IN RE: W.R. GRACE & CO, et al.,

Case Type:
Case Status:
Reversed and Remanded
20-2171 (3rd Circuit, Sep 15,2021) Published
The bankruptcy court (BC), the Third Circuit (Panel) resolved, had misapplied the framework limned in a prior circuit opinion for analyzing the nature of the provided services of some insurers to the reorganized W.R. Grace & Co., and hence their right to benefit from its precursor's reorganization plan's § 524 channeling injunction. Retaining jurisdiction over any later appeal, the Panel thus remanded to the BC to create a record from which it could decide whether the required statutory relationship exists, having found § 524's second prong (its derivative liability one) sufficiently met.
Procedural context:
Rather famously, W.R. Grace & Co. (Grace) had sought chapter 11 protection in 2001 to handle billions of dollars in liability related to its past asbestos operations. Central to its eventually confirmed was § 524(g), which allows for an injunction that simultaneously channel all asbestos claims into a plan trust (trust) established to make payments to victims and bar any future claims against the company directly and a slew of third parties. The roster of third parties covered by this injunction's terms included the company's insurers, all of whom contributed cash into the plan trust. For this protection--as well as to secure additional terms that would compel the trust to indemnify it for up to $13 million if it was held liable for certain asbestos-related claims, such as those made by the Claimants--CNA chipped in $84 million. Subject to these and the usual provisos, the injunction was issued pursuant to § 524(g)(4)(A)(ii). A group of workers at a facility in the Libby, Montana (Claimants), where W.R. Grace mined asbestos from 1963 to 1990 (mine), and for which it had obtained general liability, workers' compensation, employers' liability, and umbrella insurance coverage from 1973 to 1996 from a group of insurers--Continental Casualty Company and Transportation Insurance Company (collectively, CNA), the appellants here--filed claims in Montana state court against several parties, including CNA. The Claimants faulted CNA for being aware of the hazards posed by exposure to asbestos dust but having done nothing to protect and warn any workers of these dangers. This constituted negligence, these plaintiffs argued, because these services were provided outside the routine scope of insurance coverage, a fact that empowered them to pursue litigation against CNA outside the trust created upon the confirmation of Grace's plan. Distilling its complex history to its bare essentials, the issue thereafter bounced between several federal and state courts. In 2016, the BC, the U.S. Bankruptcy Court for the District of Delaware bankruptcy, granted CNA's motion for summary judgment on the basis of its conclusion that CNA was covered by the channeling injunction. In 2018, the Third Circuit remanded that decision, uncertain as to the exact legal strictures applicable to the BC's analysis. On remand, after critiquing this earlier appellate opinion for being "inherently conflicting" and not "mak[ing] any sense," the BC found in favor of the Claimants. CNA timely appealed. Revealingly, in March 2020, well before this appeal had been decided, Montana's Supreme Court ruled that Maryland Casualty Company, another insurer, was not covered by the bankruptcy plan's liability shield for the same reason advanced by the Claimants: that it had a duty to protect workers at the mine that existed outside of its contractual insurance relationship with Grace. The appeal focused on the ambit of § 524(g)(4)(A)(ii). As to third parties, an injunction issued pursuant to this subsection covers only (1) those claims that are “directed against a third party who is identifiable from the terms of such injunction" if (2) the third party is “alleged to be directly or indirectly liable for the conduct of, claims against, or demands on the debtor" and (3) "such alleged liability" arises "by reason of" one of four statutory relationships, including "the third party's provision of insurance to the debtor or a related party." While the first was not an issue, the second and the third, commonly referred to as the derivative liability and statutory relationship requirements, constituted the Panel's exclusive focus.
CNA provided insurance coverage for a facility in the mine. The relevant coverage period spanned from 1973 to 1996. During these years, CNA regularly inspected the mine and surrounding operations and implemented an industrial hygiene services program. Worked at the mine, the Claimants sued CNA for negligence.
Julio M. Fuentes; Peter J. Phipps; and Cheryl A. Krause

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