NEW YORK (Legal Newsline) – Insurers looking for evidence of double-dipping in the asbestos recovery system won a legal battle earlier this month when a federal bankruptcy judge refused to strike the subpoenas they issued to the body that processes asbestos personal injury claims.
It’s all taking place in the bankruptcy proceeding of Rapid-American Corporation, which filed for Chapter 11 reorganization in 2013 because it was facing approximately 275,000 asbestos claims. Rapid-American’s predecessor companies include The Philip Carey Manufacturing Co., which made and distributed asbestos-containing products.
On Feb. 12, U.S. Bankruptcy Judge Stuart Bernstein, of the Southern District of New York, decided not to issue a protective order against the insurers’ subpoenas, which were served on July 31. The order was requested by Rapid-American, the Official Committee of Unsecured Creditors and the Future Claimants’ Representative.
Bernstein
Bernstein ruled that those three lacked standing to challenge the subpoenas because they were issued to a different group, the Claims Processing Facilities. The insurers are seeking information on whether individuals asserting claims against Rapid-American have also submitted claims to the dozens of other companies that have formed similar bankruptcy trusts.
“(T)he Committee makes the novel argument that it has standing to object to the subpoenas because they seek information about Rapid’s creditors and the Committee owes a fiduciary duty to protect the privileged information of its constituents. The theory is sound and unsupportable,” Bernstein wrote.
“A creditors’ committee represents the body of creditors, not individual creditors or sub-groups within its constituency. Otherwise, a creditors’ committee could never object to a claim or oppose relief sought by one of its constituents that, if granted, would prejudice the creditor group as a whole.”
During the bankruptcy proceeding, Rapid-American filed an adversary proceeding in 2015 in an effort to obtain insurance coverage from Travelers, St. Paul and National Union Fire Insurance Company of Pittsburgh.
The insurers have denied coverage. In issuing the subpoenas on the Claims Processing Facilities, they seek to uncover exposure dates already alleged by Rapid-American claimants against other bankruptcy trusts, as well as if those claimants have alleged they were exposed to other non-Rapid American products.
“(I)f Plaintiffs expect Defendants (the insurers) to provide coverage for the underlying claims, Defendants are entitled to all such claimant information before a claim can be processed,” the insurers argued.
“As such, Plaintiffs’ claim that such claimant information should be protected from disclosure — or that Defendants cannot be trusted with such information — does not make any sense. Defendants deal with this type of information on a daily basis as part of the claims handling process and are legally entitled to this information.”
Pending federal legislation passed by the House also targets information from bankruptcy trust claims.
It would require trusts to respond to information sought from them by defendants in asbestos lawsuits. Defendants in those lawsuits want to ensure that plaintiffs’ attorneys aren’t fully blaming their products while also blaming the products of companies that established trusts.
Some states have passed similar laws addressing that practice, which was brought to light in Garlock Sealing Technologies’ bankruptcy proceeding.
A 2014 ruling from Judge George Hodges, of a bankruptcy court in North Carolina, said plaintiffs attorneys at other firms had been delaying filing their clients’ trust claims while lawsuits against Garlock Sealing Technologies were pending.
By doing so, Hodges ruled, plaintiffs attorneys had unfairly maximized recovery against Garlock, which eventually filed for bankruptcy in 2010 and has since set up its own trust.
From Legal Newsine: Reach editor John O’Brien at john.obrien@therecordinc.com.