Monday, January 30, 2012 Last week, the Ninth Circuit Court of Appeals held that a debtor's insurers had standing to object to a confirmed plan of reorganization. In re Thorpe Insulation Co., No. 10-56622 (9th Cir. Jan. 24, 2012). The insured, Thorpe Insulation Company (“Thorpe”), distributed, installed and repaired asbestos insulation products between 1948 and 1972. Over the last thirty years, Thorpe has been the target of significant asbestos-related litigation, facing an estimated 12,000 claims for personal injury and wrongful death arising from asbestos exposure. In October 2007, Thorpe and a subsidiary filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code.

Last Monday’s opinion relates to the fifth amended § 524(g) joint plan of reorganization and objections lodged by various non-settling insurers regarding the fairness of the plan. The insurers argued that the plan was not “insurance neutral” and that they had standing to be heard on their objections. In particular, the insurers argued that the plan contained various provisions that could increase their economic exposure to asbestos claimants.

The Ninth Circuit agreed, concluding that the plan may have a substantial economic impact on the insurers.  The appellate court determined that the non-settling insurers had a right to be heard, to present evidence, and to participate in the proceedings that culminated in approval of the § 524(g) plan. The case was remanded to permit the insurers to submit proof on all issues they preserved.