Coverage litigation in the case of Congoleum Corp. v. ACE American Ins. Co., Dkt. No. MID-L-8908-01 (N.J. Super. Ct. May 18, 2007), provides a cautionary tale for insureds tempted to attempt a strategy to foist financial responsibility for asbestos or other mass tort liabilities upon their insurers.

Congoleum, a manufacturer of flooring products that once contained encapsulated asbestos, made a business decision to enter into a global agreement with asbestos plaintiffs’ counsel that essentially had Congoleum paying very little money of its own, but generated thousands of asbestos claims, many of them more than dubious, against Congoleum. The global settlement was part of Congoleum’s larger plan to use �524(g) of the Bankruptcy Code and a so-called prepackaged bankruptcy or “pre-pack” to rid itself of current and future asbestos liabilities.

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