Non-Debtor Insurance in Asbestos Bankruptcies: What Is the Future?

In the few short years since <i>Fuller-Austin</i> was decided, the use of "prepack" bankruptcies has become a favored approach to resolving asbestos liabilities, often with the threat of a "<i>Fuller-Austin</i> result" as a hammer over the insurers asked to pick up the tab. Here's the drill: A policyholder uses section 524(g) of the Bankruptcy Code to channel its present and future asbestos liabilities to a trust; under policyholder's reorganization plan, the trust is funded in significant part with insurance rights; the insurers cannot object to the plan because it is said not to affect their interests; yet plan confirmation triggers coverage for the entire liability in an amount (often a nine or 10 digit amount) to be determined at a later date. <i>See Fuller-Austin Insulation Co.</i>, 2002 WL 31005090 (Cal. Sup. Ct. Aug. 6, 2002) (appeal pending). The pressure this <i>Fuller-Austin</i> play puts on insurers leads many to settle their coverage obligations ' often a rational response to a high-stakes game in which insurers have few sources of leverage.

25 minute read April 28, 2005 at 03:00 PM

By

Robert D. Goodman And Steve Vaccaro