Court Rules Insurers Not Liable for Asbestos Claim

New Brunswick, NJ, May 23, 2007--In a closely watched case, a New Jersey state court ruled that insurers are not liable for asbestos-related claims negotiated as part of a prepackaged bankruptcy plan, according to Best Wire Services.

The service said that ludge Nicholas J. Stroumtsos, sitting in Middlesex County Superior Court, said insurers were reasonable in denying coverage to Congoleum Corp., a New Jersey-based manufacturer of flooring products that independently negotiated a more-than-$465 million settlement as part of a prepackaged plan to resolve more than 70,000 asbestos-related injury suits filed between 1981 and 2002.

Stroumtsos said Congoleum colluded with its bankruptcy lawyers and lawyers representing claimants to “create a framework that would provide Congoleum with both the insurance money and also protect against the asbestos liability, while leaving the insurance companies to bear the costs.” Also, he added, the insurers were wrongfully left out of the negotiations, which produced an agreement that allowed for the payment of fraudulent claims.

Jack Gerstein, a Washington-based attorney who represents CNA Insurance Cos. in this case, said the ruling marks a watershed moment in asbestos litigation, and he “expects courts going forward will scrutinize more carefully asbestos prepackaged bankruptcy plans.”

Gerstein said there've long been concerns about the way asbestos prepackaged bankruptcies are put together and the plaintiffs successfully showed the court what was wrong with these plans in general and the Congoleum plan specifically. “They’re marked by loose claims criteria that encourages the filing and payment of frivolous claims.”

Congoleum’s insurers included Employers Insurance Company of Wausau; Lloyd's; Old Republic Insurance Co.; Twin City Fire Insurance Co.; Ace Ltd.; and CNA. According to the judge, none of the insurers knew Congoleum was considering a private prepackaged plan until they saw a press release in January 2003. In March 2003, when the insurers asked to participate in the discussion, Congoleum invited them to meetings in New York and South Carolina. However, no real negotiations took place. The judge noted that on one occasion, the meeting was delayed while certain lawyers for Congoleum “were enjoying the afternoon looking at custom-made motorcycles.”

Congoleum was first named defendant in an asbestos-related bodily injury claim in 1981. Over the next 21 years, more than 70,000 claimants filed suit against the company. According to the court, CongoleumÂ’s primary insurers resolved more than 33,000 claims for approximately $13.5 million. The majority of the claims were dismissed without payment.