Travelers Indem. Co. v. Bailey

• Decision Date: 18 June 2009
• Docket Number: Nos. 08–295,08–307.,s. 08–295
• Citation: 557 U.S. 137,174 L.Ed.2d 99,129 S.Ct. 2195
• Court: U.S. Supreme Court
• Parties: TRAVELERS INDEMNITY CO. et al., Petitioners, v. Pearlie BAILEY et al.

557 U.S. 137

129 S.Ct. 2195

174 L.Ed.2d 99

TRAVELERS INDEMNITY CO. et al., Petitioners

v.Pearlie BAILEY et al.

Nos. 08–295

08–307.

Supreme Court of the United States

Argued March 30, 2009.

Decided June 18, 2009.¹

Barry R. Ostrager, New York City, for Petitioners.

Samuel Issacharoff, New York City, for Respondents Cascino Asbestos Claimants.

Jacob C. Cohn, Philadelphia, PA, for Respondent Chubb Indemity Ins. Co.

Barry R. Ostrager, Counsel of Record, Myer O. Sigal, Jr., Andrew W. Frankel, Robert J. Pfister, Simpson Thacher & Bartlett LLP, New York, NY, for Petitioners The Travelers Indemnity Company, Travelers Casualty and Surety Company and Travelers Property Casualty Corp.

Jason R. Searcy, Jason R. Searcy & Associates, P.C., Longview, TX, for Cascino Asbestos Claimants

Sander L. Esserman, Stutzman, Bromberg, Esserman & Plifka, P.C., Dallas, TX, for Pearlie Bailey, et al.

Opinion

Justice SOUTER delivered the opinion of the Court.

As an element of the 1986 reorganization plan of the Johns–Manville Corporation (Manville), the United States Bankruptcy Court for the Southern District of New York enjoined certain lawsuits against Manville's insurers, including The Travelers Indemnity Company and its affiliates (Travelers). The question is whether the injunction bars state-law actions against Travelers based on allegations either of its own wrongdoing while acting as Manville's insurer or of its misuse of information obtained from Manville as its insurer. We hold that the terms of the injunction bar the actions and that the finality of the Bankruptcy Court's orders following the conclusion of direct review generally stands in the way of challenging the enforceability of the injunction.

I

From the 1920s to the 1970s, Manville was, by most accounts, the largest supplier of raw asbestos and manufacturer of asbestos-containing products in the United States, In re Johns–Manville Corp., 517 F.3d 52, 55–56 (2d Cir.2008), and for much of that time Travelers was Manville's primary liability insurer. In re Johns–Manville Corp., No. 82 B 11656 etc. (Bkrtcy. Ct. SDNY 2004), App. to Pet. for Cert. in No. 08–295, pp. 111a–112a (hereinafter Bkrtcy. Ct. Op.). As studies began to link asbestos exposure to respiratory disease and thousands of lawsuits were filed against Manville, Travelers, as the insurer, worked closely with Manville to learn what its insured knew and to assess the dangers of asbestos exposure; it evaluated Manville's potential liability and defenses, and paid Manville's litigation costs. Id. at 114a–117a, 121a–122a. In 1982, the prospect of overwhelming liability led Manville to file for bankruptcy protection in the Southern District of New York.

It thus became incumbent on the Bankruptcy Court to devise “a plan of reorganization for [Manville] which would provide for payment to holders of present or known asbestos health related claims ... and [to] those persons who had not yet manifested an injury but who would manifest symptoms of asbestos-related illnesses at some future time.” In re Johns–Manville Corp., 97 B.R. 174, 176 (Bkrtcy.S.D.N.Y.1989). The ensuing reorganization plan created the Manville Personal Injury Settlement Trust (Trust) to pay all asbestos claims against Manville, which would be channeled to the Trust. See Kane v. Johns–Manville Corp., 843 F.2d 636, 640–641 (2d Cir.1988) ; In re Johns–Manville Corp., 340 B.R. 49, 54 (S.D.N.Y.2006). The Trust has since paid out more than $3.2 billion to over 600,000 claimants. Bkrtcy. Ct. Op. 136a–137a.

In the period leading up to the reorganization, Manville and its insurers litigated over the scope and limits of liability coverage, and Travelers faced suits by third parties, such as Manville factory workers and vendors of Manville products, seeking compensation under the insurance policies. There was also litigation among the insurers themselves, who brought various indemnity claims, contribution claims, and cross-claims. Id. at 132a–134a. In a settlement described as the “cornerstone” of the Manville reorganization, the insurers agreed to provide most of the initial corpus of the Trust, with a payment of $770 million to the bankruptcy estate, $80 million of it from Travelers. MacArthur Co. v. Johns–Manville Corp ., 837 F.2d 89, 90 (2d Cir.1988) ; Bkrtcy. Ct. Op. 134a; In re Johns–Manville Corp., 68 B.R. 618, 621 (Bkrtcy.S.D.N.Y. 1986).

