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1 INJURED PLAINTIFFS IN ASBESTOS ACTIONS ARE ENJOINED FROM SUING INSURER OF ASBESTOS MANUFACTURER FOR ALLEGED WRONGDOINGS OF INSURER BASED ON LANGUAGE OF BANKRUPTCY COURT S REORGANIZATION ORDERS: TRAVELERS INDEMNITY CO. V. BAILEY Lisa Dougan BANKRUPTCY LAW REORGANIZATION STATE ACTIONS ENJOINED The Supreme Court of the United States reversed the judgment of the Court of Appeals for the Second Circuit and barred actions in state court against insurer for its own wrongdoing in asbestos actions based on terms of injunction in bankruptcy court s orders. Travelers Indemnity Co. v. Bailey, 129 S. Ct (2009). INTRODUCTION The Manville Decision The Rise of Asbestos Litigation Corollaries of the Decision CONCLUSION INTRODUCTION In a narrow holding in Travelers Indemnity Co. v. Bailey, the United States Supreme Court held that direct actions asserted by plaintiffs against the insurers of asbestos manufacturers based on the alleged wrongdoing of the insurer were barred based on the reorganization plan and injunction order approved by the Bankruptcy Court. 1 The insurer contributed millions of dollars to a trust fund set up to compensate asbestos claimants as part of a settlement with the understanding that the injunction imposed would relieve it of all future J.D. Candidate Spring 2011, Duquesne University School of Law; M.S. Forensic Science and Law, Duquesne University, 2006; B.A. Biochemistry, Duquesne University, Travelers Indem. Co. v. Bailey, 129 S. Ct (2009). 273

2 274 Duquesne Business Law Journal [Vol. 12:273 suits. 2 However, after claims against the insurer began to be filed in state courts, the insurer sought protection against the direct actions based on the injunction imposed. 3 The question presented to the United States Supreme Court was whether the direct actions against the insurer for its own wrongdoing were included in the injunction imposed by the Bankruptcy Court The Manville Decision In 1986, Johns-Manville Corporation ( Manville ), a supplier and manufacturer of asbestos and asbestos containing materials, was forced into bankruptcy due to potentially devastating liability based on the newly discovered effects of asbestos exposure. 5 As part of the reorganization plan approved by the United States Bankruptcy Court for the Southern District of New York, certain lawsuits against the insurers of Manville, including The Travelers Indemnity Company and its affiliates ( Travelers ), were enjoined. 6 The Supreme Court granted certiorari to determine whether that injunction included actions against Travelers for its own alleged misconduct. 7 The Manville Personal Injury Settlement Trust was created during the bankruptcy proceedings as part of Manville s reorganization in order to collect and pay all the asbestos related claims against Manville. 8 As part of the settlement agreement approved by the Bankruptcy Court, Travelers originally paid $80 million into the Trust. 9 Upon payment to the Trust, the Bankruptcy Court s Insurance Settlement Order of December 18, 1986, released Travelers from all policy claims and prohibited ongoing and future suits regarding Manville policy claims against the settling insurers. 10 The insurers had the right 2. Travelers Indem. Co., 129 S. Ct. at Id. at Id. at Id. at Id. at Travelers Indem. Co., 129 S. Ct. at Id. at Id. The total amount paid to the bankruptcy estate by all of Manville s insurers, including Travelers, was $770 million. Id. More than 600,000 claimants have been paid over $3.2 billion from the Trust. Id. at Id. Policy claims were defined by the Insurance Settlement Order as: any and all claims, demands, allegations, duties, liabilities and obligations (whether or not presently known) which have been, or could have been, or might be, asserted by any person against...

