In re Amatex Corp.

• Decision Date: 30 October 1989
• Docket Number: Bankruptcy No. 82-05220S,Adv. No. 89-0544S.
• Parties: In re AMATEX CORPORATION, Debtor. AMATEX CORPORATION, Plaintiff, v. AETNA CASUALTY & SURETY CO., Stonewall Insurance Co. and Interstate Fire & Casualty Co., Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

107 B.R. 856 (1989)

In re AMATEX CORPORATION, Debtor AMATEX CORPORATION, Plaintiff, v. AETNA CASUALTY & SURETY CO., Stonewall Insurance Co. and Interstate Fire & Casualty Co., Defendants.

Bankruptcy No. 82-05220S, Adv. No. 89-0544S.

United States District Court, E.D. Pennsylvania.

October 30, 1989.

COPYRIGHT MATERIAL OMITTED

William H. Bradbury, III, Norristown, Pa., J. Gregg Miller, Philadelphia, Pa., for debtor.

Robert C. Corbin, Philadelphia, Pa., for Stonewall Ins. Co.

Leonard P. Goldberger, Philadelphia, Pa., for Aetna Cas. & Sur. Co.

Mitchell S. Pinsley, Philadelphia, Pa., for Interstate Fire & Cas. Co.

Pace Reich, Philadelphia, Pa., for Creditors' Committee.

ORDER

GILES, District Judge.

AND NOW, this 30th day of October, 1989, upon consideration of the Report and Recommendations of Bankruptcy Judge dated October 10, 1989, in reference to the resolution of the above-entitled proceeding, it is hereby ORDERED AND DECREED as follows:

1. The aforesaid Report and Recommendations are ADOPTED by this court.

2. Judgment is entered in favor of the Debtor and Plaintiff, AMATEX CORPORATION, and against the remaining Defendant, STONEWALL INSURANCE CO. (hereinafter "Stonewall"), in part.

3. It is hereby declared that the Complaint presents a justiciable controversy and that the rights of the Plaintiff against Stonewall under the policy in issue are as follows:

a. The filings of proofs of claims by claimants are the equivalent of their filing lawsuits against the Debtor giving rise to a duty of Stonewall to indemnity the Debtor for claims paid plus the Debtor's costs of defending such claims;

b. The "triple trigger theory" is applicable to personal injury claims. Therefore, "bodily injury" occurs continuously from exposure to manifestation. However, property damages are triggered only upon discovery of the asbestos-containing materials at or on the property; and

c. Stonewall is entitled to withhold the "self-insured retention" sum of $25,000 recited in the policy.

REPORT AND RECOMMENDATIONS OF BANKRUPTCY JUDGE

DAVID A. SCHOLL, Bankruptcy Judge.

A. INTRODUCTION

The instant adversarial proceeding represents a second and more modest attempt of the Debtor, formerly a manufacturer of products containing asbestos, to resolve the issue of the payments due to it from its liability insurers, in order that it can formulate a Plan of Reorganization. The first attempt, in which the Debtor urged this court to exercise its powers under 11 U.S.C. § 105(a) to compel the insurers to cash out the full amount of their policies, failed in this court and the district court. In re Amatex Corp., 97 B.R. 220 (Bankr.E. D.Pa.1989), aff'd sub nom. Amatex Corp. v. Stonewall Insurance Co., 102 B.R. 411 (E.D.Pa.1989) (hereinafter referred to as "Amatex I").¹ The instant proceeding, which merely seeks a declaration of the extent of the insurers' liability, has already spawned settlements from all but one of the smaller insurers, named (perhaps appropriately) Stonewall Insurance Co. (hereinafter "Stonewall").

We conclude that the Debtor is entitled to much of the relief which it seeks from Stonewall. In particular, we conclude that the complaint in this proceeding presents a justiciable controversy which this court may resolve; that the filings of proofs of claims by claimants are the equivalent of their filing suits against the Debtor, giving rise to a duty of Stonewall to indemnify the Debtor for claims paid plus the cost of defending claims filed against the Debtor; and that, while mere exposure to products containing asbestos creates liability for asbestos-related personal injury claims, an external manifestation of damages from asbestos is necessary to trigger property-damage claims. We also hold that Stonewall is entitled to withhold the "self-insured retention" sum of $25,000 recited in the policy, rather than being obliged, as the Debtor urged, to pay over this amount and then file a claim for it.

