The ongoing case of Truck Insurance Exchange v. Kaiser Gypsum Co. appears to have garnered the Supreme Court justices’ sympathy for the insurance company involved. During the proceedings, a technical question under the Bankruptcy Code was discussed, aiming to ascertain when an entity qualifies as a “party in interest” under the statute. This status affords it the right to “be heard on any issue” in a Chapter 11 proceeding.
The debtor company, known to have been involved in asbestos-related business, claimed that it would comply fully with its insurance contracts; this meant paying all its due deductibles, full to the dollar. The argument set forth is that, consequently, the insurance company cannot intervene in the bankruptcy court about the exclusion of anti-fraud stipulations from the plan, accusing it of “bad faith”.
The argument placed by the insurance company was defended by Allyson Ho, who spent a significant part of the procedure dealing with challenging speculations about whether an entity can be considered a “party in interest” without any relevant reason to believe that the plan would directly affect it.
Both Justice Brett Kavanaugh and Sonia Sotomayor expressed their concerns. Kavanaugh underscored the “common sense” that an insurer would naturally hold an interest in the case, pointing to fraud prevention stipulations that would exclusively benefit the insurance company—a point which the debtor has refused to include in the plan.
Sotomayor, on the other hand, focused on the apparent conflict of interest. The debtor has only included the fraud prevention provisions for claims that it would pay, excluding these protections for claims filed with the insurance company. This led her to question, “So who’s protecting the insurer? … [W]hat you’re suggesting to us is that they don’t have a right to say the plan is violating a bunch of other provisions of the Code”, she argued.
For more detailed information and updates on Truck Insurance Exchange v. Kaiser Gypsum Co., refer to the detailed coverage by SCOTUSblog here.