3 2010] Travelers Indemnity Co. v. Bailey 275 to revoke the settlement agreement if no injunction order barring all ongoing and future suits was entered or if the order was reversed on appeal. 11 The Insurance Settlement Order and the amended organization plan were approved by the Bankruptcy Court in 1986 and then affirmed by both the District Court and the Second Circuit. 12 In the late 1990s, plaintiffs began to file direct actions against Travelers in various state courts. 13 The plaintiffs in these actions specifically sought to recover directly from Travelers based on the purported misconduct of Travelers, not Manville. 14 The basis for these actions were independent acts and omissions of Travelers stemming from the insurance relationship between Travelers and Manville. 15 The direct actions filed against Travelers were divided into statutory direct actions and common law direct actions. 16 After asking the Bankruptcy Court to enforce its 1986 orders and enjoin 26 direct actions, a settlement was reached between Travelers and three sets of direct action plaintiffs subsequent to mediation. 17 Travelers agreed to compensate the direct action plaintiffs if the Bankruptcy Court would clarify by order that the direct actions were and any or all members of the Settling Insurer Group based upon, arising out of or relating to any or all of the Policies. Id. (citing Appeal to Petition for Writ of Certiorari (No )). 11. Id. at Travelers Indem. Co., 129 S. Ct. at See also In re Johns-Manville Corp., 78 B.R. 407 (Bankr. S.D.N.Y. 1987); MacArthur Co. v. Johns-Manville Corp., 837 F.2d 89 (2d Cir. 1988); Kane v. Johns-Manville Corp., 843 F.2d 636 (2d Cir. 1988). 13. Travelers Indem. Co., 129 S. Ct. at Id. The Court explains that the direct actions filed were not true direct actions based on the definition of direct action in Black s Law Dictionary. Id. at 2200 n.2. However, because the lower courts referred to the claims as direct actions, the Supreme Court continued to use that term for simplicity. Id. at A true direct action is [a] lawsuit by a person claiming against an insured but suing the insurer directly instead of pursuing compensation indirectly through the insured. BLACK S LAW DICTIONARY 491 (8th ed. 2004). 15. Travelers Indem. Co., 129 S. Ct. at Id. at The statutory direct actions were based on state consumerprotection statutes and claimed that Travelers knew of and intentionally concealed the hazards of asbestos along with other insurers and manufactures. Id. The common law direct actions were based on Travelers failure to warn the public about the effects of asbestos exposure. Id. 17. Id. Travelers agreed to pay more than $400 million as part of the settlement agreement with the direct action plaintiffs contingent upon the entry of a clarifying order. Id. at 2200.

4 276 Duquesne Business Law Journal [Vol. 12:273 continued to be prohibited by the 1986 orders. 18 After notice was given to potential claimants about the settlement, an evidentiary hearing was held and the Bankruptcy Court found that the direct actions were barred by the 1986 orders because the claims against Travelers arose from its insurance relationship with Manville. 19 A clarifying order to that effect was then entered on August 17, The clarifying order and settlement was subsequently appealed by individual claimants as well as the Chubb Indemnity Insurance Company and was affirmed by the District Court, but reversed by the Court of Appeals for the Second Circuit. 21 The Court of Appeals acknowledged the power of the Bankruptcy Court to interpret and enforce its own orders, but reversed due to the Bankruptcy Court s lack of juris- 18. Id. The settlement also required that the plaintiffs receiving funds from the Trust individually release Travelers from further liability separate from what was covered in the 1986 orders. Id. The releases, in pertinent part, state: I further agree that this Release extends to all my rights and claims of any kind against the Released Parties [including the Settling Insurers], whether based in tort, contract, fraud or any other legal or equitable theory, and whether I possess them now or may possess them in the future.... I fully release, waive and discharge all rights or claims of any kind against the Released Parties allegedly resulting from my exposure to asbestos and/or asbestos containing products that were manufactured, distributed or sold by the Release Parties, including claims I now possess or may later possess because of any matter or thing done, omitted or suffered to be done by the Released Parties prior to and including today.... In re Johns-Manville Corp., 2004 WL , at *17 (Bankr. S.D.N.Y. 2004). 19. Travelers Indem. Co., 129 S. Ct. at Travelers knowledge of the hazards of asbestos was derived from its nearly three decade insurance relationship with Manville and the performance by Travelers of its obligations under the policies. In re Johns-Manville Corp., 2004 WL , at *12. The evidence in this proceeding establishes that the gravamen of Direct Action Claims were acts or omissions by Travelers arising from or relating to Travelers insurance relationship with Manville. Thus, claims against Travelers based on such actions or omissions necessarily arise out of and [sic] related to the Policies. Id. at * Travelers Indem. Co., 129 S. Ct. at [T]his Court did not intend the scope of finality of the Orders to be less than 100% of everything Manville-related. As set forth below, this Court clarifies that the Direct Action Claims that are the subject of these proceedings are within the scope of the confirmation Order s and the Insurance Settlement Order s prohibitions, and are-and always have been-permanently barred. In re Johns-Manville Corp., 2004 WL , at *30 (Bankr. S.D.N.Y. 2004). 21. Travelers Indem. Co., 129 S. Ct. at

