Kaiser Gypsum & SCOTUS: Insurers’ Rights in Bankruptcy Proceedings

Sep 9, 2024

9/9/24

Kaiser Gypsum, a manufacturer of asbestos-containing products, filed for Chapter 11 bankruptcy in 2016 in response to thousands of personal injury claims. As part of its reorganization plan, Kaiser created a trust under §524(g) of the Bankruptcy Code to handle all current and future asbestos claims.

Case: Truck Insurance Exchange v. Kaiser Gypsum Co. Inc.
Argued: March 2024 (U.S. Supreme Court)
Key Issue: Whether insurers can challenge Chapter 11 reorganization plans that affect their rights—even if the debtor claims the plan is “insurance-neutral”


Background

Kaiser Gypsum, a manufacturer of asbestos-containing products, filed for Chapter 11 bankruptcy in 2016 in response to thousands of personal injury claims. As part of its reorganization plan, Kaiser created a trust under §524(g) of the Bankruptcy Code to handle all current and future asbestos claims.

Section 524(g) is a special rule in U.S. bankruptcy law that lets companies being sued for asbestos-related injuries create a trust to handle all current and future claimsso the company can exit bankruptcy and move on.

The plan was backed by Truck Insurance Exchange (TIE), the company’s primary insurer—but under terms that limited TIE’s ability to participate in claim resolutions. TIE objected, arguing that the plan stripped it of due process rights, including its right to defend against fraudulent or excessive claims.

The bankruptcy court approved the plan, and the district court affirmed it, stating that the plan was “insurance-neutral”—meaning it didn't increase the insurer’s financial liability, and thus, TIE lacked standing to object. The Fourth Circuit agreed, further denying TIE the right to appeal.

TIE brought the case to the U.S. Supreme Court, arguing that insurers must be allowed to contest reorganization plans that impair their ability to participate in the claims process—even if their ultimate payout obligations haven’t changed.


Supreme Court Decision (Expected Mid-2025)

At the time of writing, the Supreme Court has not yet issued its ruling, but the oral arguments revealed deep concerns about the potential erosion of insurer rights in bankruptcy.

Key questions from the Justices included:

  • Can a debtor block insurer objections by simply labeling a plan “insurance-neutral”?

  • Does the Bankruptcy Code permit reorganizations that impair an insurer’s rights without meaningful participation?

  • How does due process apply when the plan channels claims into a trust that the insurer cannot fully engage with?

The Court’s decision will likely clarify whether insurers have a protected procedural role in bankruptcy cases involving mass tort liabilities.


Legal and Practical Implications

1. Redefining “Insurance Neutrality”

The case challenges a widely used debtor tactic: calling a plan “insurance-neutral” to bypass insurer objections. A ruling in favor of TIE could force courts to look beyond labels and examine the real-world impact on insurer rights.

2. Insurers May Gain Standing

If the Court sides with TIE, insurers could gain broader standing to object to or appeal plans that impair their procedural safeguards—regardless of direct financial exposure.

3. Higher Scrutiny on Asbestos Trust Structures

Reorganization plans involving §524(g) trusts could face heightened judicial scrutiny, especially when they limit insurers’ ability to challenge fraudulent or unsupported claims.


Key Figures

  • 2016 – Year Kaiser Gypsum filed for Chapter 11

  • $1.2 billion+ – Estimated long-term liabilities from asbestos claims

  • §524(g) – Bankruptcy Code section governing asbestos claim trusts

  • 2024 – First time SCOTUS addresses insurers’ standing in this context


Strategic Insight from White Knight Restructuring

This case has wide-reaching implications—not just for asbestos bankruptcies, but for all mass tort reorganizations involving insurers.

White Knight helps:

  • Design reorganization plans that anticipate insurer objections and regulatory challenges

  • Advise insurers and creditors navigating complex trust structures and §524(g) plan dynamics

  • Support litigation strategy to preserve procedural rights and maximize recoveries

Whether you’re crafting a trust, evaluating exposure, or facing insurer pushback, we help you stay two steps ahead in an evolving legal landscape.


In a Post-Kaiser World: Rights Matter More Than Labels

The outcome of Kaiser Gypsum will clarify a core question in modern bankruptcy:

“Can due process be bypassed if liability stays the same?”

Regardless of the ruling, this case signals a new era of insurer activism and judicial attention. For stakeholders in complex reorganizations, the message is clear: structure, language, and procedural fairness all matter.

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