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A New Dimension to Asbestos-Related Bankruptcies?

By Mark D. Taylor and Jennifer D. Larkin
August 01, 2003

A recent jury verdict in California threatens to break wide open the uneasy issue of aggregated insurance payments in asbestos litigation. Fuller-Austin Insulation Co. v. Fireman's Fund Ins. Co., et al., No. BC 116835 (Calif. Super. Los Angeles Co.). Its ramifications, however, reach far beyond insurance coverage litigation into every asbestos-related or mass tort bankruptcy.

Fuller-Austin

Handling insurance and asbestos-related claims in a bankruptcy case has always been controversial. In 1989, a Pennsylvania bankruptcy court applied the still accepted principle that bankruptcy courts lack authority to alter material terms of contractual relationships in the context of bankruptcy cases. In re Amatex, 97 B.R. 220 (Bankr. E.D. Pa. 1989), aff'd sub nom., Amatex Corp. v. Stonewall Ins. Co., 102 B.R. 411 (E.D. Pa. 1989), aff'd, 908 F.2d 964 (3rd Cir. 1990. In ruling that Amatex could not use the Bankruptcy Code to alter material terms of contractual relationships, the court denied Amatex's request to require its insurers to make lump sum payouts to the debtor for distribution to all present and future asbestos-related claims.

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