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NY Judge Orders $500 Million Fund for Asbestos Claims

Aug 18, 2004 | New York Law Journal

A Southern District bankruptcy judge yesterday issued orders that effectively bar tens of thousands of asbestos claims nationwide and provide a fund of about $500 million to pay claims against Travelers Indemnity Company that relate to the bankruptcy of the Johns-Manville Corp.

Judge Burton Lifland affirmed his determinations in the bankruptcy case, In re Johns-Manville Corp., including a 1986 indemnification agreement between Travelers and Johns-Manville and held that the agreement bars direct lawsuits against Travelers.

Johns-Manville collapsed under the weight of asbestos-related litigation and filed for bankruptcy in the 1980s.

Judge Lifland presided over the bankruptcy, the first and most prominent asbestos case in the country, including the creation of the Manville Trust. It was intended to resolve outstanding claims against the bankrupt company. The Manville Trust is still open, and paying an estimated 5 cents on each dollar of approved claims.

Travelers was Manville's primary insurer. Since Judge Lifland's 1988 confirmation order in Manville's bankruptcy, Travelers has been sued directly by claimants nationwide, who have argued that its 1988 agreement with Manville only defined its obligations to indemnify the company for claims, not direct actions against the insurer.

Claimants have argued that Travelers engaged in unfair settlement practices and committed a tort by settling some claims for too little when it knew of the harmful effects of asbestos.

In 2002, Judge Lifland granted Travelers a preliminary injunction against Manville-related claims filed directly against the insurance company and ordered the parties to mediation. His action yesterday reaffirmed the injunction.

Former Governor Mario Cuomo of Willkie Farr & Gallagher served as the court-appointed mediator.

During the past two years, Travelers reached three settlement agreements on direct action statutory claims, primarily in West Virginia; on direct action common law claims, primarily in Texas and Ohio; and in tangentially related cases in Hawaii.

Travelers agreed to provide some funds for resolution of the cases if a court ruled that the cases had been precluded by previous court orders. All three settlements were affirmed by yesterday's orders.

The statutory cases were brought on behalf of people who had previously settled cases against Travelers. They argued that the insurer should have paid them higher amounts.

The common law claims were brought by individuals with personal injuries who had no previous settlements. Most of their lawsuits had been rejected by the state courts, which held that making insurance companies liable to third parties would create a conflict of interest with their responsibility to the insured.

Travelers, represented by Simpson Thacher & Bartlett, argued that all the statutory and common law claims were barred by its 1988 settlement with Manville.

Judge Lifland held an evidentiary hearing and heard expert testimony on July 6, before concluding that the settlement precludes direct actions against the insurance company.

An attorney for Travelers complimented Judge Lifland's enjoining of individuals from suing the insurer.

"It's a watershed development in bankruptcy law, because only the bankruptcy court has power to issue a nationwide injunction arising out of the reorganization of a company," said Barry R. Ostrager, a partner at Simpson Thacher who represented Travelers with partner Andrew Frankel.

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