PHILADELPHIA - (Mealey's) The Third Circuit U.S. Court of Appeals on May 4 held that insurers have standing to challenge the confirmed Chapter 11 plan of reorganization of Global Industries Technologies Inc. (GIT) (In re: Global Industrial Technologies, Inc., et al., No. 08-3650, 3rd Cir.).
GIT, the leading manufacturer of silica refractories, and certain of its subsidiaries filed for Chapter 11 bankruptcy protection in 2002 in the U.S. Bankruptcy Court for the Western District of Pennsylvania and sought to establish a trust to handle silica-related liabilities arising from historic operations of its A.P. Green (APG) subsidiary.
A number of the company's liability insurers objected to GIT's reorganization plan, which called in part for an injunction under U.S. Bankruptcy Code Section 105 barring silica-related personal injury claims against the reorganized entity and channeling them instead to the APG Silica Trust, which was to be funded with proceeds of insurance settlements reached by GIT. The insurers argued that there is no legitimate need for such a trust because fewer than 200 silica claims had been filed against APG when it filed for bankruptcy; although more than 5,000 alleged silica claimants cast ballots with respect to the plan, the insurers questioned the validity of those claims.
The Bankruptcy Court dismissed the objections, holding in part that Hartford Accident and Indemnity Co. and Century Indemnity Co. lacked standing to challenge the plan, that the plan's insurance neutrality provisions sufficiently protect the insurers' contractual rights and that the Bankruptcy Code preempts restrictions in the insurers' policies on assigning them to third parties. The U.S. District Court for the Western District of Pennsylvania affirmed the Bankruptcy Court's confirmation of the plan and its determination that Hartford and Century lacked standing to challenge the plan.
The insurers appealed to the Third Circuit, with Hartford and Century arguing in part that the Bankruptcy Court erred in concluding that Section 1123(a) of the Bankruptcy Code preempts the anti-assignment provisions in the relevant insurance policies and that the lower courts erred in finding that they lack standing to contest GIT's proposed plan.
In an opinion written by Circuit Judge Kent A. Jordan, a divided Third Circuit held that the insurers meet the standing requirements of Article III of the U.S. Constitution and the Bankruptcy Code to be heard in GIT's bankruptcy proceedings. The panel held that because further factual development may help resolve other issues raised on appeal, the District Court's order is vacated and the case is remanded to the Bankruptcy Court.
The panel said that Hartford and Century "must be afforded the opportunity to be heard concerning whether it is lawful to channel silica-related claims against GIT into a settlement trust in the context of GIT's reorganization."
"The decision we announce is no more far-reaching than this: when a federal court gives its approval to a plan that allows a party to put its hands into other people's pockets, the ones with the pockets are entitled to be fully heard and to have their legitimate objections addressed. In short, they at least have bankruptcy standing," the Third Circuit held.
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