In Re: Plant Insulation Co.

Chapter 11 reorganization of asbestos manufactures is subject to § 524(g) and provides a broad equitable power that accounts for the interests of both present and future asbestos claimants; a trust is required to serve as a fiduciary for the future claimants and that trust must be given a majority of the voting shares of the reorganized debtor.

Plant Insulation Co. (“Plant”) is a California Insulation company that manufactured asbestos Fiberboard insulation. Plant has many insurers that have been defending against lawsuits and settling claims since the 1970s. Some insurers dropped Plant because Plant had exhausted its policy benefits. Others settled with Plant by repurchasing their policies for cash in order to avoid ongoing litigation. Finally, there are a small number of non-settling insurers who still hold a duty as remaining insurers. The settling insurers repurchased their policies with “guarantees of complete peace from future litigation,” and the non-settling insurers were enjoined from bringing any equitable relief claims against the settling insurers. The bankruptcy court accepted the reorganization plan, and the district court affirmed. On appeal, the non-settling insurers argued that a § 524(g) bankruptcy does not permit any injunction protecting insurers from contribution claims. Independently, a question arose whether the reorganization plan with a “court-appointed fiduciary stand[ing] in for future asbestos claimants” was fair and equitable. The Ninth Circuit interpreted the statute to permit injunctions like the one given to the settling insurers, and found that the plan was fair and equitable to future plaintiffs. However, the panel vacated the lower courts’ rulings because the plan “did not satisfy the requirement that the trust” created for future plaintiffs’ interests own a majority of the voting shares of the reorganized debtor. REVERSED and REMANDED.