Truck Insurance Exchange v. Kaiser Gypsum Co., 602 U.S. ___ (2024) (2024)

NOTICE: This opinion is subject toformal revision before publication in the United States Reports.Readers are requested to notify the Reporter of Decisions, SupremeCourt of the United States, Washington, D.C. 20543,pio@supremecourt.gov, of any typographical or other formalerrors.SUPREME COURT OF THE UNITED STATES_________________No. 22–1079_________________TRUCK INSURANCE EXCHANGE, PETITIONER v.KAISER GYPSUM COMPANY, INC., et al.on writ of certiorari to the united statescourt of appeals for the fourth circuit[June 6, 2024]Justice Sotomayor delivered the opinion of theCourt.The Bankruptcy Code allows any “party ininterest” to “raise” and “be heard on any issue” in a Chapter 11bankruptcy. 11 U.S.C. §1109(b). The question in thiscase is whether an insurer with financial responsibility for abankruptcy claim is a “party in interest” under this provision.Truck Insurance Exchange (Truck) is the primaryinsurer for companies that manufactured and sold productscontaining asbestos. Those companies filed for Chapter 11bankruptcy after facing thousands of asbestos-related lawsuits.Truck is obligated to pay up to $500,000 per asbestos claim coveredunder its insurance contracts with the companies. Truck sought toobject to the companies’ bankruptcy reorganization plan primarilybecause the plan lacked disclosure requirements that Truck thoughtcould save it from paying millions of dollars in fraudulentclaims.The Court of Appeals concluded that Truck wasnot a “party in interest” because the reorganization plan was“insurance neutral”; that is, the plan neither increased Truck’sprepetition obligations nor impaired its rights under the insurancecontracts. This Court disagrees. The insurance neutrality doctrineconflates the merits of an insurer’s objection with the threshold§1109(b) question of who qualifies as a “party in interest.”Section 1109(b) asks whether the reorganization proceedings mightdirectly affect a prospective party, not how a particularreorganization plan actually affects that party.Truck is a “party in interest” under §1109(b).An insurer with financial responsibility for a bankruptcy claim issufficiently concerned with, or affected by, the proceedings to bea “party in interest” that can raise objections to a reorganizationplan. Section 1109(b) grants insurers neither a vote nor a veto; itsimply provides them a voice in the proceedings.IABankruptcy offers individuals and businessesin financial distress a fresh start to reorganize, discharge theirdebts, and maximize the property available to creditors. “Chapter11 of the Bankruptcy Code enables a debtor company to reorganizeits business under a court-approved plan governing the distributionof assets to creditors.” U.S. Bank N.A. v.Village at Lakeridge, LLC, 583 U.S. 387, 389 (2018). Thisplan, which is primarily the product of negotiations between thedebtor and creditors, “govern[s] the distribution of valuableassets from the debtor’s estate and often keep[s] the businessoperating as a going concern.” Czyzewski v. Jevic HoldingCorp., 580 U.S. 451, 455 (2017). Chapter 11 strikes “a balancebetween a debtor’s interest in reorganizing and restructuring itsdebts and the creditors’ interest in maximizing the value of thebankruptcy estate.” Florida Dept. of Revenue v.Piccadilly Cafeterias, Inc., 554 U.S.33, 51 (2008).Section 1109(b) of the Bankruptcy Code addresseswhich stakeholders can participate, and to what extent, in thesereorganization proceedings:“A party in interest, including thedebtor, the trustee, a creditors’ committee, an equity securityholders’ committee, a creditor, an equity security holder, or anyindenture trustee, may raise and may appear and be heard on anyissue in a case under this chapter.”A “party in interest” enjoys certain rights inthe proceedings, including the ability to file a Chapter 11 planwhen a trustee has been appointed, 11 U.S.C.§1121(c)(1); request the appointment or removal of a trustee,§§1104, 1105; challenge the good faith of persons voting to approvea plan, §1126(e); and object to confirmation of a plan,§1128(b).BThis case concerns the Chapter 11reorganization of companies facing overwhelming asbestos liability.Exposure to asbestos, a natural mineral used in industrial work,has led to devastating health consequences for millions of people.See National Cancer Institute, Asbestos Exposure and Cancer Risk(Nov. 29, 2021). Companies filing for bankruptcy because ofasbestos liability face unique challenges. “‘[B]ecause of alatency period that may last as long as 40 years for some asbestosrelated diseases, a continuing stream of claims can beexpected.’” Amchem Products, Inc. v. Windsor,521 U.S.591, 598 (1997). Claims therefore arrive on a long andunpredictable timeline. If bankruptcy proceedings resolved onlyexisting asbestos liability, companies would face unknown futureliability and claimants might be unable to recover just becausetheir injuries had not yet manifested.Congress responded to these challenges in§524(g) of the Bankruptcy Code. This section allows a Chapter 11debtor with substantial asbestos-related liability to establish andfund a trust that assumes the debtor’s liability for “damagesallegedly caused by the presence of, or exposure to, asbestos orasbestos-containing products.” §524(g)(2)(B)(i)(I). Section 524(g)then channels all present and future claims into the trust by“enjoin[ing] entities from taking legal action for the purpose ofdirectly or indirectly collecting, recovering, or receiving paymentor recovery” for claims “to be paid in whole or in part by [the]trust.” Finally, §524(g) imposes safeguards, including theappointment of a representative to protect the interest of futureclaimants, §524(g)(4)(B)(i); treatment of “present claims andfuture demands that involve similar claims in substantially thesame manner,” §524(g)(2)(B)(ii)(V); and approval from at least 75%of current claimants, §524(g)(2)(B)(ii)(IV)(bb). This all“ensure[s] that health claims can be asserted only against theTrust and that [the company’s] operating entities will be protectedfrom an onslaught of crippling lawsuits that could jeopardize theentire reorganization effort.” Kane v. Johns-MansvilleCorp., 843 F.2d 636, 640 (CA2 1988). It also ensures that“future claimants” are “treated identically to the presentclaimants.” Ibid.CKaiser Gypsum Company, Inc., and its parentcompany, Hanson Permanente Cement, Inc., manufactured and soldproducts that, at some point, contained asbestos. The companiesfaced tens of thousands of asbestos-related lawsuits as a result.To resolve their liabilities, both companies (Debtors) filed forChapter 11 bankruptcy. The Bankruptcy Court in turn appointedrepresentatives for the current and future asbestos claimants(Claimants). The Debtors eventually agreed on a proposedreorganization plan (Plan) with the Claimants, various creditorsand government agencies, and all but one of their insuranceproviders.The Plan creates a §524(g) Asbestos PersonalInjury Trust (Trust) that assumes the Debtors’ liabilities and isfunded by the Debtors and their parent company. The Plan alsotransfers “all of the Debtors’ rights” under their insurancecontracts to the Trust, including “all rights to coverage andinsurance proceeds.” App. to Pet. for Cert. 181a.Truck was the Debtors’ primary insurer. Itissued policies that covered the Debtors from 1965 through 1983.Truck is contractually obligated to defend each covered asbestospersonal injury claim and typically indemnify the Debtors for up to$500,000 per claim. The Debtors have to pay a $5,000 deductible perclaim, and assist and cooperate with Truck in defending against theclaims. The Plan required the Bankruptcy Court to make a findingthat the Debtors’ conduct in the bankruptcy proceedings neitherviolated this assistance-and-cooperation duty nor breached anyimplied covenant of good faith and fair dealing (Plan Finding).The Plan treats insured and uninsured claimsdifferently. Insured claims are filed “in the tort system to obtainthe benefit of [the] insurance coverage.” Id., at 241a.Truck has to defend these lawsuits, and if the claimant obtains afavorable judgment, the Trust pays the deductible and Truck pays upto $500,000 per claim. Uninsured claims, however, are submitteddirectly to the Trust for resolution. As part of that process,claimants have to identify “all other [related] claims” and file arelease authorizing the Trust to obtain documentation from otherasbestos trusts about other submitted claims. See 2 App. 428–431.These disclosure requirements are intended to reduce fraudulent andduplicative claims.[1]Truck was the only party involved in thebankruptcy that did not support the Plan. It advanced three mainobjections. First, and most relevant here, the Plan was not“proposed in good faith,” 11 U.S.C. §1129(a)(3),“because it reflected a collusive agreement between the Debtors andclaimant representatives,” and did not require “the samedisclosures and authorizations” for insured and uninsured claims,Inre Kaiser Gypsum Co., 60 F. 4th 73, 80 (CA4 2023).This “disparate treatment would expose [Truck] to millions ofdollars in fraudulent tort claims.” Ibid. Second, the PlanFinding impermissibly altered Truck’s rights under its insurancepolicies “by relieving the Debtors of theirassistance-and-cooperation obligations and by barring Truck fromraising the Debtors’ bankruptcy conduct as a defense in futurecoverage disputes.” Ibid. Third, the Trust did not complywith various provisions of §524(g), including the requirement to“deal equitably with claims and future demands,” as required by§524(g)(2)(B)(ii)(III).Following the Bankruptcy Court’s recommendation,the District Court confirmed the Plan. Relevant here, it concludedthat “Truck has limited standing to object to the Plan solely onthe grounds that the Plan is not insurance neutral.” In reKaiser Gypsum Co., 2021 WL 3215102, *27 (WDNC, July 28, 2021).The court found, however, that the Plan was “insurance neutral”because it “neither increase[d] Truck’s obligations nor impair[ed]its prepetition contractual rights under the Truck Policies. ThePlan simply restore[d] Truck to its position immediately prior tothe Petition Date.” Id., at *26. The court also rejectedTruck’s challenge to the Plan Finding because the Plan expresslyprovided that the Debtors “will continue to fulfill theircooperation obligations arising under” the policies. Id., at*27.The Fourth Circuit affirmed, agreeing with theDistrict Court that Truck was not a “party in interest” under§1109(b) because the Plan did not “increase [Truck’s] pre-petitionobligations or impair [Truck’s] pre-petition policy rights.” 60 F.4th, at 83. In other words, the Plan was “insurance neutral”because it did not “alte[r] Truck’s pre-bankruptcy ‘quantum ofliability’” given that Truck was “not entitled” to the“fraud-prevention measures” it sought. Id., at 87. The courtalso concluded that the Plan Finding did not alter Truck’scontractual rights and that the Debtors did not “breach theirassistance-and-cooperation obligations or the implied covenant ofgood faith and fair dealing.” Id., at 84.This Court granted certiorari to decide whetheran insurer with financial responsibility for a bankruptcy claim isa “party in interest” under §1109(b). 601 U.S. ___(2023).[2]IICourts must determine on a case-by-case basiswhether a prospective party has a sufficient stake inreorganization proceedings to be a “party in interest.” Section1109(b)’s text, context, and history confirm that an insurer suchas Truck with financial responsibility for a bankruptcy claim is a“party in interest” because it may be directly and adverselyaffected by the reorganization plan.ASection 1109(b) permits any “party ininterest” to “appear and be heard on any issue” in a Chapter 11proceeding. This text is capacious. To start, §1109(b) provides anillustrative but not exhaustive list of parties in interest. Seesupra, at 3. A common thread uniting the seven listedparties is that each may be directly affected by a reorganizationplan either because they have a financial interest in the estate’sassets (the debtor, creditor, and equity security holder) orbecause they represent parties that do (a creditors’ committee, anequity security holders’ committee, a trustee, and an indenturetrustee). “The general theory behind [§1109(b)] is that anyoneholding a direct financial stake in the outcome of the case shouldhave an opportunity (either directly or through an appropriaterepresentative) to participate in the adjudication of any issuethat may ultimately shape the disposition of his or her interest.”7 Collier on Bankruptcy ¶1109.01 (16th ed. 2023). Thisunderstanding aligns with this Court’s observation that Congressuses the phrase “‘party in interest’” in bankruptcyprovisions when it intends the provision to apply “broadly.”Hartford Underwriters Ins. Co. v. Union Planters Bank,N.A., 530 U.S.1, 7 (2000) (quoting 11 U.S.C. §502(a)).The ordinary meaning of the terms “party” and“interest” confirms this. “Party” in this context is bestunderstood as “[a] person who constitutes or is one of those whocompose ... one or [the] other of the two sides in anaction or affair; one concerned in an affair; a participator; as, aparty in interest.” Webster’s New International Dictionary1784 (2d ed. 1949). “Interest” is best understood as “[c]oncern, orthe state of being concerned or affected, esp[ecially] with respectto advantage, personal or general.” Id., at 1294. The plainmeaning of the phrase thus refers to entities that are potentiallyconcerned with or affected by a proceeding.[3] The parties in this case land on roughly this samedefinition. See Brief for Petitioner 26 (defining “party ininterest” as anyone that may be “‘directly and adverselyaffected’ by the reorganization” (alterations omitted)); Brief forDebtor-Side Respondents 29 (“To the extent Truck acknowledges thata ‘party in interest’ under Section 1109(b) is someone ‘directlyand adversely affected by the reorganization,’ the parties are inviolent agreement”); Brief for Claimant Respondents 1(similar).[4]The historical context and purpose of §1109(b)also support this interpretation. Congress consistently has actedto promote greater participation in reorganization proceedings.Section 77B of the Bankruptcy Act of 1898, for example, provideddebtors the right to be heard on all issues, but limited the rightof creditors and stockholders to only certain issues. See 11U.S.C. §207 (1946 ed.). Section 206 of the BankruptcyAct of 1938 broadened participation and provided that “[the]debtor, the indenture trustees, and any creditor or stockholder ofthe debtor shall have the right to be heard on all matters arisingin a proceeding under this chapter.” §606. Although the 1938 Actallowed a “party in interest” to intervene “for cause shown,” itpermitted only the four named parties to intervene as of right.Still, the Advisory Committee’s Note to Former Chapter X, Bkrtcy.Rule 10–210(a) (1976), which implemented §206, noted that thesection “was originally enacted to broaden the practice that haddeveloped upon former §77 .... This broaderconcept was to insure fair representation and to prevent excessivecontrol over the proceedings by insider groups.” 11U.S.C. App., p. 1445 (1976 ed.).In 1978, Congress enacted the Bankruptcy Codecontaining §1109(b), which continued the expansion of participatoryrights in reorganization proceedings. Congress moved from anexclusive list to the general and capacious term “party ininterest,” accompanied by a nonexhaustive list of parties ininterest. These parties “may raise and may appear and be heard onany issue.” 11 U.S.C. §1109(b). “Section 206... and Chapter X Rule 10–210(a), the predecessorprovisions of section 1109(b) of the Code, constituted an effort toencourage and promote greater participation in reorganizationcases.... Section 1109(b) continues in thistradition and should be understood in the same way.” InreAmatex Corp., 755 F.2d 1034, 1042 (CA3 1985).Now consider the purpose of §1109(b). Broadparticipation promotes a fair and equitable reorganization process.The Bankruptcy Code seeks to prevent “the danger inherent in anyreorganization plan proposed by a debtor” that “the plan willsimply turn out to be too good a deal for the debtor’s owners.”Bank of America Nat. Trust and Sav. Assn. v. 203 NorthLaSalle Street Partnership, 526 U.S.434, 444 (1999); see also ibid. (discussing Congress’sconcern that “‘a few insiders, whether representatives ofmanagement or major creditors, [could] use the reorganizationprocess to gain an unfair advantage’”). Section 1109(b)addresses this concern. “[D]rafters and early commentators hopedthat an expansive definition [of “party in interest” in §1109(b)]would allow a broad range of individual and minority interests tointervene in Chapter 11 cases, and expressly warned that unduerestrictions on who may be a party in interest might enabledominant interests to control the restructuring process.” D. Dick,The Chapter 11 Efficiency Fallacy, 2013 B. Y. U. L.Rev. 759,774–775 (2014). In short, §1109(b) was “designed to serve... the policies of inclusion underlying the chapter 11process.” 7 Collier on Bankruptcy ¶1109.02.BApplying these principles, the Court holdsthat insurers such as Truck with financial responsibility forbankruptcy claims are parties in interest.Bankruptcy reorganization proceedings can affectan insurer’s interests in myriad ways. A reorganization plan canimpair an insurer’s contractual right to control settlement ordefend claims. A plan can abrogate an insurer’s right tocontribution from other insurance carriers. Or, as alleged here, aplan may be collusive, in violation of the debtor’s duty tocooperate and assist, and impair the insurer’s financial interestsby inviting fraudulent claims. The list goes on. See,e.g., Brief for American Property Casualty InsuranceAssociation etal. as Amici Curiae 16–17 (AmericanProperty Brief) (“For example, a plan that purports to maintain aninsurer’s coverage defenses could nonetheless allow claims atamounts far above their actual value and out of line with theclaimants’ injuries or the payment of claims for which little to noproof of injury is required”). An insurer with financialresponsibility for bankruptcy claims can be directly and adverselyaffected by the reorganization proceedings in these and many otherways, making it a “party in interest” in those proceedings.Take Truck, for example. Truck will have to paythe vast majority of the Trust’s liability—up to $500,000 per claimfor thousands of covered asbestos-injury claims. The proposed Planwould have Truck stand alone in carrying the financial burden,because the §524(g) channeling injunction “permanently and foreverstay[s], restrain[s] and enjoin[s]” any action against Debtors,App. to Pet. for Cert. 178a, and other “[e]ntities, other thanAsbestos Insurers,” id., at 201a. According to Truck,however, a plan that lacks the disclosure requirements for theuninsured claims risks exposing Truck “to millions of dollars infraudulent tort claims.” 60 F. 4th, at 80. That potential financialharm—attributable to Truck’s status as an insurer with financialresponsibility for bankruptcy claims—gives Truck an interest inbankruptcy proceedings and whatever reorganization plan is proposedand eventually adopted.The Government frames Truck’s interest in aslightly different but substantively identical way. According tothe Government, Truck is a party in interest because it “is a partyto a contract with the debtor that is property of the estate andmay be interpreted, assigned, or otherwise affected by the Chapter11 proceedings.” Brief for United States as Amicus Curiae13. This is just another side of the same coin. Those executorycontracts are the ones that give insurers an interest in theproceedings and, in this case, make Truck financially responsiblefor the bankruptcy claims. So, whether Truck’s direct interest isframed as its executory contracts or instead its obligationsresulting from those contracts, it cashes out in the same way:Where a proposed plan “allows a party to put its hands into otherpeople’s pockets, the ones with the pockets are entitled to befully heard and to have their legitimate objections addressed.”Inre Global Indus. Technologies, Inc., 645 F.3d 201,204 (CA3 2011).This opportunity to be heard is consistent with§1109(b)’s purpose. In this case, neither the Debtors nor theClaimants have an incentive to limit the postconfirmation cost ofdefending or paying claims. For the Debtors, the Plan eliminatesall of their ongoing liability. The Claimants similarly have littleincentive to propose barriers to their ability to recover fromTruck. Truck may well be the only entity with an incentive toidentify problems with the Plan. This “realignment of the insured’seconomic incentives ... makes participation in thebankruptcy by insurers—who will ultimately be asked to foot thebill for most or all of those claims—critical.” American PropertyBrief 15–16.IIIThe Court of Appeals looked exclusively towhether the Plan altered Truck’s contract rights or its “quantum ofliability.” Under this approach, known as the “insuranceneutrality” doctrine, courts ask if the plan “increase[s] theinsurer’s pre-petition obligations or impair[s] the insurer’spre-petition policy rights.” 60 F. 4th, at 83, 87. This doctrine isconceptually wrong and makes little practical sense.Conceptually, the insurance neutrality doctrineconflates the merits of an objection with the threshold party ininterest inquiry. The §1109(b) inquiry asks whether thereorganization proceedings might affect a prospective party, nothow a particular reorganization plan actually affects that party.Indeed, §1109(b) cannot “depend on a plan-specific rule—thatstandard would be unusable for the Code provisions empowering aparty in interest to request acts unrelated to a specific plan orthat occur before a plan is confirmed or even proposed.” ReplyBrief 11; see also supra, at 3 (a party in interest, forexample, can file a Chapter 11 plan when a trustee has beenappointed or request the appointment and removal of a trustee).Practically, the insurance neutrality doctrine is too limited inits scope. It zooms in on the insurer’s prepetition obligations andpolicy rights. That wrongly ignores all the other ways in whichbankruptcy proceedings and reorganization plans can alter andimpose obligations on insurers. See supra, at 11–12.In defending the decision below, the Debtors andClaimants contend that Truck faces similar exposure in the tortsystem before and after bankruptcy, in part because Truck was notentitled to the disclosure provisions before the bankruptcy. Thatmay be so, but this argument suffers from the same flaw identifiedabove—at bottom, it concerns the merits of whether the Plan shouldinclude the disclosure provisions for insured claims in accordancewith §§524(g) and 1129. See supra, at 5–6 (describingTruck’s objections). Whether and how the particular proposed Planhere affects Truck’s prepetition and postpetition obligations andexposure is not the question. The fact that Truck’s financialexposure may be directly and adversely affected by a plan issufficient to give Truck (and other insurers with financialresponsibility for bankruptcy claims) a right to voice itsobjections in reorganization proceedings. The Debtors’ andClaimants’ argument also ignores the practical and legalconsequences of the Debtors’ bankruptcy proceedings andreorganization plan. They transformed the Debtors’ asbestosliabilities into bankruptcy claims that Truck will now have toindemnify through the Trust without the protections of disclosurerequirements in place for uninsured claims filed directly with theTrust.Finally, in resisting the text of §1109(b), theDebtors emphasize the risk of allowing “‘peripheral parties’to derail a reorganization.” Brief for Debtor-Side Respondents 33.To start, a “parade of horribles” argument generally cannot“surmount the plain language of the statute.” Arthur AndersenLLP v. Carlisle, 556 U.S.624, 629 (2009). Moreover, §1109(b) provides parties ininterest only an opportunity to be heard—not a vote or a veto inthe proceedings.[5] In allevents, the Court today does not opine on the outer bounds of§1109. Of course, a party in interest is “not intended to includeliterally every conceivable entity that may be involved in oraffected by the chapter 11 proceedings.” 7 Collier on Bankruptcy¶1109.03. There may be difficult cases that require courts toevaluate whether truly peripheral parties have a sufficientlydirect interest. This case is not one of them. Insurers such asTruck with financial responsibility for claims are not peripheralparties.*  *  *Section 1109(b) provides parties in interest avoice in bankruptcy proceedings. An insurer with financialresponsibility for bankruptcy claims is a “party in interest” thatmay object to a Chapter 11 plan of reorganization.The judgment of the United States Court ofAppeals for the Fourth Circuit is reversed, and the case isremanded for further proceedings consistent with this opinion.It is so ordered.Justice Alito took no part in the considerationor decision of this case.