The U.S. Court of Appeals for the Ninth Circuit recently held that nonsettling insurers have standing to object to the Chapter 11 plan of debtors Thorpe Insulation Co. and Pacific Insulation Co. because the plan was not insurance neutral, notwithstanding the plan’s insurance-neutrality language. In re Thorpe Insulation Co., 2012 WL 1089503, nos. 10-56543 and 10-56622 (9th Cir. April 3, 2012) (amending In re Thorpe Insulation Co., 671 F.3d 980 (9th Cir. 2012)); In re Thorpe, 2012 U.S. App. Lexis 6675, at *2 (9th Cir. April 3, 2012) (rejecting the debtors’ request for a rehearing en banc, stating that “[n]o future petitions for rehearing or rehearing en banc will be entertained.”).
The Ninth Circuit, however, did not reject the insurance-neutrality doctrine, which provides that an insurance-neutral plan deprives insurers of standing. Instead, the problematic plan provisions in Thorpe provide guidance about certain types of provisions that may eliminate insurance neutrality.
