Truck Insurance Exchange is the primary insurer for companies that manufactured and sold products containing asbestos. Two of those companies, Kaiser Gypsum Co. and Hanson Permanente Cement (Debtors), filed for Chapter 11 bankruptcy after facing thousands of asbestos-related lawsuits.

As part of the bankruptcy process, the Debtors filed a proposed reorganization plan. That Plan creates an Asbestos Personal Injury Trust under 11 U. S. C. §524(g), a provision that allows Chapter 11 debtors with substantial asbestos-related liability to fund a trust and channel all present and future asbestos-related claims into that trust.

Truck is contractually obligated to defend each covered asbestos personal injury claim and to indemnify the Debtors for up to $500,000 per claim. For their part, the Debtors must pay a $5,000 deductible per claim, and assist and cooperate with Truck in defending the claims.

The Plan treats insured and uninsured claims differently, requiring insured claims to be filed in the tort system for the benefit of the insurance coverage, while uninsured claims are submitted directly to the Trust for resolution.

Truck sought to oppose the Plan under §1109(b) of the Bankruptcy Code, which permits any “party in interest” to “raise” and “be heard on any issue” in a Chapter 11 bankruptcy. Among other things, Truck argues that the Plan exposes it to millions of dollars in fraudulent claims because the Plan does not require the same disclosures and authorizations for insured and uninsured claims. Truck also asserts that the Plan impermissibly alters its rights under its insurance policies.

The District Court confirmed the Plan. It concluded, among other things, that Truck had limited standing to object to the Plan because the Plan was “insurance neutral,” i.e., it did not increase Truck’s pre-petition obligations or impair its contractual rights under its insurance policies.

The Fourth Circuit affirmed, agreeing that Truck was not a “party in interest” under §1109(b) because the plan was “insurance neutral.”

The United States Supreme Court Reversed in the case of Truck Insurance Exchange v. Kaiser Gypsum Company, Inc. No. 22-1079 (June 2024)

An insurer with financial responsibility for bankruptcy claims is a “party in interest” under §1109(b) that “may raise and may appear and be heard on any issue” in a Chapter 11 case. Section 1109(b)’s text, context, and history confirm that an insurer such as Truck with financial responsibility for a bankruptcy claim is a “party in interest” because it may be directly and adversely affected by the reorganization plan.

“Section 1109(b)’s text is capacious. To start, it provides an illustrative but not exhaustive list of parties in interest, all of which are directly affected by a reorganization plan either because they have a financial interest in the estate’s assets or because they represent parties that do. This Court has observed that Congress uses the phrase “party in interest” in bankruptcy provisions when it intends the provision to apply “broadly.”Hartford Underwriters Ins. Co. v. Union Planters Bank, N. A., 530 U. S. 1, 7.”

“This understanding aligns with the ordinary meaning of the terms “party” and “interest,” which together refer to entities that are potentially concerned with, or affected by, a proceeding. The historical context and purpose of §1109(b) also support this interpretation. Congress consistently has acted to promotegreater participation in reorganization proceedings. That expansion of participatory rights continued with the enactment of §1109(b).Broad participation promotes a fair and equitable reorganization process.”

“Applying these principles, insurers such as Truck are parties in interest. An insurer with financial responsibility for bankruptcy claims can be directly and adversely affected by the reorganization proceedings in myriad ways.”