5 2010] Travelers Indemnity Co. v. Bailey 277 diction to enjoin the direct actions against Travelers as a third-party non-debtor. 22 The Supreme Court granted certiorari to determine whether the state actions, based on the alleged misconduct of Travelers, were barred and reversed the judgment of the Court of Appeals. 23 The Supreme Court held that the direct actions were clearly enjoined by the 1986 orders and that the issue of whether the Bankruptcy Court had jurisdiction was not before the Court of Appeals because those orders became final more than two decades ago. 24 The definition of policy claims within the 1986 orders contained no language limiting the barred claims to only those deriving from Manville s conduct. 25 Furthermore, the terms used in the orders were entitled to their plain effect because they were both clear and unambiguous even though evidence was introduced suggesting some parties involved in the bankruptcy believed that the bar was only on claims derived from 22. Id. at [W]hile there is no doubt that the bankruptcy court had jurisdiction to clarify its prior orders, that clarification cannot be used as a predicate to enjoin claims over which it had no jurisdiction. In re Johns-Manville Corp., 517 F.3d 52, (2d Cir. 2008). Plaintiffs seek to recover directly from a debtor s insurer for the insurer s own independent wrongdoing. Plaintiffs aim to pursue the assets of Travelers. They raise no claim against Manville s insurance coverage. They make no claim against an asset of the bankruptcy estate, nor do their actions affect the estate. The bankruptcy court had no jurisdiction to enjoin the Direct Action claims against Travelers. Id. at 65 (citation omitted). [A] bankruptcy court only has jurisdiction to enjoin third-party non-debtor claims that directly affect the res of the bankruptcy estate. Id. at Travelers Indem. Co., 129 S. Ct. at Justice David H. Souter delivered the opinion of the Court in which Chief Justice John G. Roberts, Jr., and Justices Antonin Scalia, Anthony M. Kennedy, Clarence Thomas, Stephen G. Breyer, and Samuel A. Alito, Jr. joined. Justice John Paul Stevens filed a dissenting opinion, in which Justice Ruth Bader Ginsburg joined. 24. Id. at [T]he Bankruptcy Court found that the Direct Actions seek to recover against Travelers either for supposed wrongdoing in its capacity as Manville s insurer or for improper use of information that Travelers obtained from Manville as its insurer. These actions so clearly involve claims (and, all the more so, allegations ) based upon, arising out of or relating to Travelers insurance coverage of Manville, that we have no need here to stake out the ultimate bounds of the injunction. Id. 25. Id. at 2204.

6 278 Duquesne Business Law Journal [Vol. 12:273 Manville s conduct. 26 Even if it was found that the 1986 orders were ambiguous regarding the direct actions and allowed for the use of extrinsic evidence to resolve the ambiguity, great deference must be given to the Bankruptcy Court s interpretation of its own order. 27 According to the Supreme Court, the clarifying order of 2004 was an accurate statement of the 1986 orders, and the direct actions against Travelers for its own alleged wrongdoing were clearly included with what was barred. 28 Regarding subject-matter jurisdiction, the Supreme Court held that the Bankruptcy Court had jurisdiction to clarify and impose the terms of its own orders and that it had maintained jurisdiction to enforce the injunctions. 29 Furthermore, the Supreme Court decided that the Court of Appeals erred by re-examining whether the Bankruptcy Court had exceeded its jurisdiction by issuing the original 1986 orders. 30 The Court argued that any party could have raised the issue of subject-matter jurisdiction on appeal after the 1986 orders were entered, but once those orders became final after direct review, any challenges regarding jurisdiction were barred based on res judicata. 31 Permitting re-examination of jurisdiction after the entry of final orders would obstruct the finality to litigation that the rules of res judicata allow for Id. If it is black-letter law that the terms of an unambiguous private contract must be enforced irrespective of the parties subjective intent, see 11 R. Lord, Williston on Contracts 30:4 (4th ed. 1999), it is all the clearer that a court should enforce a court order, a public governmental act, according to its unambiguous terms. This is all the Bankruptcy Court did. Id. at 2204 (footnote omitted). 27. Id. at 2204 n.4. However, [b]ecause the 1986 Orders clearly cover the Direct Actions, we need not determine the proper standard of review. Id. 28. Travelers Indem. Co., 129 S. Ct. at Id. at [T]he bankruptcy court retains post-confirmation jurisdiction to interpret and enforce its own orders in aid of their proper execution. In re Johns- Manville Corp., 97 B.R. 174, 180 (Bankr. S.D.N.Y. 1989). 30. Travelers Indem. Co., 129 S. Ct. at Id. So long as respondents or those in privity with them were parties to the Manville bankruptcy proceeding, and were given a fair chance to challenge the Bankruptcy Court s subject-matter jurisdiction, they cannot challenge it now by resisting enforcement of the 1986 Orders. Id. at Id. at Almost a quarter-century after the 1986 Orders were entered, the time to prune them is over. Id.

