Houston, Texas – Insurers seeking broad standing in mass tort bankruptcy cases face opposition from legal experts. The U.S. Supreme Court is considering whether to endorse insurer standing in the case of Truck Insurance Exchange v. Kaiser Gypsum Company Inc., with some arguing that a broad view of insurer standing would eliminate obstacles to resolving insurer objections. However, experts argue that insurers’ claims are based on two fallacies and that expanding their standing would only lead to unnecessary delays in bankruptcy proceedings.
The first fallacy criticized by legal experts is the notion that the goal of every mass tort bankruptcy is to achieve a global resolution of claims. They point out that the U.S. Bankruptcy Code was not drafted with this intention, but rather to facilitate consensual resolutions between debtors and creditors to confirm a plan of reorganization. Insurers, not being creditors, do not have the same interests as the debtor or other parties involved.
Another fallacy addressed is the claim that bankruptcy processes do not incentivize the weeding out of invalid or fraudulent claims. Insurers argue that granting them standing would allow them to defend against these claims. However, experts contend that there is no evidence to support the presence of fraudulent or inflated claims in mass tort cases. Bankruptcy plans already incorporate anti-fraud measures, and proofs of claim must be filed under penalty of perjury.
Insurers’ attempts to use bankruptcy to minimize their liability for valid claims are seen as ironic by experts. Integral to resolving this issue is the concept of insurance-neutral plans of reorganization that maintain the insurers’ contractual rights while passing through bankruptcy unaltered. Insurers can voice their concerns regarding insurance neutrality, but they do not have the right to be heard on issues unrelated to their interests.
In determining whether insurers should be allowed to intervene in plan confirmation proceedings, courts have used statutory standing, constitutional standing, and prudential standing. The central question is whether confirmation of the debtor’s plan would impede the insurers’ rights. If the answer is no, the plan is considered insurance neutral, and insurers lack standing to object. However, if the answer is yes, insurers have standing to object to plan provisions that could affect their rights.
Granting insurers extensive standing in bankruptcy cases is viewed as potentially problematic, as it could encourage litigation on numerous issues unrelated to their interests. Such interference could result in delays and hinder the reorganization efforts of debtors and creditors. The doctrine of standing in bankruptcy proceedings is meant to prevent unnecessary gamesmanship and interference, allowing proceedings to move forward smoothly.
Legal experts argue against overturning the existing line of cases holding that insurers lack standing when a proposed plan of reorganization is insurance neutral. Allowing insurers to participate in all aspects of bankruptcy cases without an actual injury would be chaotic and lead to delays. The focus of Chapter 11 bankruptcies is to support debtors and creditors, not to accommodate various parties that fear collateral damages from reorganization plans.
In conclusion, experts caution against expanding the standing of insurers in mass tort bankruptcy cases. While insurers may have valid concerns, granting them broad standing would introduce unnecessary delays and interfere with the reorganization process. Bankruptcy proceedings require a narrow interpretation of standing to ensure progress and efficiency.