May 30, 2014 Articles

Insurance 101: Seventh Circuit Limits Insurer Standing to Challenge Settlements

The Seventh Circuit Court of appeals directed that an excess insurer’s concerns about a policyholder settling “on the cheap” with a lower-layer insurer—thereby potentially increasing the excess insurer’s coverage obligations—was an issue the excess insurer should address through its policy language, not through the bankruptcy courts

by Marla H. Kanemitsu

Most practitioners would agree that bankruptcy and insurance law are complex subject areas replete with nuanced rules and policy considerations. Put them together, and you can get stuck in a quagmire pretty quickly. Judge Richard Posner, in his typically pithy manner, has stepped into this fray with a decision aimed at avoiding at least one sticky situation involving the intersection of insurance and bankruptcy law. In an April 24, 2014, decision inIn re C.P. Hall Co., No. 12 C 2978, slip op. (7th Cir.), the Seventh Circuit Court of Appeals held that an excess insurance company does not have standing to challenge a settlement between a policyholder and a lower-layer insurer. The court directed that an excess insurer’s concerns about a policyholder settling “on the cheap” with a lower-layer insurer—thereby potentially increasing the excess insurer’s coverage obligations—was an issue the excess insurer should address through its policy language, not through the bankruptcy courts.

Like so many of the bankrupty-insurance cases that came before it, the Hall decision arose in the asbestos context. The policyholder, C.P. Hall Company, was a former distributor of asbestos and asbestos products, and, as a result, had been sued by thousands of individuals alleging asbestos-related injuries. Hall filed for bankruptcy protection in 2011. At that time, it determined it had $10 million in coverage from Integrity, which was itself insolvent. Integrity disputed that it owed coverage for the asbestos claims, and the parties agreed to a settlement of $4.125 million. The parties sought approval of the settlement from the bankruptcy court—approval that was required in order for the settlement to be valid.

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