During Tuesday’s proceedings in the case of Truck Insurance Exchange v. Kaiser Gypsum Co., the Supreme Court grappled with a nuanced issue under the Bankruptcy Code: determining the status of an entity as a “party in interest” with the right to voice concerns in a Chapter 11 bankruptcy proceeding. At the heart of the matter is whether an insurance company, in this instance, should have a say regarding the exclusion of anti-fraud provisions from the bankruptcy plan proposed by a failed asbestos company.
The debtor, asserting its intention to fulfill insurance contracts completely, argues that since it plans to honor all obligations, including deductibles, the insurance company’s objections are irrelevant to the court’s assessment of the plan’s good faith.
Advocating for the insurance company, Allyson Ho faced challenging hypothetical scenarios posed by the justices, particularly concerning whether an entity without material interest in the outcome should be considered a party in interest. While some justices, including Chief Justice John Roberts, expressed concerns about constitutional bounds, others, such as Justices Sonia Sotomayor and Neil Gorsuch, suggested potential solutions to this issue.
However, when Kevin Marshall presented arguments on behalf of the asbestos company, the justices’ lack of sympathy towards the debtor’s position became apparent. Justice Brett Kavanaugh emphasized the insurer’s inherent interest in the proceedings, highlighting the debtor’s refusal to include fraud prevention provisions benefiting the insurance company.
Justice Sotomayor pointed to the apparent conflict of interest, noting the selective inclusion of fraud prevention measures in the plan. Justice Elena Kagan underscored the insurance company’s material interest in anti-fraud provisions, challenging Marshall’s assertion that contractual compliance alone sufficed to protect the insurer.
Chief Justice Roberts emphasized the statutory mandate requiring inclusion of all creditors as parties in interest, reaffirming the insurance company’s status as a creditor under the contract with the debtor.
During the argument, Marshall focused on statutory language indicating that unimpaired creditors, like the insurance company, are deemed to have accepted the plan, thus precluding their vote for or against it. However, this interpretation overlooks the broader statutory framework, which grants all parties in interest the right to be heard on any issue in Chapter 11 proceedings.
The outcome of the case remains uncertain, with the justices expected to deliver their opinions in the coming months.