7 2010] Travelers Indemnity Co. v. Bailey 279 The Supreme Court stresses that the holding in this case is narrow. 33 The Court does not decide whether a bankruptcy court has authority to bar claims against non-debtor insurers that do not derive from the wrongdoing of the debtor. 34 In addition, the Court points out that, on direct review, if an injunction of the type involved in this case were entered today, it would have to meet the requirements set forth in 11 U.S.C. 524(g), which authorizes bankruptcy courts to bar claims against non-debtors in limited circumstances. 35 The Court also leaves for decision on remand to the Court of Appeal the issue of which specific parties are constrained by the 1986 Orders. 36 Justice John Paul Stevens authored a dissenting opinion in which he disagreed with the Court s analysis of the 1986 injunction as well as the analysis regarding res judicata. 37 In his dissent, Justice Stevens argued that the decision of the Court of Appeals was correct. 38 He believed that the injunction set forth in the 1986 Orders only barred actions against Manville s insurers based on the wrongdoings of Manville and did not bar actions based on Travelers wrongdoings. 39 The dissent reasoned that the actions against Travelers for its own misconduct were not barred because the claimants did not seek recovery against the policy proceeds of Manville s insurance or bankruptcy assets including the Manville Trust Travelers Indem. Co., 129 S. Ct. at Id. 35. Id. In the Bankruptcy Reform Act of 1994, Congress stated: Notwithstanding the provisions of section 524(e), such an injunction may bar any action directed against a third party who is identifiable from the terms of such injunction (by name or as part of an identifiable group) and is alleged to be directly or indirectly liable for the conduct of, claims against, or demands on the debtor to the extent such alleged liability of such third party arises by reason of the third party's provision of insurance to the debtor or a related party. 11 U.S.C. 524(g)(4)(A)(ii)(III) (2006). 36. Travelers Indem. Co., 129 S. Ct. at For example, Chubb Indemnity Insurance Company alleges that it was never given proper notice of the 1986 Orders and should, therefore, not be bound by them. Id. 37. Travelers Indem. Co., 129 S. Ct. at 2207 (Stevens, J., dissenting). 38. Id. 39. Id. at Id. at Actions concerning the misconduct of Manville and the duty of Travelers as its insurer were termed insurer actions by Justice Stevens. Id.

8 280 Duquesne Business Law Journal [Vol. 12:273 Justice Stevens agreed with the Court of Appeals that the Bankruptcy Court improperly enjoined the direct or independent actions against Travelers in the 2004 clarifying order because those clams did not have an effect on the bankruptcy estate and bankruptcy courts do not have the authority to enjoin those claims. 41 Thus, even though the bankruptcy court wanted to provide the fullest protection available, protection against actions based on Travelers wrongdoing could not possibly be included. 42 Justice Stevens also pointed out that Manville and Travelers actually understood that the Bankruptcy Court lacked authority to enjoin the independent actions based on memoranda filed. 43 With regards to the adoption of 524(g) in the Bankruptcy Reform Act of 1994, the Justice argued that the section only permits enjoinder of actions against a nondebtor insurer based on the wrongdoing of the debtor. 44 Additionally, Justice Stevens contends that if the injunction set forth in the 1986 Orders was so definitive as the Court makes it seem then why would Travelers pay $445 million to settle with the direct action claimants in exchange for the clarifying order. 45 In closing, the dissent argued that, because the clarifying order improperly expanded the 1986 injunction to include independent actions, the issue could not have been raised earlier and is therefore not barred by res judicata Travelers Indem. Co., 129 S. Ct. at (Stevens, J., dissenting). Because Travelers insurance policies were a significant asset of the Manville bankruptcy estate, the Bankruptcy Court had the power to channel claims to the insurance proceeds to the Manville Trust. But this by no means gave it the power to enjoin claims against nondebtors like Travelers that had no impact on the bankruptcy estate. Id. at Id. 43. Id. 44. Id. at Had Congress interpreted Policy Claims in the manner the Court does today, and had it sought to codify that definition, it would have used broader language. Id. at Id. 46. Travelers Indem. Co., 129 S. Ct. at In challenging the Bankruptcy Court s 2004 order clarifying the scope of the Insurance Settlement Order, respondents were in fact timely appealing an order that rewrote the scope of the 1986 injunctions. Their objection could not have been raised on direct appeal of the 1986 order because it was not an objection to anything in that order. Id.

