In re Dow Corning Corp.

• Decision Date: 16 July 1996
• Docket Number: Bankruptcy No. 95-20512.
• Citation: 198 BR 214
• Parties: In re DOW CORNING CORPORATION, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Michigan

198 B.R. 214 (1996)

In re DOW CORNING CORPORATION, Debtor.

Bankruptcy No. 95-20512.

United States Bankruptcy Court, E.D. Michigan, Northern Division.

July 16, 1996.

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Barbara J. Houser, Dallas, TX, Craig J. Litherland, Houston, TX, Peter A. Nolan, Austin, TX, for Dow Corning Corporation.

Ogden N. Lewis, New York City, Sheryl L. Toby, Detroit, MI, for Unsecured Creditors' Committee.

Alfred S. Lurey, Dennis S. Meir, Atlanta, GA, Susan A. Cahoon, Atlanta, GA, for Tort Claimants Committee.

Craig Atchinson, Assistant Michigan Attorney General, Lansing, MI, for Department of Environmental Quality.

OPINION ON DEBTOR'S MOTION FOR APPROVAL OF SETTLEMENTS WITH TEN INSURANCE COMPANIES

ARTHUR J. SPECTOR, Bankruptcy Judge.

I. INTRODUCTION

Over the last several years, Dow Corning Corporation ("Debtor") was sued by thousands of individuals for personal injuries allegedly caused by the breast implants it manufactured and the materials it supplied to other breast implant manufacturers. The Debtor tendered the complaints to its many insurers who declined coverage on a number of grounds. At the time of this Court's decision, the Debtor and about a hundred of its insurers were enmeshed in a declaratory judgment action filed in Wayne County, Michigan Circuit Court over the dispute.

On May 15, 1995, the Debtor filed its voluntary petition for relief under chapter 11 of the Bankruptcy Code, 11 U.S.C. § 101 et seq.¹ The declaratory judgment action continued despite the bankruptcy. On July 19, 1995, the Debtor filed a motion for approval of settlements it had reached with Royal Indemnity Company ("Royal") and with Hartford Accident and Indemnity Company, Hartford Fire Insurance Company, and Nutmeg Insurance Company (collectively "Hartford"). Time was of the essence because the trial court judge, Hon. Robert J. Colombo, Jr., had scheduled a hearing on August 11, 1995, at 9:00 a.m. to deliver his rulings on numerous dispositive motions, which would significantly affect the parties' bargaining positions. To avoid the risk inherent in those pronouncements, the parties insisted that their settlements be finalized before then. As a result, discovery was expedited, requests for continuances were denied and the Court remained in session until approximately 2:05 a.m. of August 11, 1995, at which time the orders approving the settlements were signed.

Approval of those settlements and particularly the one with Hartford, was opposed by several parties. However, the party whose opposition then remains relevant to the current matter is the Official Committee of Tort Claimants ("TCC"). Many of the points it made in conjunction with that contested matter were raised again here. Because of the extreme need for speed in approving the Royal and Hartford settlements findings, conclusions and explanations were verbal only. This opinion, which explains the Court's reasoning on these contested matters, will therefore serve double duty as it will more fully explicate the reasoning of the Court in August on the common issues of law raised.

In the first week of October, 1995, the Debtor filed another series of motions for approval of compromises and settlements, this time with ten other insurance companies. As to one of these settlements, no objection was raised. The other nine brought a number of objections, some of which have since been withdrawn. See In re Dow Corning Corp., 192 B.R. 415, 28 B.C.D. 649 (Bankr. E.D.Mich.1996). Evidence was received on December 7, 8 and 11, 1995. After consideration of briefs, closing arguments were held on January 25, 1996. By that time, only two objectors remained: the TCC and the Michigan Department of Environmental Quality ("DEQ").² There was a need for an expeditious decision this time, too, because the trial of the declaratory judgment action began on November 1, 1995, and was due to (and did) end in early February, 1996. The settling defendants were severed from the trial with the proviso that if the settlements were not approved, a trial as to these defendants would be held at a later time. Therefore, the Court's ruling was again oral only, with the announcement that this opinion would follow.

