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Friday, May 4, 2012

Federal Court Rules That Bankruptcy Court May Transfer Insurance Assets to Trust

The Third Circuit Court of Appeals has ruled that a Bankruptcy Court is permitted to transfer insurance assets to a trust despite policy prohibitions.  


"Federal–Mogul Global and its affiliates filed for Chapter 11 bankruptcy and sought to resolve asbestos-related liability through the creation of a personal-injury trust under 11 U.S.C. § 524(g). As part of its reorganization plan, it sought to transfer rights under insurance liability policies to the trust. Appellants Insurers had provided liability policies to the debtors prior to bankruptcy and objected that the transfer violated the policies' anti-assignment provisions. Federal–Mogul contended that 11 U.S.C. § 1123(a)(5)(B) preempts those provisions, and the bankruptcy and district courts agreed. We will affirm."


"In sum, section 524 trusts are the only national statutory scheme extant to resolve asbestos litigation through a quasi-administrative process. In function, the trusts are similar to workers' compensation or other administrative remedies that employ valuation grids to compensate injuries, subject to individualized and judicial review. Unlike those schemes, the trusts place the authority to adjudicate claims in private rather than public hands, a difference that has at times given us and other observers pause, since it endows potentially interested parties with considerable authority."


In re Federal-Mogul Global
--- F.3d ----, 2012 WL 1511773
C.A.3 (Del.),2012.
May 01, 2012