News & Events

On March 29, 2010, we received a very favorable decision on behalf of an insurance client in an 8-year old asbestos bankruptcy matter involving Skinner Engine Company (“Skinner” or the “Debtor”).  The case involves a defunct Pennsylvania manufacturer and distributor of marine engines and boilers, which is an insured under certain policies issued in the mid-1970s and 1980s.  Prior to Skinner’s bankruptcy filing, it had been named as a defendant in over 28,000 claims in a Western District of Pennsylvania MDL proceeding, alleging asbestos-related injury arising out of alleged exposure to Skinner's products.  However, virtually all of the asbestos claims against Skinner had been administratively dismissed prior to the bankruptcy based on lack of sufficient proof of injury and/or exposure.  After proposing and withdrawing multiple plans, the Debtor and certain asbestos claimants sought approval of a disclosure statement in connection with a “Fifth Plan” that would create a trustee to oversee the distribution of insurance proceeds to claimants in accordance with a “baseball arbitration” procedure, in which insurers would be given severely limited ability to contest a claimant's demand for compensation.  On behalf of our insurance client, Simpson Thacher argued that the disclosure statement should not be approved because the Fifth Plan abrogated our client’s right to control the defense and settlement of claims in breach of its contractual rights, and therefore the Fifth Plan was patently unconfirmable.  Even at this early stage in the confirmation process, the Bankruptcy Court agreed with our position.  In an opinion dated May 27, 2009, the Bankruptcy Court denied the Debtor's motion to approve the disclosure statement and sua sponte converted the Chapter 11 case to one under Chapter 7 of the Bankruptcy Code.   The Debtor and claimants appealed, and on March 29, 2010, the District Court affirmed the Bankruptcy Court’s ruling.  Agreeing with the Bankruptcy Court’s analysis, the District Court found that the Fifth Plan “(1) if confirmed, would operate to breach the insurance policies (2) was not a reasonable and good faith settlement under Pennsylvania law; and (3) was the result of collusion between the Debtor and the asbestos claimants.”   The District Court went on to hold that conversion of the case to Chapter 7 was fully supported, finding “as did the bankruptcy court, that the Debtor did not, and will never be able to, propose a feasible plan in good faith in accordance with the requirements set forth in the Bankruptcy Code. 11 U.S.C. §§ 1129 (a) (3) and (a) (11).”  If upheld on any appeal that may be filed, the District Court decision, which adopts in full the arguments put forth by Simpson Thacher on behalf of our client, is significant in curtailing improper settlements designed to prejudice the rights of insurers, particularly in the context of a bankruptcy case.   This terrific outcome was the product of extensive briefing before the Bankruptcy Court and District Court prepared by Andy Amer, Elisa Alcabes, Kathrine McClendon, Donald Conklin, Chad Atlas, and Marsha Yee.