Supreme Court Puts End to Prudential Barriers In Chapter 11 Appeals

Truck addressed the scope of the right to participate in bankruptcy proceedings created by Section 1109(b) of the Bankruptcy Code. Truck Insurance Exchange is the liability insurer of the debtor, which faces thousands of asbestos tort claims. Notwithstanding Truck's obligation to pay virtually every dollar of those claims, each lower court had applied the insurance-neutrality doctrine to hold that Truck had no right to be heard. The Supreme Court disagreed. The court recognized that in Section 1109(b), Congress used "capacious" language "to promote greater participation in reorganization proceedings" and conditioned a party's right to be heard only on "whether the reorganization proceedings might affect a prospective party, not how a particular reorganization plan actually affects that party." In holding that insurers like Truck "with financial responsibility for a bankruptcy claim" are "'part[ies] in interest' that can raise objections"  because the reorganization can affect their interests in "myriad ways," the court refused to allow prudential considerations unmoored from the Code to trump congressionally enacted language.

This holding ensures that insurers who have long been silenced in Chapter 11 proceedings will now be heard. It is also a shot across the bow for two other judge-made, atextual doctrines that bar consideration of the merits in Chapter 11 appeals.