
Haley Daniels
St. John’s University School of Law
American Bankruptcy Institute Law Review Staff
Section 1109(b) of Title 11 of the United States Code (the “Bankruptcy Code”) provides that “a party in interest” may appear and be heard on any issue in a chapter 11 case. [1] Section 1109(b) identifies certain examples of a party in interest (e.g., a debtor, a creditor), but does not otherwise define “party in interest.”[2] In Truck Ins. Exch. v. Kaiser Gypsum Co., Inc., the United States Supreme Court unanimously held that an insurer with financial responsibility for claims against a debtor is a party in interest under Section 1109(b), and thus may be heard on any issue in a chapter 11 case, including confirmation of a proposed chapter 11 plan.[3]
Kaiser Gypsum Company is a building material manufacturing company, that, along with its parent company, Hanson Permanente, filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Western District of North Carolina to address claims resulting from their asbestos-containing products.[4] Trunk Insurance is the primary insurer for Kaiser and its affiliates.[5] Hanson Permanente proposed a plan for reorganization (the “Plan”) that would create a Section 524(g) Asbestos Personal Injury Trust (the “Trust”) to handle all present and future asbestos-related claims.[6] The Trust would function by treating uninsured claims and insured claims differently, “requiring insured claims to be filed in the tort system for the benefit of the insurance coverage, while the uninsured claims are submitted directly to the Trust for resolution.”[7] Importantly, the Trust also would transfer all of the Debtors’ rights, including their rights to coverage and insurance proceeds, to the Trust.[8] Truck Insurance objected to the Plan for several reasons, one reason being that it was not proposed in good faith, arguing it was a collusive agreement that treated uninsured and insured claims differently in terms of disclosure, in turn exposing Truck Insurance to “‘millions of dollars in fraudulent tort claims.’”[9] The bankruptcy court confirmed the Plan, holding that it was “insurance neutral,” meaning “it did not increase Truck’s prepetition obligations or impair its contractual rights under its insurance policies,” and Truck Insurance therefore had limited standing to object to its confirmation.[10] Truck Insurance appealed to the United States Court of Appeals for the Fourth Circuit.[11] The Fourth Circuit affirmed the holding of the Bankruptcy Court, finding Truck Insurance was not a “party in interest” under Section 1109(b) because the Plan was “insurance neutral.”[12] Truck Insurance subsequently filed a petition for certiorari with the United States Supreme Court.[13] The United States Supreme Court granted certiorari to determine whether an insurer with financial responsibility for a bankruptcy claim is a “party in interest” under Section 1109(b).[14]
The United States Supreme Court disagreed with the lower courts and held that Truck Insurance qualifies as a party in interest under Section 1109(b), so its objection should thus be allowed.[15] The Court reasoned that because under the proposed Plan, Truck Insurance would be financially liable and obligated to defend each personal injury claim brought against Hanson and Kaiser, the Plan was not “insurance neutral” as the lower courts held.[16]
According to the Supreme Court, “party in interest” is defined in in Webster Dictionary as “[a] person who constitutes or is one of those who compose . . . one or [the] other of the two sides in an action or affair; one concerned in an affair; a participator; as, a party in interest.”[17] This plain meaning analysis is followed by a consideration of the historical context and purpose of Section 1109(b) as a whole, noting Congress’s consistent action to promote greater participation in reorganization proceedings.[18] Ultimately, the Court held that a “party in interest” is a party that is “sufficiently concerned with, or affected by, the proceedings.”[19] Therefore, an insurer who is financially responsible for a post-petition insurance claim is a “party in interest.”[20] With this conclusion, the Court also seeks to ensure that the earlier-mentioned Congressional rationale of Section 1109(b) is upheld, including encouraging participation of both the debtor and other parties, here a financially-involved insurer, in the reorganization process so that the reorganization plan is not so one-sided as to clearly benefit the debtor more than the others.[21] The Court further holds that Section 1109(b) needs to have an expansive definition of “party in interest” to protect against this potential for one-sided reorganization proceedings.[22] The Court echoes that when a party has a significant stake in the bankruptcy proceeding’s reorganization process, they must have a right to be heard about the creation of the plan which affects them.[23]
Section 1109(b) identifies certain entities as parties in interest in Chapter 11 cases.[24] That list is not exhaustive. According to the Supreme Court, a party “sufficiently concerned with, or affected by, the proceedings” should be heard in a bankruptcy case.[25] Thus, even though an insurer is not identified as a party in interest in Section 1109(b), it may be heard, provided it has a significant financial stake in the case.[26]
[1] 11 U.S.C. § 1109(b) (2018).
[2] Id.
[3] See Truck Ins. Exch. v. Kaiser Gypsum Co., Inc., 602 U.S. 268, 272 (explaining the rationale for their holding is that the section at issue is crafted to provide all parties sufficiently involved with a say).
[4] See id. at 268, 274; Kaiser Gypsum and Hanson Permanente argue before U.S. Supreme Court that insurer without legal interest in bankruptcy estate lacks right to challenge reorganization plan, Jones Day (Mar. 2024) https://www.jonesday.com/en/practices/experience/2023/02/kaiser-gypsum-and-hanson-permanente-argue-before-us-supreme-court-that-insurer-without-legal-interest-in-bankruptcy.
[5] See id. at 268.
[6] See id.; 11 U.S.C. § 524(g) (2018).
[7] Truck Ins. Exch., 602 U.S. at 268.
[8] See id.
[9] Id. at 276–77 (Truck Insurance argues that the Plan was proposed in bad faith as it was a “collusive agreement between the Debtors and claimant representatives”).
[10] Id. at 268.
[11] See id.
[12] Id.
[13] See id.
[14] See id. at 277.
[15] See id. at 275.
[16] See id.
[17] Id. at 278 (emphasis added).
[18] See id. at 279 (“Section 77B of the Bankruptcy Act of 1898, for example, provided debtors the right to be heard on all issues, but limited the right of creditors and stockholders to only certain issues.”).
[19] Id. at 272 (further clarifying that Section 1109(b) “grants insurers neither a vote nor a veto; it simply provides them a voice in the proceedings.”).
[20] Id.
[21] See id. at 280 (“The Bankruptcy Code seeks to prevent ‘the danger inherent in any reorganization plan proposed by a debtor’ that ‘the plan will simply turn out to be too good a deal for the debtor’s owners.’”) (quoting Bank of Am. Nat. Tr. and Sav. Assn. v. 203 N. LaSalle St. P’ship, 526 U.S. 434, 444)).
[22] See id. (“‘[U]ndue restrictions on who may be a party in interest might enable dominant interests to control the restructuring process.’”) (internal citations omitted).
[23] See id. at 282 (“Where a proposed plan ‘allows a party to put its hands into other people’s pockets, the ones with the pockets are entitled to be fully heard and have their legitimate objections assessed.”) (quoting In re Global Indus. Technologies, Inc., 645 F.3d 201, 204 (C.A.3 2011)).
[24] See 11 U.S.C. § 1109(b) (2018).
[25] Truck Ins. Exch., 602 U.S. at 272.
[26] See 11 U.S.C. § 1109(b) (2018).