Is It OK to Mediate A Mass Tort Bankruptcy Plan Without Including Insurers Who Must Provide Plan Payments? (In re Imerys & Cyprus)

By: Donald L Swanson

Here’s a due process question that’s percolating before the U.S. Supreme Court and a related mediation issue:

• The due process question is whether an insurer who must fund a mass tort bankruptcy plan is a “party in interest” that’s entitled to appear and be heard on what that plan says—that’s in Truck Insurance Exchange v. Kaiser Gypsum Company, Inc., Case No. 22-1079 (oral arguments scheduled for 3/19/2024); and
• A related mediation question is whether everyone interested in the outcome of a mediation (such as an insurer who must fund a bankruptcy plan) is entitled to be included in a mediation effort on what that plan says.

An Illustration

Here’s an illustration of how that question and issue work out in practice. 

It’s from the Chapter 11 jointly administered bankruptcies captioned, In re Imerys Talc America, Inc., and In re Cyprus Mines Corporation (Case Nos. 19-10289 and 21-10398 in the Delaware Bankruptcy Court).  These are two mass tort bankruptcy Debtors.

In the Imerys/Cyprus bankruptcy, Debtors’ counsel file a “Certification Regarding Proposed Order . . . Extending the Terms of Mediation” (Doc. 6038), seeking to effectuate the mediation provisions of a new “Stipulation and Agreement” between the two jointly administered Debtors (Doc. 6038-1).

The Stipulation between the Debtors proposes to:

• extend mediation efforts on plan issues (which excludes insurers) through February 29, 2024; and
• extend mediation efforts on insurance issues (with the insurers) through February 5, 2024.

Six insurers object (Doc. 6038) to such Certification on the following grounds:

• Debtors improperly seek an order, (i) without notice or a motion, (ii) in the guise of a certification of counsel, (ii) granting substantive relief that is new and different from what was previously ordered, (iii) that is contested by the insurers, and (iv) that is contrary to the Court’s prior instructions;
• The Court’s prior mediation order sets a mediation on  two separate tracks—(i) one track for mediation of the plan, from which the insurers are excluded, and (ii) another track for mediation with insurers on what the insurers are required to pay;
• During mediation on the insurance track, insurers do not receive any drafts of the Plan and are excluded from all communications, meetings and documents about terms for allowing and valuing claims and on the treatment of insurers;
• The mediation efforts result in a fait a compli, that increases the value of claims on paper, loosens the criteria for allowing claims, and purports to pass the obligation to pay such increased claims on to insurers—without the insurers being present in the mediation when all of this is arranged;
• At the time of the Certificate filing, (i) no resolution had been reached in the separate insurance mediation track, (ii) nothing had been disclosed to the insurers, and (iii) insurers had been excluded, entirely, from any and all plan communications; and
• Debtors now seek an order that, (i) terminates mediation efforts with insurers and anyone else objecting to Debtors’ plan, and (ii) authorizes mediation of a confirmation schedule among the co-proponents of the plan.

Further, the insurers insist in their objection that:

• If a mediation continues, it ought to be between parties with genuine disputes to resolve, i.e., with the insurers; and
• The relief requested by Debtors should only be considered on notice and through a motion.

Conclusion

It will be interesting to see:

• how the U.S. Supreme Court resolves the Truck Insurance v. Kaiser Gypsum question; and
• how bankruptcy courts respond thereafter in cases like Imerys and Cyprus discussed above.

** If you find this article of value, please feel free to share. If you’d like to discuss, let me know.