Travelers Indemnity Co. v. Bailey

2009-06-18

Headline: Bankruptcy injunction enforced: Court reverses appeals court and upholds 1986 Manville plan injunction, blocking many state-law lawsuits against the insurer and limiting challenges to that long-final order.

Holding: The Court rules that the 1986 bankruptcy injunction covers state-law claims against Manville’s insurers for alleged insurer misconduct and that finality of those orders generally bars collateral challenges to their enforceability.

Real World Impact:

Bars many state lawsuits against insurers alleging independent wrongdoing.
Protects insurers who funded the bankruptcy settlement from collateral attacks.
Leaves open questions about notice and whether each defendant is bound.

Topics: bankruptcy injunctions, asbestos lawsuits, insurance liability, finality of judgments, state tort claims

Summary

Background

In the 1980s Johns-Manville, a company that made asbestos products, faced massive claims and filed bankruptcy. Manville and many insurers, including Travelers, agreed to fund a trust and the Bankruptcy Court entered injunctions that blocked “Policy Claims” against the insurers. Years later people filed state lawsuits against Travelers alleging the insurer hid asbestos risks or misused information it learned from Manville. Travelers asked the bankruptcy court to clarify that the 1986 orders barred those suits, and the court approved settlements and a Clarifying Order. The Second Circuit disagreed, but the Supreme Court reviewed the issue.

Reasoning

The Court asked whether the 1986 injunctions, as written, cover state-law suits against an insurer for conduct tied to its insurance relationship with Manville. The Court focused on the order’s broad language—covering “claims” and even “allegations” “based upon, arising out of or relating to” the policies—and on the bankruptcy court’s factual findings that Travelers’ knowledge and actions flowed from its role as Manville’s insurer. The Court concluded those state suits fall within the injunction and that the 1986 Orders, having become final on direct review, generally cannot be attacked in collateral proceedings enforcing the injunction.

Real world impact

Many plaintiffs who brought state-law claims against Manville’s insurers for alleged independent wrongdoing may find those suits barred if the claims are tied to the insurers’ relationship with Manville. Insurers who contributed to the Manville settlement gain broader protection. The Court left open unresolved questions, including whether each defendant received constitutionally adequate notice and other issues to be decided on remand.

Dissents or concurrances

Justice Stevens (joined by Justice Ginsburg) dissented, arguing the 1986 order should be read to bar only claims that seek Manville’s insurance proceeds and not independent claims directly against insurers.