The Effect of Bankruptcy on Insolvency Clauses in Insurance Policies: De Facto Pre-emption of State Law or the Mother of All Direct Action Statutes?
Part 1 of 2
by Leonard P. Goldberger Esq., Stevens & Lee PC, Philadelphia
For two aspects of the law that have always had to co-exist, bankruptcy and insurance have never quite managed to get along very well. To this day, it is still an uneasy fit—especially in mass tort bankruptcy cases where insurance coverage is often the most important asset. Indeed, after more than 20 years of dealing with asbestos bankruptcy cases, courts are still wrestling with the threshold issue of whether insurers even have standing to be heard in their policyholders’ bankruptcy cases.
One of fuzzier intersections of bankruptcy and insurance law is the effect of a bankruptcy discharge on the so-called insolvency clause that is contained in just about every insurance policy.
This article will explore this uneasy fit. Part 1 will examine the insolvency clause and discuss the need for certain claimant creditors of the bankrupt policyholder to seek relief from a bankruptcy discharge. Part 2 will consider whether the effect of bankruptcy is a de facto pre-emption of otherwise applicable state law on this insurance contract obligation or the mother of all direct action statutes.
The Next Round in Asbestos “Prepacks”: Are We There Yet?
by Domenic E. Pacitti, Saul Ewing LLP; Wilmington, Del.
Are we there yet? Perhaps! Two asbestos debtors recently filed modified chapter 11 plans that appear to address the Third Circuit Court of Appeals’ ruling in Combustion Engineering Inc., 391 F.3d 190 (3rd Cir. 2004), vacating and remanding the district court’s confirmation order. On June 10, 2005, Congoleum Corporation (Congoleum) filed its fifth modified joint reorganization plan and Modified Disclosure Statement. Two weeks later, on June 24, 2005, Combustion Engineering Inc. (CE), filed its modified reorganization plan and modified disclosure statement. Both CE and Congoleum are seeking authority to resolicit impaired claimants who voted on their prior plans pursuant to §1127(d) of the Bankruptcy Code.