9 2010] Travelers Indemnity Co. v. Bailey 281 Thus, the Court of Appeals properly addressed whether the Bankruptcy Court had expanded the enjoinment in the clarifying order The Rise of Asbestos Litigation Asbestosis was first identified as a disease in the 1920s. 48 In the United States, the first asbestos related compensation claim was filed in 1927 and the dangers of asbestos exposure in factories were documented in a report prepared by the U.S. Public Health Service in In 1965, Dr. Irving Selikoff published a study titled The Occurrence of Asbestosis Among Insulation Workers in the United States and concluded that asbestos exposure caused significant harm to insulation workers. 50 Essentially, the history of asbestos litigation revolves around the Johns-Manville Corporation. 51 From the 1920s through the 1970s, Manville supplied the largest amount of raw asbestos in the United States and also manufactured the largest amount of products containing asbestos. 52 At its peak, Manville had more than 500 different product lines and 33 plants and mines in the United States and Canada. 53 Manville was the primary supplier of asbestos for virtually all commercial, industrial, and consumer use. 54 Basically, the class of all 47. Id. 48. Borel v. Fibreboard Paper Prods. Corp., 493 F.2d 1076, 1083 (5th Cir. 1974). In addition to asbestosis, exposure to asbestos may cause other serious medical conditions including mesothelioma, other malignancies, pleural thickening, and pleural plaques. In re Joint E. & S. Dists. Asbestos Litig., 237 F.Supp.2d 297, (E.D.N.Y. 2002). 49. Borel, 493 F.2d at Id. at Of the 1,522 insulation workers examined, almost half had pulmonary asbestosis. Id. 51. In re Johns-Manville Corp., 2004 WL , at *2 (Bankr. S.D.N.Y. 2004). 52. In re Joint E. & S. Dists. Asbestos Litig., 129 B.R. 710, 742 (E.D.N.Y. & Bankr. S.D.N.Y. 1991), vacated on other grounds, 982 F.2d 721 (2d Cir. 1992), and modified on reh g, 993 F.2d 7 (2d Cir. 1993). In 1868, Henry Ward Johns obtained a patent for an asbestos insulation product and formed the H.W. Johns Company. In re Johns-Manville Corp., 2004 WL , at *2. Charles B. Manville formed the Manville Covering Company in 1886 and sold the products of the H.W. Johns Company. Id. In 1901, the two companies merged to form the H.W. Johns-Manville Company. Id. 53. In re Joint E. & S. Dists. Asbestos Litig., 129 B.R. at In re Johns-Manville Corp., 2004 WL , at *3. Indeed, Manville was the prime supplier of asbestos fiber products and distributed its products across

10 282 Duquesne Business Law Journal [Vol. 12:273 possible asbestos claimants is identical to the class of all possible claimants against Manville. 55 For 29 years, Manville was primarily insured by Travelers with more than 425 policies issued by Travelers in addition to general liability coverage. 56 The relationship between Travelers and Manville began in 1947 when the word asbestos was hardly known and continued through the 1970s when asbestos litigation began to flourish. 57 Travelers learned everything it knew about asbestos from Manville and even helped Manville examine the asbestos exposure of workers and test dust levels. 58 Travelers also paid for Manville s defense attorneys and was privy to the reports and evidence presented during the litigation. 59 Borel v. Fibreboard Paper Products Corporation, was the case that caused the explosion of litigation to occur against Manville. 60 Manville was a defendant in Borel and was defended by Travelers. 61 Borel dealt with the duty to warn workers about the dangers associated with asbestos and the extent of the defendants knowledge of those dangers. 62 In Borel, strict liability was applied for the first time the entire spectrum of industries and employment categories subject to asbestos exposure. In fact, there are no industries from which claimants originate where Manville did not provide asbestos products-either manufactured or raw materials. Id. 55. Id. at * Id. at * Id. 58. In re Johns-Manville Corp., 2004 WL , at *6, * Id. at *7. Travelers paid millions of dollars of counsel fees for Manville s defense. Id. at * See Borel v. Fibreboard Paper Products Corporation, 493 F.2d 1076 (5th Cir. 1974). 61. In re Johns-Manville Corp., 2004 WL , at * Borel, 493 F.2d at 1081, Under the law of torts, a person has long been liable for the foreseeable harm caused by its own negligence. This principle applies to the manufacture of products as it does to almost every other area of human endeavor. It implies a duty to want of foreseeable dangers associated with those products. This duty to warn extends to all users and consumers, including the common worker in the shop or in the field. Where the law has imposed a duty, courts stand ready in proper cases to enforce the rights so created. Here, there was a duty to speak, but the defendants remained silent. The district court s judgment does no more than hold the defendants liable for the foreseeable consequences of their own inaction.

