Court Scores Insured For Settlement Effort Without Carrier

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

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

Chief Judge M. Bruce McCullough, in U.S. Bankruptcy Court for the Western District of Pennsylvania in Pittsburgh, ruled this week that a bankruptcy plan to settle claims between Skinner Engine Company and asbestos claimants could not be approved under Chapter 11 bankruptcy reorganization. Instead, the judge ruled the issue would be converted to Chapter 7 liquidation.

The eight-year-old battle involving Travelers Casualty and Surety Company, as the primary insurer, and other insurers, and Skinner Engine and American Capital Equipment Inc. was over an attempt by Skinner to make a settlement with asbestos claimants without the consent of the insurers.

In his ruling, Judge McCullough said the insured's plan was not entered into in good faith, citing the fact that under the agreement the insured would collect 20 percent of the settlement, noting that the insured is "nothing but financially incentivized to sabotage 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 asbestos claimants, on the other hand," adding that "such collusion is readily apparent…"

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

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

This was the fifth attempt by Skinner within six years to have the court agree to the asbestos settlement through Chapter 11 Bankruptcy 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 the case told National Underwriter that the ruling by Judge McCullough means Travelers and other insurers will keep control over policy claims and settlements and not have their right to due process undermined.

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

Representatives for Skinner could not be reached for immediate comment.

A representative with Travelers said the company had no comment.