II. THE SETTLEMENTS

The current motion, like the one in August, proposed two different kinds of settlements. First, as with the Debtor's settlement with Royal in August, the settlement with American Guarantee and Liability Insurance Company in October provided that the insurer would agree to abide by the terms of the policy, including indemnification of the Debtor for claims submitted, in return for a discount off the policy limits. This type of settlement is called a "coverage in place" settlement; the TCC did not object to its approval.³ The second type of settlement, which was used with the other settling insurers, including Hartford, involves a cash payout by the insurer in return for certain releases from all entities listed as "insured" on the policies as well as complete releases by all tort claimants. In return, the Debtor agreed to discounts ranging up to approximately 24% off the face amount of the policies' coverages. The specifics of the nine contested compromises are summarized as follows:

A. Settlement With the London Market Insurers

1. Each London Market Insurer⁴ will pay its respective share of the total settlement amount within 60 calendar days of court approval of the agreement. The total settlement amount is said to be $233,000,000. However, the amount attributable to participating London Market Insurers and which is the amount that will actually be paid as part of this agreement is $182,000,000. Approximately $51,000,000 was apparently allocated to non-participating London Market Insurers and will not be paid as part of the agreement. The Debtor has the option to terminate the agreement if the amount paid within the 60-day period is not at least $180,000,000.

2. In return, the Debtor will release each insurer for all liability associated with breast implant claims and claims involving any other type of Dow Corning implant. The Debtor will also provide a complete release of the products/completed operation hazard limits of the policies. In addition, the Debtor will release all environmental claims with respect to certain policies in effect prior to 1964, and certain policies that have paid 50% or more of their liability limits.

3. The Debtor and the London Market Insurers will each waive certain claims against the other and the Debtor will commit to seek from other settling insurers a waiver of any contribution or other claims such other insurers might have against the London Market Insurers with respect to the released subject matter identified above. The Debtor will also reduce the amount of any settlement with — or judgment against — other settling insurers by the amount of any contribution or indemnity award against the London Market Insurers by such other insurers.

4. The Debtor will obtain a provision in the bankruptcy court order which would release the London Market Insurers from claims of any other insured, including Dow Chemical Company, Corning, Inc. and Hoechst-Marion-Roussel for all product liability claims up to the limits of insured loss as set forth within the agreement, and a provision which would release the London Market Insurers from claims of any other entities who may claim to be insureds under the policies (such as certain implant surgeons) as well as from any other entities claiming derivatively through the Debtor.

5. The Debtor will use its best efforts to include in any plan of reorganization a channeling injunction to protect the London Market Insurers from additional third-party claims on policies released pursuant to the settlement.

6. Treatment of the settlement proceeds will be as provided in an agreement between the Debtor and its co-insureds, which was approved by this Court on January 25, 1996. See In re Dow Corning, 192 B.R. 415, 28 B.C.D. 649 (Bankr.E.D.Mich.1996).

B. Buy-Out Settlements With the Other Insurers

1. The other Settling Insurers agree to pay the following amounts:

a. Algemene Verzekering Maatschappij Diligentia N.V. Te Amsterdam — $11,250;

b. Arab Insurance Company — $500,000;

c. North River Insurance Company, United States Fire Insurance Company and International Surplus Lines Insurance Company (the "JU Insurers") — $40,181,147;

d. Federal Insurance Company — $13,900,000;

e. Ludgate Insurance Company Limited — $1,000,000;

f. The National Casualty Company — $712,885;

g. Transamerica Insurance Group — $24,700,000; and

h. Zurich Insurance Company and Zurich International Ltd. — $3,800,000.

Each of these insurers must pay the above amounts within 15 calendar days after approval by the bankruptcy court. The one exception to this is the JU Insurers, who have until 42 days after the bankruptcy court's approval to make payment to the Debtor.

2. In return, the Debtor will release all liability associated with breast implant claims and claims involving any other type of Dow Corning implant. The Debtor will also release the products/completed operation hazards limits under the policy(ies) of the settling insurer. Additionally, the Debtor will also waive other contractual claims arising out of the breast implant litigation, including consequential damage claims.

3. The Debtor will obtain a provision in the bankruptcy court order which would release the Settling Insurer from claims by any other insured or underlying claimant to the same extent that the Settling Insurer is released by the Debtor, except that the release as to Dow Chemical and other entities claiming to be insureds under the policies of the Settling Insurer are releases only to the extent that the product liability limits of policies of the Settling Insurer are released by the Debtor.

4. All of the provisions stated in paragraph (3), (5) and (6) in the description of the "Settlement With the London...