11 2010] Travelers Indemnity Co. v. Bailey 283 against asbestos producers. 63 Subsequently, many plaintiffs injured by asbestos exposure began to file complaints and Manville was named as a defendant in virtually all of them. 64 Damaging evidence that Manville had full knowledge of the dangers of asbestos exposure continued to build and cast doubt on their defense based on lack of knowledge. 65 Because Manville s products were so widely distri- Id. at In re Johns-Manville Corp., 2004 WL , at *7. In Borel, the substantive law of the forum state, Texas, was applied since the federal jurisdiction was based on diversity of citizenship. Borel, 493 F.2d at 1081, Under Texas law, a manufacturer of a defective product may be liable to a user or consumer in either warranty or tort. With respect to personal injuries caused by a defective product, the Texas Supreme Court has adopted the theory of strict liability in tort as expressed in section 402A of the Restatement (Second) of Torts (1964). Id. Section 402A states: Special liability of Seller of Product for Physical Harm to User or Consumer. (1) One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property, if (a) the seller is engaged in the business of selling such a product, and (b) it is expected to and does reach the user or consumer without substantial change in the condition in which it is sold. (2) The rule stated in Subsection (1) applies although (a) the seller has exercised all possible care in the preparation and sale of his product, and (b) the user or consumer has not bought the product from or entered into any contractual relation with the seller. RESTATEMENT (SECOND) OF TORTS 402A (1964). Prior to Borel, those harmed from asbestos exposure were basically limited to filing workers compensation claims. In re Johns-Manville Corp., 2004 WL , at * In re Johns-Manville Corp., 2004 WL , at *7. Manville was the primary target of asbestos plaintiffs because of Manville s ubiquity in the asbestos context, having manufactured hundreds of products over many years and having been the leading supplier of asbestos. Moreover, Manville s trademark and unique packaging was readily identifiable to plaintiffs and their attorneys. Id. 65. Id. at *8. The evidence included the Sumner Simpson Papers, which were a series of letters suggesting that Manville was aware of the dangers of asbestos and was involved in a conspiracy to prevent damaging data and articles from reaching the public. In re Johns-Manville Corp., 2004 WL , at *8. In addition, the testimony of former Manville employees, including physicians, revealed: an awareness by Manville of the asbestos health risks as early as the 1940s; the difficulty of controlling asbestos dust; and Manville s suppression of information and failure to warn its workers and the public. Particularly damaging testimony purported to de-

12 284 Duquesne Business Law Journal [Vol. 12:273 buted, Manville became the primary target and was usually the only defendant to go to trial. 66 The seemingly endless amount of asbestos claims against Manville forced the company into bankruptcy. 67 Ultimately, a settlement was reached and the Manville Trust was created as discussed above. 68 Federal bankruptcy law has its roots in Article I, Section 8 of the United States Constitution, which authorizes Congress to create bankruptcy laws. 69 The bankruptcy laws enacted by Congress are codified in Title 11 of the United States Code and several sections, including 105(a), 1141(a), and 1142(b), specifically address the powers and authority of bankruptcy courts. 70 Perhaps most applicable to this case, scribe a policy and practice at Manville of requiring plant physicians to hide adverse test and x-ray results from their patients, the plant employees, out of a concern that Manville would lose manpower. Id. 66. Id. at * Id. at * Id. at * [T]he key to confirmation of the Manville Plan was the creation of a mechanism through which asbestos victims could be compensated with funds contributed by Settling Insurers. The Court understood that insurers would not contribute funds without receiving assurance that any liabilities arising from or relating to their insurance relationships with Manville would be fully and finally resolved. In re Johns-Manville Corp., 2004 WL , at *30. At the time of the bankruptcy proceedings in 1988, it was projected that the Trust would receive between eighty-three thousand and one hundred thousand claims over the life of the Trust.... As of September 30, 2002, a total of 580,414 claims have been filed with the Trust since its inception. In re Joint E. & S. Dist. Asbestos Litig., 237 F.Supp.2d at In re Johns-Manville Corp., 2004 WL , at *26. The Congress shall have the power... to establish... uniform laws on the subject of bankruptcies in the United States. U.S. CONST. art. I, In re Johns-Manville Corp., 2004 WL , at *26. Section 105(a) of the Bankruptcy Code states: Power of court (a) The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary

