the relationship's legal relevance to the third-party's alleged liability."  Accordingly, the Third Circuit remanded this issue as well so that the Bankruptcy Court may analyze, with the benefit of briefing, the elements of the Plaintiffs' negligence claims, and determine whether CNA's relationship with W.R. Grace, grounded in the provision of insurance, is sufficient to meet the elements required under state law.

Why This Case Is Interesting

The Third Circuit's decision addresses a relatively unusual situation: a suit against a debtor's insurer not to recover from its insurance policies for the debtor's liability, but instead to hold the insurer independently liable for its own misconduct. Claims of this sort, the court of appeals ruled, require careful consideration of the law (usually state law) governing Plaintiffs' claims against the insurer. Only by determining whether the insurer's alleged liability is "wholly separate" from the debtor's liability or instead at least partly "depends on it" can the court determine whether the claims sought to be enjoined meet the requirements of Section 524(g) — in particular, the requirements that these claims (i) seek to hold the insurer "directly or indirectly liable" for the debtor's conduct and (ii) "arise[] by reason of" the provision of insurance to the debtor. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions