Kathleen Ehrhart, Partner, Smith Gambrell Russell, LLP, moderated a panel on “Bankruptcies and the Insurance Runoff Market: Impact and Implications” at AIRROC’s Chicago Regional Education Day on June 6, 2024. Panelists included Anthony Mormino, Senior Legal Counsel, Swiss Reinsurance America, and Shelly DeRousse, Partner, Smith Gambrell Russell, LLP. The panelists discussed the history of bankruptcy trusts, the risks and benefits of trusts for insurers, major ongoing bankruptcy proceedings, and lessons learned. A video replay of this presentation is available on AIRROC’s On Demand platform, but here are some of the top takeaways:
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- Johns-Manville Corporation created an asbestos claimants’ trust as part of its Chapter 11 plan in the 1980s. Congress later codified the concept of an asbestos trust in 1994 under section 524(g) of the Bankruptcy Code.
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- The asbestos trust model has been used for other mass tort personal injury cases in Chapter 11 bankruptcies. It will likely be applied to emerging mass torts such as PFAS, Opioids and cyber security in the future.
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- When an insured files for bankruptcy, insurers have the option of settling and paying into a bankruptcy trust or objecting and allowing the court to assign policies to the trust. Both options have pros and cons that should be carefully evaluated.
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- Perhaps the most important thing carriers can do in the event of a bankruptcy filing is get involved early. Notable bankruptcy case Kaiser Gypsum has called the rights of insurers into question. Using this case as an example, DeRousse said: “Don’t get to that stage where you’re objecting to the Plan. Start early in the process: getting involved, getting in the negotiations, trying to reach a deal.”
- Legacy re/insurers will be better prepared to deal with bankruptcies if they are 1) monitoring exposures that could affect their portfolios; 2) adequately reserving their files; and 3) buying reinsurance.