13 2010] Travelers Indemnity Co. v. Bailey 285 section 1142(b) gives bankruptcy courts the power to ensure that the debtor s reorganization plan is executed properly and to maintain jurisdiction to effectuate the plan. 71 The power of a bankruptcy court to interpret and enforce its own orders is inherent. 72 In the Bankruptcy Reform Act of 1994, subsection (g) to section 524 of the Bankruptcy Code was added based on the trust-injunction and confirmation order from the Manville case. 73 Section 524(g) specifically authorized or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process. 11 U.S.C. 105(a) (2006). Except as provided in subsections (d)(2) and (d)(3) of this section, the provisions of a confirmed plan bind the debtor, any entity issuing securities under the plan, any entity acquiring property under the plan, and any creditor, equity security holder, or general partner in the debtor, whether or not the claim or interest of such creditor, equity security holder, or general partner is impaired under the plan and whether or not such creditor, equity security holder, or general partner has accepted the plan. 11 U.S.C. 1141(a) (2006). The court may direct the debtor and any other necessary party to execute or deliver or to join in the execution or delivery of any instrument required to effect a transfer of property dealt with by a confirmed plan, and to perform any other act, including the satisfaction of any lien, that is necessary for the consummation of the plan. 11 U.S.C. 1142(b) (2006). 71. In re Johns-Manville Corp., 2004 WL , at * Id. at * H.R. REP. NO , at 40 (1994). The report provides in part: This section adds a new subsection (g) to section 524 of the Code, establishing a procedure for dealing in a chapter 11 reorganization proceeding with future personal injury claims against the debtor based on exposure to asbestos-containing products. The procedure involves the establishment of a trust to pay the future claims, coupled with an injunction to prevent future claimants from suing the debtor. The procedure is modeled on the trust-injunction in the Johns- Manville case, which pioneered the approach a decade ago in response to the flood of asbestos lawsuits it was facing The asbestos trust/injunction mechanism established in the bill is available for use by any asbestos company facing a similarly overwhelming liability. Id. at

14 286 Duquesne Business Law Journal [Vol. 12:273 bankruptcy courts to enter channel claims against non-debtors to a trust through injunctions Corollaries of the Decision Based on the court s opinion, the implications on bankruptcy courts remain unknown. In the majority opinion, the Supreme Court acknowledges that the holding in this case is narrow. 75 As discussed above, the Court did not decide whether or not bankruptcy courts have the authority to enjoin actions against insurers based on their own wrongdoing. 76 Additionally, the Court did not determine what the scope of an injunction under 11 U.S.C. 524 would be today or what parties are bound by the 1986 orders. 77 Because the holding in this case is so narrow, it is impossible to know whether other injunctions of this type would be found to include claims against an insurer for its own wrongdoing. Based on the plain meaning of its terms, the Manville injunction was construed very broadly by the Court to include U.S.C. 524(g) (2006). (g)(1)(a) After notice and hearing, a court that enters an order confirming a plan of reorganization under chapter 11 may issue, in connection with such order, an injunction in accordance with this subsection to supplement the injunctive effect of a discharge under this section. 11 U.S.C. 524(g)(1)(A) (2006). (B) An injunction may be issued under subparagraph (A) to enjoin entities from taking legal action for the purpose of directly or indirectly collecting, recovering, or receiving payment or recovery with respect to any claim or demand that, under a plan of reorganization, is to be paid in whole or in part by a trust described in paragraph (2)(B)(i), except such legal actions as are expressly allowed by the injunction, the confirmation order, or the plan of reorganization. 11 U.S.C. 524(g)(1)(B) (2006). (3)(A) If the requirements of paragraph (2)(B) are met and the order confirming the plan of reorganization was issued or affirmed by the district court that has jurisdiction over the reorganization case, then after the time for appeal of the order that issues or affirms the plan (i) the injunction shall be valid and enforceable and may not be revoked or modified by any court except through appeal in accordance with paragraph (6). 11 U.S.C. 524(g)(3)(A)(i) (2006). 75. Travelers Indem. Co., 129 S. Ct. at Id. 77. Id.

15 2010] Travelers Indemnity Co. v. Bailey 287 such direct actions against insurers, but there is no certainty that other injunctions will be similarly viewed. 78 In mass tort cases, such as those dealing with asbestos, it is important for the defendants and the insurers to be offered and have trust in the finality of the settlements entered into. If there is no finality involved, it takes only common sense to realize that insurance companies are going to be much less willing to contribute to a trust settlement fund and more likely to proceed to trial against the claimants. On the other hand, if the insurers were assured that injunctions issued by a court against future claims would include all types of future claims for their own wrongdoing or otherwise, then the insurers would be much more willing to negotiate and provide for a settlement. However, the Supreme Court in Travelers Indemnity Co. v. Bailey did not provide for this assurance of finality. In Pennsylvania, the question of finality for defendants in asbestos cases is also now in doubt due to the recent decision of the Pennsylvania Supreme Court in Abrams v. Pneumo Abex Corp. 79 In Abrams, the plaintiffs, Abrams and Shaw, sued certain defendants seeking damages for increased risk and/or fear of cancer after being diagnosed with asbestosis in the 1980s. 80 Yet, both of their cases settled prior to trial. 81 In 2002, both Abrams and Shaw filed new lawsuits after being diagnosed with lung cancer. 82 One of the named defendants, John Crane, was not a defendant in the original suits. 83 Crane filed a motion for summary judgment based on the claims being barred by the statute of limitations, which was granted by the trial court and ultimately affirmed by the Superior Court. 84 After granting Crane s petition for allocatur, the Supreme Court held that Abrams and Shaw were not barred from filing subsequent 78. Id. at Abrams v. Pneumo Abex Corp., 2009 WL , at *1 (Pa. Oct. 21, 2009). 80. Abrams, 2009 WL , at * Id. 82. Id. The widows of Abrams and Shaw, in their capacity as executrices, were substituted as the plaintiffs in the actions after the deaths of Abrams and Shaw. Id. 83. Id. 84. Id. A three-judge panel of the Superior Court originally reversed the grant of the motion for summary judgment by the trial court. Abrams, 2009 WL , at *1. After Crane petitioned the Court for reargument, an en banc panel of the Superior Court, in a 5-4 decision with two dissents, affirmed the trial court in favor of Crane. Id.

