Congoleum Corp. v. ACE American Ins. Co.: No Coverage When Cooperation and Consent Obligations Are Violated

Congoleum, a manufacturer of flooring products that once contained encapsulated asbestos, made a business decision to enter into a global agreement with asbestos plaintiffs' counsel that essentially had Congoleum paying very little money of its own, but generated thousands of asbestos claims, many of them more than dubious, against Congoleum. The global settlement was part of Congoleum's larger plan to use '524(g) of the Bankruptcy Code and a so-called prepackaged bankruptcy or 'pre-pack' to rid itself of current and future asbestos liabilities. The deal sounded too good to be true, and it was. The business decision was a legal disaster for Congoleum.

Instead of working with its insurers to address asbestos claims against it, Congoleum wound up ensnared in coverage and bankruptcy litigation, paying many tens of millions of dollars in legal and professional fees without accomplishing anything so far to resolve its asbestos liabilities. Courts essentially denounced its strategy, a chief hallmark of which was elimination of meaningful insurer participation, and those who fashioned it. One of its law firms was disqualified as having nonwaivable conflicts of interest.