Court Opinion

ID: 9858777
Source: CourtListenerOpinion
Date Created: 2023-09-24 16:38:14.920391+00
Date Added: 2024-06-11T09:55:52.018813
License: Public Domain

ON REHEARING
Johns-Manville Corporation, debtor and debtor-in-possession for and on behalf of itself and the other debtors and debtors-in-possession herein (collectively “Manville”), having moved this Court by application dated January 14, 1983 supported by the affidavits of Stephen N. Goldberg and Dennis H. Markusson sworn to January 14, 1983 (the application and affidavits being herein collectively referred to as the “Application”) for an order directing the other parties to this adversary proceeding to show cause why an order should not be entered (a) granting Manville’s request for reargument and rehearing of those issues described in the Application concerning this Court’s “Decision No. 2 in Related Automatic Stay Matters” (“Decision No. 2”); (b) permitting Manville immediate reargument of those matters contained in Decision No. 2 as requested and described in the Application; and (c) granting Manville such other and further relief as may be just and proper, and a hearing on the Application having been held before me on January 21, 1983, and upon reading and filing the Application, the order to show cause dated January 14, 1983 (the “Order”) and the affidavit of service thereof reflecting compliance with the notice requirements of the Order, and upon the record and minutes taken before me * and after due deliberation and sufficient cause appearing therefor, it is
NOW, on motion of LEVIN & WEIN-TRAUB & CRAMES and DAVIS POLK & WARDWELL, attorneys for Manville,
ORDERED, that Manville’s request for reargument and rehearing of those issues *435described in the Application concerning Decision No. 2 is hereby granted in all respects, and after allowing said rehearing and considering said reargument, the Court hereby modifies its Decision No. 2 to the following extent:
FINDINGS OF FACT
1. In certain states third party claimants are permitted to institute direct actions against insurance carriers which result in an adjudication of both the third party claimant’s claim against the insured and the insured’s claim against the insurer.
2. Prior to the filing of Manville’s petitions under chapter 11 of the Bankruptcy Code (the “Code”) 179 such direct action cases were pending against Manville’s insurers, including general liability insurers, in which asbestos-related health claimants alleged damages aggregating in excess of $216 million (Markusson affidavit pp. 2 and 3). These direct action suits are premised on the same type of asbestos-related health injuries claimed by all of the approximately 15,500 plaintiffs whose suits against Man-ville were automatically stayed under Section 362 of the Bankruptcy Code.
3. If third party direct action asbestos-related health suits are allowed to proceed, it is reasonable to expect additional direct actions to be instituted against Manville’s insurers, including general liability insurers.
4. Although Manville itself is no longer a party to the direct actions by reason of the automatic stay of Section 362 of the Bankruptcy Code, its assets could be adversely affected by the continuation of such suits. The insurance policies and proceeds thereof and the causes of action previously asserted by Manville against its insurance carriers in suits pending in California (“California Insurance Litigation”) and elsewhere constitute substantial property of the Manville estate which will be diminished if and to the extent that third party direct actions against the insurance carriers result in plaintiffs’ judgments.
5. If the third direct actions against the insurance carriers are permitted to continue the same evidence, witnesses, documents and legal theories relevant to the asbestos health claims asserted against Manville will be at issue. Moreover, since decisions could affect Manville’s position in the California Insurance Litigation and its other asserted claims against its insurance carriers, Man-ville will have no option but to vigorously participate in all such third party direct actions to protect its own interest and to discharge its obligation to cooperate with its insurers in the defense of such actions.
6.In Decision No. 2 the Court, in two (2) specific instances, indicated that it will modify the automatic stay of Section 362 to permit the continuation of appeals in those instances where a supersedeas bond has been posted by Manville since Manville does not have a property interest in the superse-deas bonds. By contrast, successful third party claimants in direct actions against Manville’s insurance carriers would receive payment from funds which would otherwise be available, for the most part, to the Man-ville estate.
7. If the third party direct actions against Manville’s insurance carriers are permitted to continue, important issues respecting policy coverage and liability may be pressed as collaterally estopping Man-ville. For example, the critical coverage issue will inevitably be litigated and determined in the third party direct actions where each insurer will take a position that minimizes its liability. Additionally, some insurers will disclaim any liability to Man-ville as a result of Manville’s alleged failure to disclose information concerning the risks of exposure to asbestos.