16 288 Duquesne Business Law Journal [Vol. 12:273 actions after being diagnosed with cancer against the new defendant, Crane. 85 The Court found that the previous recovery of damages based on the risk and fear of cancer did not preclude subsequent recovery based on actually having cancer from a different defendant. 86 Justice Saylor authored a dissent, which was joined by Chief Justice Castille, arguing that the claims against Crane were barred by the statute of limitations. 87 The dissent stresses the importance of statutes of limitation and finality for defendants who will now be liable when a plaintiff is diagnosed with asbestosis and again when such asbestosis becomes cancerous Abrams, 2009 WL , at *1. The Superior Court's reasoning, however, fails to take into account the individual nature of Appellants' causes of action. We reiterate that Appellants' cause of action against Crane is an individual one, separate and distinct from the causes of action asserted by Appellants against other defendants in the 1980s; thus, the fact Appellants previously asserted risk of cancer claims against other defendants does not preclude a subsequent timely action against Crane for actual cancer. Id. at * Id. Cancer and non-cancer diseases clearly give rise to separate claims. See McNeil v. Owens-Corning Fiberglas Corp., 680 A.2d 1145, 1148 (Pa. 1996) (citing Marinari, and noting that Pennsylvania courts have consistently recognized medical distinctions between malignant and non-malignant asbestos-related injuries). Appellants' causes of actions for asbestos-related lung cancer accrued in December 2002, when they were diagnosed with lung cancer. Furthermore, Appellants' claims for damages for lung cancer are clearly separate and distinct from any claims for risk or fear of cancer that may have existed in the 1980s. Accordingly, the statute of limitations for Appellants' claims against Crane for lung cancer did not begin to run until December Abrams, 2009 WL , at * Abrams, 2009 WL , at * Id. at *13. From a defendant's point of view, moreover, full compensation for all cancers caused by asbestos exposure has, in theory at least, been provided to the set of plaintiffs diagnosed during the relevant time period, as all such plaintiffs have received compensation for their expected (i.e., average) harm. If we now permit full recovery for the subset of such plaintiffs that actually contract cancer, we will be requiring the defendants as a class to provide full compensation a second time. Id. (footnote omitted).

17 2010] Travelers Indemnity Co. v. Bailey 289 Offering incentive to the insurers is important to any settlement of mass-tort claims and should always be acknowledged because the insurers possess substantial assets. Without the money of the insurance companies, there would not even be an opportunity for settlement. Yet, settlement offers the most effective mechanism for dealing with such a large group of claimants. Because of the long length of time it takes for symptoms associated with asbestos exposure to appear, it is very difficult to project the number of future claimants that exist. 89 Despite future projections, the existing numbers are astounding. Through 2002, approximately 730,000 people have filed asbestos claims, more than 8,400 defendants have been named, and $70 billion has been spent on asbestos litigation. 90 It is generally agreed that, at most, only 75% of possible claimants have filed claims. 91 CONCLUSION The United States Supreme Court could have used this opportunity to endorse complete settlements and finality in mass-tort cases such as this one, but failed to do so, leaving asbestos defendants on edge about the opportunities for future litigation. In addition, if claimants are permitted to file multiple actions in multiple state and federal courts, the burdens placed on court systems and judicial efficiency will be substantial. Courts need to offer finality to defendants involved with asbestos litigation. Without consistent finality, the court systems will become overrun with asbestos related filings and defendants will be unable to compensate the claimants. Since it appears that asbestos litigation is going to persist for some time now, it seems logical for the courts to impose a means to an end through consistent finality. The future finality of asbestos litigation now rests in the hands of the courts. 89. Stephen J. Carroll et al., Asbestos Litigation, RAND INSTITUTE FOR JUSTICE, 2005 at xix. 90. Id. at xxiv-xxvi. Total spending of $70 billion includes $21 billion for defense transaction costs and $49 billion for gross compensation. Id. at xxvi. Gross compensation is further broken down into $19 billion for claimants transaction costs and $30 billion towards claimants net compensation. Id. 91. Id.