Quality, Not Quantity: The Implications of Redefining Insurance Neutrality in in Re Global Industrial Technologies, Inc

IntroductionIn Chapter 11 bankruptcy proceedings, a debtor's plan of reorganization affects many parties other than the debtor itself.1 Thus, standing is a critical issue in bankruptcy proceedings, as it determines an entity's ability to ensure that its voice is heard before a plan is finalized.2When a debtor is facing mass tort liability, the question of standing becomes particularly relevant to the debtor's insurers.3 The Bankruptcy Code (the Code) allows a debtor's reorganization plan to include a trust and channeling injunction, which together require all current and future mass tort claims to be brought against a dedicated pool of assets instead of against the company.4 Without this system, the debtor would be subject to indefinite tort claims and would have difficulty reorganizing.5 These trusts may be partially funded with the debtor's insurance policies.6 Although the insurance company is not a creditor in that situation, it is liable for coverage of any claims that are successfully asserted against the trust.7 Accordingly, insurance companies have a particular interest in being able to challenge reorganization plans that include mass tort trusts and channeling injunctions.8Section 1109(b) of the Code expressly gives standing to certain parties with direct interests in the proceeding, such as the debtor, trustees, and creditors.9 Parties not explicitly given standing must satisfy requirements both under Article IH of the Constitution and under the Code.10 An insurer whose policy has been assigned to a mass tort trust does not fall into any of the groups which are conferred standing by section 1109(b).* 11 Thus, an insurer must have Constitutional and Code standing to challenge the confirmation of a plan.12Constitutional standing requires that a party demonstrate an injury in fact that is concrete, distinct and palpable, and actual or imminent.13 Additionally, the injury must be related to the challenged action and be correctable.14 Code standing is granted to a party in interest.15hi 2010, interpreting Code and Constitutional standing requirements as coextensive, the U.S. Court of Appeals for the Third Circuit, in In re Global Industrial Technologies, Inc., held that a group of insurance companies whose policies had been assigned to the proposed trust suf fered an injury, and thus had standing to object to the reorganization plan.16 Specifically, the court held that because the plan called for the creation of a trust to resolve silica-related claims, it resulted in a significant increase in the number of claims asserted, and therefore was not insurance neutral.17 Even though the insurers had not yet contributed any money to the trust, the court held that they had suffered an injury sufficient to warrant standing in the bankruptcy proceeding.18 This approach to insurance neutrality differed from the standard used by the U.S. Court of Appeals for the Third Circuit in 2004, in In re Combustion Engineering, Inc., where the court only looked at the plan's language and not the plan's effect on the number of claims.19 A significant factor in the Global Industrial Technologies decision was the suspected collusion between the debtor and the claimants' counsel during the solicitation of confirmation votes.20This Comment argues that a post-petition increase in the number of claims against a trust is an ineffective measure of injury and should not determine whether a plan is insurance neutral.21 Additionally, this Comment argues that courts should not rely on third parties to raise issues of wrongdoing; instead, bankruptcy courts should protect die integrity of their proceedings.22 Part I of this Comment provides a brief overview of how the bankruptcy process provides relief for corporations facing mass tort claims.23 Part II discusses the Third Circuit's treatment of insurance neutrality in Global Industrial Technologies and how that treatment differs from the previous approach taken in Combustion Engineering. …