A 1921 advertisement for Johns-Manville asbestos roofing.
A 1921 advertisement for Johns-Manville asbestos roofing. ()

Travelers Indemnity Co. must pay more than $500 million to Johns-Manville Corp. under an insurance policy covering asbestos claims, a unanimous federal appeals panel has ruled, reinstating a bankruptcy court order that had been overturned by a district court.

A Second Circuit panel ruled Tuesday in In re: Johns-Manville Corp., 12-1094-bk, that Southern District Judge John Koeltl (See Profile) had been wrong to rule that settlements in 2003 and 2004 requiring Travelers to pay the claims were not enforceable.

Judge Ralph Winter (See Profile) wrote the opinion, joined by Judges Rosemary Pooler (See Profile) and Denny Chin (See Profile).

Johns-Manville, a manufacturer of roofing and insulation, filed for bankruptcy in 1982, facing a slew of asbestos-related claims from employees. In 1986, it accepted a settlement, and its insurers agreed to pay $2.8 billion toward a fund to pay 660,000 asbestos claimants in exchange for a release from claims.

Despite that settlement, plaintiffs continued to sue insurers, including Travelers, Johns-Manville’s primary insurer, for tortious interference. They alleged that Travelers did not disclose what it knew about asbestos risk to Johns-Manville. In 2003 and 2004, Travelers entered into agreements in which it agreed to pay those plaintiffs $445 million from the settlement fund. The agreements were contingent on an order “clarifying” the 1986 settlement and providing that Travelers would be released from future asbestos claims.

The deal was challenged by various third parties, including Chubb Indemnity Insurance Co., which argued that any indemnity claims it might have against Travelers would be improperly barred by the broad release.

A prior Second Circuit ruling found that third-party claims like Chubb’s were not barred.

In 2011, Southern District Bankruptcy Judge Burton Lifland (See Profile) ordered Travelers to pay out the $445 million, plus interest. Travelers objected, arguing that the settlement could not be enforced because it was getting a narrower release than it bargained for in light of the Second Circuit’s ruling on third-party claims.

Koeltl agreed with that argument and found the settlement unenforceable in March 2012 (NYLJ, March 5, 2012). The plaintiffs appealed.

Winter, in Tuesday’s order, ruled that Travelers’ interpretation of the release “could not reasonably have been intended by the parties, whatever Travelers’ private hopes and dreams, and is not supported by the language of the agreements.”

In fact, he said, under Travelers’ interpretation, the settlement would have exceeded the jurisdiction of the bankruptcy court.

“Travelers would have required the bankruptcy court either to: (i) certify that all potential claimants—all entities and individuals on the planet, from now until the end of time—have received constitutionally sufficient notice of the 1986 orders and their relevant proceedings; or (ii) bar all claimants whether or not they had constitutionally sufficient notice,” he wrote. “But neither action could have been intended by sophisticated parties because each would have been well beyond the bankruptcy court’s power.”

Winter also ruled that Lifland had correctly calculated interest in the case.

Sander Esserman of Stutzman, Bromberg, Esserman & Plifka, who represents one of three groups of plaintiffs involved in the appeal, said he was “very pleased” with the decision. “We think they clearly understood both the facts and the applicable law and rendered their decision accordingly,” he said. “We look forward to the receipt of the money and the eventual distribution to the plaintiffs, who have been waiting a long time.”

Ronald Barliant, a principal at Goldberg Kohn who represents another group of plaintiffs, said he was “particularly gratified that Judge Lifland’s last order in the Manville case has now been affirmed, because he certainly worked very hard to bring about a just result in that case for more than 20 years.”

Joseph Rice of Motley Rice, who represents the third group of plaintiffs, said the decision “puts an end to a 10-year battle.”

The settlement was brokered by former governor Mario Cuomo, who has remained involved in the case through the various challenges and appeals.
Cuomo, of counsel at Willkie Farr & Gallagher, said he expected the case would continue after the Second Circuit’s order.
“Travelers has a number of options and I’m sure they’ll use some of them,” he said.
Furthermore, he said, some people entitled to relief might still have objections.
Cuomo said the case, which he noted had spanned a “large part” of his career, was remarkable both for the length of time it has taken, and because it “shows the flexibility in our system.”
“It was an extraordinary ride, and it’s not over yet,” Cuomo said.
Travelers is represented by Barry Ostrager, a partner at Simpson Thacher & Bartlett, who could not be reached for comment.

Travelers spokesman Patrick Linehan said in an email, “We are still reviewing the decision, but this is a matter we have disclosed for more than 10 years, and we have contemplated this as a potential outcome in our reserving, although we do not have a provision for interest of approximately $75 million pre-tax, or approximately $50 after tax.”