Appeals Unit Tosses $1.2 Billion Asbestos Settlement

Such prepackaged plans have been a major source of concern for insurers who are generally barred from expressing objections until the agreements become final.

The court said the plan of settlement unfairly extended protection from liability to two units of Combustion Engineering's parent company, ABB, Ltd., based in Switzerland, that were not in bankruptcy?ABB Lummus Global and Basic Inc. ABB Ltd.'s U.S. subsidiary is Asea Brown Boveri Inc. The court also criticized those who devised the plan for allowing people with asbestos injuries who already had been paid most of their damages before the Chapter 11 filing to dominate the voting on the plan.

The court said in its decision that claimants who had been paid as much as 95 percent of their claims were allowed the same status in voting on the plan as those who had been paid little or nothing at all.

The reorganization plan was announced in January 2003. Under it, ABB offered a $1.2 billion trust fund for claims against CE. It consisted of the assets of CE valued at $812 million, about 30 million ABB shares, and cash contributions totaling about $350 million.

J?rgen Dormann, ABB chairman and CEO, said in a statement that, "Given the fact that both the bankruptcy and district courts have approved the Combustion Engineering plan of reorganization, we are naturally surprised and disappointed at today's decision."

He added, "We remain confident that we can resolve Combustion Engineering's asbestos liability within a plan of reorganization compatible with the Third Circuit's decision within a relatively short time frame and without significant additional cost."

The court decision comes as Sen. Arlen Specter, R-Pa., presumptive chairman of the Senate Judiciary Committee, has reopened efforts to secure legislation that would provide an alternative claims processing system for those injured by asbestos in the workplace.

Sen. Specter has asked the insurance industry and other stakeholders to respond by Monday on their ability to accept in principle draft legislation accomplishing that goal.

In its decision, the panel noted that, "For decades, the state and federal judicial systems have struggled with an avalanche of asbestos lawsuits." For reasons well known to observers, the court said, "a just and efficient resolution of these claims has often eluded our standard legal process?where an injured person with a legitimate claim (where liability and injury can be proven) obtains appropriate compensation without undue cost and undue delay."

More than once, it added, "The Supreme Court has called on Congress to enact legislation creating a ?national asbestos dispute-resolution scheme,' but Congress has yet to act."