NU Online News Service, May 29, 3:44 p.m.EDT

A federal bankruptcy court has sided with Travelers InsuranceCompany over an attempt by an insured to reach a settlement withasbestos claimants without the approval of the carrier in a schemethe court said could financially benefit the insured.

Chief Judge M. Bruce McCullough, in U.S. Bankruptcy Court forthe Western District of Pennsylvania in Pittsburgh, ruled this weekthat a bankruptcy plan to settle claims between Skinner EngineCompany and asbestos claimants could not be approved under Chapter11 bankruptcy reorganization. Instead, the judge ruled the issuewould be converted to Chapter 7 liquidation.

The eight-year-old battle involving Travelers Casualty andSurety Company, as the primary insurer, and other insurers, andSkinner Engine and American Capital Equipment Inc. was over anattempt by Skinner to make a settlement with asbestos claimantswithout the consent of the insurers.

In his ruling, Judge McCullough said the insured's plan was notentered into in good faith, citing the fact that under theagreement the insured would collect 20 percent of the settlement,noting that the insured is "nothing but financially incentivized tosabotage its own defense" of the asbestos claims.

He called the settlement "the result of patent collusion between[Skinner] and the co-proponents, on the one hand, and the asbestosclaimants, on the other hand," adding that "such collusion isreadily apparent…"

The judge also ruled that there was nothing in Pennsylvania law,as Skinner claimed, to allow the court to override language in theinsurer's contract that prevents the insured from entering into asettlement over asbestos claims without the insurer's consent.

The claims themselves, Judge McCullough noted, "are not verystrong, so that, once again, it makes little, if not any, sense forsuch claims to be settled."

This was the fifth attempt by Skinner within six years to havethe court agree to the asbestos settlement through Chapter 11Bankruptcy proceeding. The judge found that the insurers acted in"good faith"–something he questioned whether Skinner had done.

One of the attorneys representing one of the insurers in thecase told National Underwriter that the ruling by JudgeMcCullough means Travelers and other insurers will keep controlover policy claims and settlements and not have their right to dueprocess undermined.

He said he did not know if Skinner planned an appeal, but wouldnot be surprised if they did file one.

Representatives for Skinner could not be reached for immediatecomment.

A representative with Travelers said the company had nocomment.