There would have been no such payment without the injunction at the heart of the present dispute. The December 18, 1986, order of the Bankruptcy Court approving the insurance settlement agreements (Insurance Settlement Order) provides that, upon the insurers' payment of the settlement funds to the Trust, “all Persons are permanently restrained and enjoined from commencing and/or continuing any suit, arbitration or other proceeding of any type or nature for Policy Claims against any or all members of the Settling Insurer Group.” App. to Pet. for Cert. in No. 08–295, at 446a. The Insurance Settlement Order goes on to provide that the insurers are “released from any and all Policy Claims,” which are to be channeled to the Trust. Ibid . The order defines “Policy Claims” as “any and all claims, demands, allegations, duties, liabilities and obligations (whether or not presently known) which have been, or could have been, or might be, asserted by any Person against ... any or all members of the Settling Insurer Group based upon, arising out of or relating to any or all of the Policies.” Id. at 439a. The insurers were entitled “to terminate the settlements if the injunctive orders [were] not issued or if they [were] set aside on appeal.” MacArthur, supra, at 90.

The Insurance Settlement Order was incorporated by reference in the Bankruptcy Court's December 22, 1986, order confirming Manville's Second Amended and Restated Plan of Reorganization (Confirmation Order).¹ App. to Pet. for Cert. in No. 08–295, at 271a–272a. Both the Confirmation Order and the Insurance Settlement Order (collectively, 1986 Orders) were affirmed by the District Court, see In re Johns–Manville Corp., 78 B.R. 407 (S.D.N.Y.1987), and the Court of Appeals for the Second Circuit, see MacArthur,supra;Kane,supra .

Nonetheless, over a decade later plaintiffs started filing asbestos actions against Travelers in various state courts, cases that have been spoken of in this litigation as Direct Actions. They are of two sorts. The Statutory Direct Actions are brought under state consumer-protection statutes, and allege that Travelers conspired with other insurers and with asbestos manufacturers to hide the dangers of asbestos and to raise a fraudulent “state of the art” (or “no duty to warn”) defense to personal injury claims. Bkrtcy. Ct. Op. 140a–143a. The Common Law Direct Actions claim that Travelers violated common law duties by failing to warn the public about the dangers of asbestos or by acting to keep its knowledge of those dangers from the public. Id. at 143a–147a. It is undisputed that many of the plaintiffs seek to recover from Travelers, not indirectly for Manville's wrongdoing, but for Travelers' own alleged violations of state law. See 517 F.3d, at 63.²

In 2002, Travelers invoked the terms of the 1986 Orders in moving the Bankruptcy Court to enjoin 26 Direct Actions pending in state courts. Id. at 58. The court issued a temporary restraining order, repeatedly extended, and referred the parties to mediation, which led to settlements between Travelers and three sets of plaintiffs in both Statutory and Common Law Direct Actions. Bkrtcy. Ct. Op. 103a–104a. Under the settlement terms Travelers would pay more than $400 million to settlement funds to compensate Direct Action claimants, contingent upon the entry of an order by the Bankruptcy Court clarifying that the Direct Actions were, and remained, prohibited by the 1986 Orders.Id. at 150a–152a. The settlement requires claimants seeking payment from the settlement funds to grant Travelers a release from further liability, separate and apart from Travelers' protection under the 1986 Orders. Id. at 151a–152a.

After notice of the settlement was given to potential claimants, the Bankruptcy Court (the same judge who had issued the 1986 Orders) held an evidentiary hearing and made extensive factual findings that are not challenged here. The court determined that “Travelers['] knowledge of the hazards of asbestos was derived from its nearly three decade insurance relationship with Manville and the performance by Travelers of its obligations under the Policies, including through the underwriting, loss control activities, defense obligations and generally through its lengthy and confidential insurance relationship under the policies.” Id. at 128a–129a. In sum, the Bankruptcy Court found that “Travelers learned virtually everything it knew about asbestos from its relationship with Manville.” Id. at 131a.

As for the Direct Actions, the court saw “[t]he gravamen of the Statutory Direct Action Lawsuits” as “center[ing] on Travelers['] defense of Manville in asbestos-related claims.” Id. at 142a. The court read the “alleged factual predicate” of the Common Law Direct Actions as being “essentially identical to the statutory actions: Travelers ... influence[d] Manville's purported failure to disclose knowledge about asbestos hazards; Travelers defended Manville; Travelers advanced the state of the art defense; and Travelers coordinated Manville's national defense effort.” Id. at 147a (citations omitted). The court understood “the direct action claims against Travelers [to be] inextricably intertwined with Travelers['] long relationship as Manville's insurer,” id. at 169a, and found that “[a]fter the Court preliminarily enjoined prosecution of Direct Action Claims against Travelers pending final ruling on the merits, certain plaintiffs' lawyers violated the letter and the spirit of this Court's rulings by simply deleting the term ‘Manville’ from their complaints—but leaving the substance unchanged,” id. at 147a.

Hence, the court's conclusion that “[t]...