UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

)

ARMSTRONG WORLD INDUSTRIES, INC., )

)

Plaintiff, )

) Civil Action No. 02-4360-RBS

v. )

)

LIBERTY MUTUAL INSURANCE COMPANY, )

)

Defendant. )

)

JOINT MOTION TO APPROVE STIPULATION AND ORDER ARISING FROM 

PLAINTIFF’S CHAPTER 11 BANKRUPTCY PROCEEDINGS

Plaintiff Armstrong World Industries, Inc. (“Armstrong”) and defendant Liberty Mutual 

Insurance Company (“Liberty”) hereby move the Court to approve the accompanying Stipulation 

and Order, which already has been approved in Armstrong’s Chapter 11 bankruptcy case pending 

in the United States Bankruptcy Court for the District of Delaware and which (a) resolves certain 

issues concerning the filing of counterclaims by Liberty in the present case and (b) clarifies that 

issues concerning insurance coverage under certain policies issued by Liberty to Armstrong will 

be resolved in a nonbankruptcy forum. In support of this motion, Armstrong and Liberty state as 

follows: 

Summary

1. The present case deals with certain insurance coverage disputes between 

Armstrong and Liberty. In order for Liberty to assert counterclaims against Armstrong in this 

case, Liberty was required, due to Armstrong’s pending bankruptcy case, to seek relief from the 

automatic stay in the bankruptcy court. The bankruptcy court deferred decision on Liberty’s 

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motion for relief from the stay until a pre-existing alternative dispute resolution (“ADR”) 

proceeding dealing with certain insurance issues had been completed. At the parties’ request, 

this Court placed the present case on the suspense docket, pending resolution by the bankruptcy 

court of the motion to lift the stay regarding filing of Liberty’s counterclaims.

2. The parties have now reached a stipulation that (a) provides that Liberty may file 

its counterclaims in the present case within 20 days of either (i) final resolution of the ADR 

proceeding or (ii) notice that the effective date of Armstrong’s plan of reorganization has 

occurred, whichever is later; and (b) clarifies that issues concerning insurance coverage under 

certain policies issued by Liberty to Armstrong will be resolved in a nonbankruptcy forum.

3. The stipulation is subject to approval by the Bankruptcy Judge and the District 

Judge presiding in the bankruptcy case and by this Court. The stipulation resolves a number of 

complex issues between the parties in a manner that will facilitate both the bankruptcy case and 

the present case. The Bankruptcy Judge and the District Judge in the bankruptcy case have both 

approved the stipulation. The parties seek, by this motion, approval by this Court of the 

stipulation, and continuance of this case on the suspense docket.

Background

4. Since the 1970s, Armstrong has been named as a defendant in numerous lawsuits 

seeking damages for asbestos-related bodily injuries. In the 1970s and early 1980s, Liberty 

issued certain insurance policies (the “Policies”) to Armstrong. Armstrong and Liberty have a 

number of disputes regarding coverage under the Policies for Armstrong’s asbestos-related 

liabilities. 

5. In 1996, Armstrong initiated an ADR proceeding against Liberty seeking 

insurance coverage for asbestos-related bodily injury claims. The ADR has been conducted 

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pursuant to the terms of the Agreement Concerning Asbestos-Related Claims, commonly known 

as the “Wellington Agreement.” Under the terms of the Wellington Agreement, the ADR is 

binding with respect to certain disputes and non-binding with respect to other disputes. The nonbinding portion of the ADR proceeding was concluded on July 1, 2002. The binding portion of 

the ADR proceeding is in its appellate phase and is still pending.

6. On December 6, 2000, Armstrong filed a petition for protection under Chapter 11 

of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of 

Delaware, thereby initiating its bankruptcy case. See In re Armstrong World Industries, Inc., 

Case No. 00-4471 (RJN) (Bankr. D. Del.). 

7. On July 1, 2002, after conclusion of the non-binding portion of the ADR 

proceeding, Armstrong filed a Complaint for Declaratory Judgment (“Complaint”) against 

Liberty in this Court, seeking resolution of certain issues not subject to binding resolution in the 

ADR. On July 5, 2002, Liberty filed its Answer and Affirmative Defenses to Armstrong’s 

Complaint.

8. Shortly after being served with Armstrong’s Complaint, Liberty notified 

Armstrong of its desire to file counterclaims against Armstrong in the present case. Because 

Armstrong was a Chapter 11 debtor, however, the filing of any such counterclaims without leave 

of the bankruptcy court would have violated the automatic stay in effect pursuant to 11 U.S.C. 

§ 362. Thus, on July 18, 2002, Liberty filed a motion with the bankruptcy court seeking relief 

from the automatic stay in order to file its counterclaims in this Court.

9. On August 1, 2002, the bankruptcy court continued the hearing on Liberty’s 

motion to lift the stay until January 24, 2003, pending final adjudication of the ADR appeal. The 

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ADR appeal remains pending and the bankruptcy court has since continued the hearing on 

Liberty’s motion to lift the stay several times, pending resolution of the ADR appeal.

10. On September 16, 2002, Armstrong and Liberty filed a Stipulated Order of 

Transfer to the Civil Suspense Docket pursuant to which they agreed that this action should be 

transferred to the civil suspense docket until Liberty’s motion for relief from the automatic stay 

was adjudicated and all rights of appeal had been exhausted. On September 17, 2002, this Court 

entered the Stipulated Order of Transfer to the Civil Suspense Docket.

The Stipulation and Order

11. On September 4, 2003, Armstrong, Liberty, and the Asbestos Claimants’ 

Committee and Future Claimants’ Representative in the bankruptcy case filed the accompanying 

Stipulation and Order in the bankruptcy court. In the Stipulation and Order, the parties have 

agreed, inter alia, that Liberty consents to the transfer and assignment of certain rights under the 

Policies to a so-called “Asbestos PI Trust” to be established pursuant to 11 U.S.C. § 524(g) to 

resolve and pay all pending and future asbestos-related bodily injury claims against Armstrong. 

See Stipulation and Order, ¶¶ 3-4. The Stipulation and Order further provides that claims by 

Armstrong or the Asbestos PI Trust for coverage under the Policies, and Liberty’s coverage 

defenses, counterclaims, set-off claims or recoupment claims, will not be resolved in the 

bankruptcy case, but are reserved for litigation in a non-bankruptcy forum. See id., ¶ 2. The 

Stipulation and Order provides that certain findings by the bankruptcy court will not be binding 

on Liberty, will not affect coverage rights under the Policies, and/or are not admissible in a nonbankruptcy forum, and that certain matters are reserved for litigation in a non-bankruptcy forum. 

See id., ¶¶ 2, 5, 9, 10.

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12. The parties to the Stipulation and Order also have agreed that Liberty will have 

the right to file any counterclaims against Armstrong in this action within 20 days of the later of 

(i) final resolution of the ADR, or (ii) Liberty’s receipt of notice tha t any reorganization plan 

approved in the bankruptcy case has become effective. See Stipulation and Order, ¶ 6. Liberty 

has agreed that, upon full execution and approval of the Stipulation and Order, Liberty will 

withdraw its pending motion for relief from the automatic stay as moot. See id., ¶ 8.

13. The Stipulation and Order is subject to approval by the Bankruptcy Judge and the 

District Judge in the bankruptcy case, and by this Court. Both of the judges in the bankruptcy 

case already have approved the Stipulation and Order.

Conclusion

14. The Stipulation and Order will resolve a number of complex issues relating to 

Armstrong’s bankruptcy case and to the relationship between that case and the present insurance 

coverage case. It will facilitate proceedings in both cases, so that they may proceed in an orderly 

manner.

WHEREFORE, Armstrong and Liberty respectfully request that the Court (1) approve 

and enter the accompanying Stipulation and Order, and (2) order that this case remain on the 

suspense docket.

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Respectfully submitted, 

ARMSTRONG WORLD LIBERTY MUTUAL

INDUSTRIES, INC. INSURANCE COMPANY

By its attorneys, By its attorneys,

_______________________________

Howard M. Klein Edward F. Mannino 

Frank Emmerich Jason A. Snyderman

Conrad O’Brien Gellman & Rohn, P.C. One Commerce Square

1515 Market Street, Sixteenth Floor 2005 Market Street, Suite 2200

Philadelphia, PA 19102-1916 Philadelphia, PA 19103

(215) 864-9600 (215) 965-1229

and and

William P. Skinner A. Hugh Scott

S. William Livingston John A. Nadas

Philip E. Dubé Gregg Shapiro

Covington & Burling Choate, Hall & Stewart

1201 Pennsylvania Ave., N.W. 53 State Street

Washington, D.C. 20004 Boston, MA 02109

(202) 662-5470 (617) 248-5000

and

Gerald V. Weigle, Jr.

Dinsmore & Shohl

1900 Chemed Center

255 East Fifth Street

Cincinnati, OH 45202

(513) 977-8251

SO ORDERED

____________________________ October ____, 2003

R. Barclay Surrick

United States District Court Judge

3605702

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