U.S. Supreme Court Upholds Asbestos Suit Ban in Travelers Insurance Case

June 19, 2009

By a 7-2 vote, the U.S. Supreme Court has upheld an agreement that halted new asbestos liability lawsuits against insurers and their insured manufacturer after they paid into a trust fund for victims.

The ruling upholds a reorganization agreement approved in 1986 by a federal bankruptcy judge that created the Manville Personal Injury Settlement Trust. This vehicle was to handle all asbestos claims against the now-bankrupt Denver manufacturing company Johns Manville. The company and its insurers paid into the fund that has since paid out more than $3 billion in claims.

The case that went before the Supreme Court, Travelers Indemnity Co. et al. vs. Pearlie Bailey et al., involved lawsuits brought some 10 years after 1986 directly against Travelers, one of Johns-Manville’s insurers. The suits alleged that the insurer violated state consumer protection laws and common law by not warning about the dangers of asbestos. The plaintiffs claimed that the suits should be allowed because they were not against Johns-Manville.

Travelers agreed to pay $500 million to settle the suits but only after the bankruptcy court affirmed that the 1986 trust fund arrangement meant any future asbestos liability suits involving Johns-Manville and its insurers that paid into the trust fund would be barred.

But in 2008, the U.S. Circuit Court of Appeals for the Second District upset the deal when it ruled that the trust fund agreement applied to the manufacturer but not to Travelers. Agreeing that the bankruptcy court had jurisdiction to interpret and enforce the 1986 orders, the Second Circuit nevertheless held that the bankruptcy court lacked jurisdiction to enjoin the direct actions against Travelers “because those actions sought not to recover based on Manville’s conduct, but to recover directly from Travelers for its own conduct.”

Now the Supreme Court has reversed the appeals court. The high court found that Travelers is protected by the ban on future lawsuits and dismissed the notion that only claims directly involving Manville’s own behavior were barred by the 1986 agreement. That would be too narrow an interpretation, the court said in an opinion written by Justice David Souter.

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