Source: http://blogs.wsj.com, May 18, 2007
By: Nathan Koppel
A ruling issued today in a New Jersey state court marked a win for insurers who challenged an asbestos “pre-packaged” bankruptcy.
The case, which concerns the 2003 bankruptcy of Congoleum Corporation, has been followed closely by combatants in the asbestos prepackaged arena. Some companies that have faced asbestos liability have tried to control their exposure by filing prepackaged bankruptcies, which are negotiated ahead of time, potentially allowing a company to reorganize in an expedited fashion.
Critics have argued that asbestos prepacks” let plaintiffs lawyers collect damages for dubious asbestos claims at the expense of insurers.
Congoleum was a manufacturer of flooring products, some of which once contained asbestos. From 1981 to 2002, over 70,000 claimants filed asbestos-related injury suits against the company, prompting the company to negotiate a prepackaged bankruptcy plan under which it later agreed to pay more than $465 million to resolve asbestos claims, the ruling said.
Congoleum’s insurers filed suit in New Jersey claiming Congoleum, as part of its prepackaged plan, agreed to pay claims that would not be paid in the tort system.
Judge Nicholas Stroumstos Jr. concluded that the prepackaged plan was the result of collusion between Congoleum’s former bankruptcy lawyers and lawyers representing asbestos claimants. The plan “contains no meaningful provisions to ferret out fraudulent claims,” he wrote.
We’re delighted by the decision, said John Gerstein, who represents one of the insurers. We think it will become a watershed decision, because it should lead to intensified scruitiny of asbestos prepacks in the future. Lawyers who negotiated the plan were not immediately available for comment.