B. PROCEDURAL AND FACTUAL BACKGROUND

A detailed review of the procedural history of this case through March 10, 1989, the date of that Opinion, is set forth in Amatex I, 97 B.R., at 221-23, and will not be repeated here. Thereafter, the following developments occurred in the main case. On March 22, 1989, the date of the hearing on the Disclosure Statement accompanying the Debtor's Second Amended Plan, the Debtor advised us that the preparation and filing of a Third Amended Plan and Disclosure Statement would be necessary. We directed, per an Order of March 23, 1989, that these filings must be made on or before June 16, 1989; that a hearing on the Third Amended Disclosure Statement would be conducted on July 19, 1989; and that no further continuances would be granted. These filings were in fact made on June 16, 1989, but the Debtor also filed an "Emergency Motion" on that date requesting that the hearing on the Third Amended Disclosure Statement be again continued. We agreed to continue the hearing until October 4, 1989. On October 4, 1989, the Health Claimants' Committee, which had been silent since the Disclosure Statement was filed in June, 1989, orally expressed some allegedly minor concerns. With reluctance, due to the seemingly endless procession of this case, we agreed to put off this hearing again until October 25, 1989, with the caveat, introduced by the United States Trustee, that an examiner would be appointed if the Plan were not confirmed by February, 1990.

As we noted in Amatex I, 97 B.R. at 222, the Debtor had liability insurance policies which apparently covered its asbestos-related liability in place with five (5) insurers, American Universal Insurance Co. (hereinafter "American"), Aetna Casualty and Surety Co. (hereinafter "Aetna"), Interstate Fire and Casualty Co. (hereinafter "Interstate"), Bellefonte Insurance Co. (hereinafter "Bellefonte"), and Stonewall. On May 16, 1989, we approved a settlement which American made with the Debtor as a result of the filing of a lawsuit against it by the Debtor similar to and shortly before the proceedings considered in Amatex I. On August 14, 1989, after consideration of the Debtor's Motion to Establish an Escrow Account and after notice and a hearing and Certification of No Objection, we amended our May 16, 1989 Order. In this settlement, American agreed to pay to a trust account on behalf of the Debtor on the date that the Order approving the settlement becomes a final order, the sum of $1,292,405.00, representing the remaining limits under the American policy, and the sum of $400,000.00 toward costs of defense of asbestos claims. American also agreed to irrevocably assign to the Debtor all of its rights, title and interest in and to any and all other rights, other than any right to reinsurance, it may have against any person or entity relating in any way to its policy. Pursuant to the settlement, the Debtor agreed to assume the American policy as an executory contract, and the Debtor and American agreed to provide each other with mutual releases.

On June 16, 1989, the Debtor commenced this adversary proceeding by filing a declaratory judgment action against Aetna, Interstate, and Stonewall. The Complaint alleged that a settlement had also been reached with Bellefonte. Counsel for the Debtor provided this court with a draft of the Bellefonte settlement, but we decline to set forth its terms in detail because they remain subject to modification. Generally, the settlement requires Bellefonte to purchase an annuity policy and pay the proceeds thereof in installments to the Debtor's estate.

The Debtor's multi-count Complaint in the instant proceeding sought the following declaratory relief:

Count 1 — that the insurers had a duty to indemnify the Debtor for claims for personal injury where any part of the "injury process from exposure" occurred during the policy period.

Count 2 — that the insurers have a duty to defend pre-petition lawsuits and post-petition proofs of claim alleging personal injury and a declaration that the policy first activated is the policy to which the duty to defend attaches and continues until the policy limits are exhausted.

Count 3 — that the Debtor, since it is not an insurer, is not required to contribute to the payments of any losses to claimants under the policies "other insurance" clauses.²

Count 4 — that the insurers have a duty to indemnify the Debtor for claims for property damage where any part of the "property damage process" occurred during the policy period.

Count 5 — that the insurers should pay for the administration and trial of objections to proofs of claim filed against the Debtor and the cost of administering an "alternative claims resolution" system which the Debtor proposes to establish through its Chapter 11 plan.

Count 6 — that the "retained limit" provision in the policies with Aetna and Interstate and the "self-insured retention provisions" contained in the Stonewall policy represent unsecured claims against the Debtor's estate.

The Adversary Complaint was originally scheduled for trial on August 2, 1989. However, on July 21, 1989, the Defendants filed a joint Motion to Dismiss the Complaint. On July 26, 1989, we entered an Order that the Defendants were obliged to file any Briefs in support of their Motion and that the Debtor file its response and Brief thereto by August 1, 1989, and directing that trial scheduled for August 2, 1989, must go forward.

The parties did file Briefs as directed and trial commenced on August 2, 1989. Due to the paucity of pleadings, however, we were compelled to continue the trial for completion on August 17, 1989. The Defendants were also ordered to file Answers to the Plaintiff's Complaint on or before August 15, 1989. However, prior to August 17, 1989, the parties reported that the matter was settled between the Debtor and all the Defendants with the exception of Stonewall.

Although this court has not been provided copies of the Debtor's settlements with Aetna or Interstate,...