8. Resolution by one forum, preferably this Court, of the many issues relating to Manville’s insurance coverage and the liability of its insurance carriers, including those issues raised in the California Insurance Litigation, will be in the best interest of all parties in the reorganization proceedings and will minimize the expenses of litigation. Fragmenting these relevant issues by permitting various forums to decide the issues will frustrate prompt and effective formulation of a plan of reorganization be*436cause of uncertainties with respect to the dimension of the insurance carriers’ liability to Manville.
9. Staying third party direct actions against Manville’s insurance carriers will insure uniform treatment of all asbestos-related health claimants. There is no compelling reason to permit the third party direct actions against Manville’s insurance carriers to continue, notwithstanding provisions in the laws of four states that permit such actions.
10. With respect to the direct actions and any additional ones which may be commenced, it is also clear that Manville will find it necessary to participate in all such actions to minimize adverse rulings and to protect what may be the most important single asset of its estate, to wit, its claims under its insurance policies. To permit the third party actions to continue against Man-ville’s insurance carriers will result in a multiplicity of positions and defenses on the part of the insurance carriers and will most likely result in inconsistent decisions and rulings concerning the coverage and liability of the insurance carriers to the third party claimants and to Manville. Such a disorganized and fragmented procedure for resolving such major issues will undermine Manville’s attempt at reorganization.
CONCLUSIONS OF LAW
1. Manville’s rights under its insurance policies and all the causes of action arising thereunder constitute property of the Man-ville estates within the purview of Section 541(a) of the Code. The scope of Section 541(a) is broad and all encompassing. See Collier on Bankruptcy Section 541.06 (15th Ed.). See also, In re Moskowitz, 14 B.R. 677, 5 CBC 2d 269 (Bkrtcy.S.D.N.Y.1981) and In re Smith, 640 F.2d 888 (7th Cir.1981).
2. The legislative history of Section 362 indicates that the automatic stay protects creditors from the injustice of a race for the debtor’s assets:
The automatic stay also provides creditor protection. Without it, certain creditors would be able to pursue their own remedies against the debtor’s property. Those who acted first would obtain payment of the claims in preference to and to the detriment of other creditors. Bankruptcy is designed to provide an orderly liquidation procedure under which all creditors are treated equally. A race of diligence by creditors for the debtor’s assets prevents that. See H.R.Rep. No. 95-595, 95th Cong., 2nd Sess. 340 (1978), U.S.Code Cong. & Admin.News, pp. 5785, 6297.
3. Pursuant to Section 362(a) of the Code, all persons and entities are stayed and enjoined from commencing or continuing any proceeding or action to obtain possession of or interfere with property of Manville’s estates or property from Man-ville’s estates and, accordingly, are stayed and enjoined from commencing or continuing any proceeding against Manville’s insurers based on the alleged liability of Man-ville, its affiliates, officers, directors or employees, except with respect to supersedeas bonds such as those involved in the Hansen or Janssens cases, which are not property of Manville’s estates, or as may otherwise be allowed by this Court.
4. Pursuant to § 105(a), the Bankruptcy Court may extend the automatic stay under § 362 of the Code to stay and enjoin proceedings or acts against non-debtors where such actions would interfere with, deplete or adversely affect property of Manville’s estates or which would frustrate the statutory scheme of chapter 11 or diminish Man-ville’s ability to formulate a plan of reorganization:
“The exceptions to the automatic stay of § 362(a) which are set forth in § 362(b) are simply exceptions to the stay which protect the estate automatically at the commencement of the case and are not limitations upon the jurisdiction of the bankruptcy court or upon its power to enjoin. That power is generally based upon § 105 of the Code. The court will have ample power to enjoin actions excepted from the automatic stay which might interfere in the rehabilitative process whether in a liquidation or in a reorganization case.” 2 Collier on Bankruptcy § 362.02 (15th Ed.).
*4375. It is in the interests of economy, efficiency and protecting against the possibility of inconsistent interpretations of Manville’s insurance coverage to avoid a multiplicity of actions concerning such insurance coverage. Cf. American Motorists Insurance Co. v. Philip Carey Corp., 482 F.Supp. 711 (S.D.N.Y.1980) (Weinfeld, J.).

 and it appearing that in its initial papers on the issue of whether the Section 362 stay functions to protect Manville from direct suits against insurers, Manville failed adequately to show the critical distinctions between the cases on appeal involving supersedeas bonds, on the one hand, and cases at the trial court level involving direct suits by aggrieved plaintiffs against Manville’s insurers in those states which permit such direct suits, on the other, and indeed, none of the earlier papers before the Court focused on that distinction.