Cases & Deals

Plant Insulation Company files Chapter 11 in effort to obtain asbestos injunction

Clients Plant Insulation Company

Jones Day filed a chapter 11 case in the Northern District of California in May 2009 for Plant Insulation Company, a former industrial insulation installer and distributor that ceased active operations in 2001. Plant had $1 billion or greater in claimed asbestos tort liabilities, and had commenced coverage litigation in 2006 against its insurers, asserting that coverage was not exhausted. Plant's asbestos creditors asserted that Bayside Insulation (a company formed in 2001 by former shareholders of Plant, which took over much of Plant's ongoing insulation operations) had successor liability for Plant's asbestos exposure.

Under Plant's chapter 11 Plan, Bayside merges into Plant to resolve these successor liability claims and to assure that the reorganized debtor qualifies for a discharge under sections 1141(d)(3) and 524(a), and thus for the special asbestos channeling injunction which section 524(g)(1)(A) provides is a "supplement" to the general discharge under section 524. The terms of the Bayside merger were heavily negotiated, and included an investment in the reorganized debtor by the asbestos victims trust established under the Plan, in exchange for 40% of the reorganized debtor's stock and warrants that would, if exercised, give the trust majority ownership in the reorganized debtor. Other central elements of the Plan are the creation of the asbestos victims trust funded principally by $150 million in settlements of Plant’s insurance, and an injunction barring current and future asbestos-related claims against the reorganized debtor, its stockholders, and settling insurers.

With the support of the creditors' committee and the court-appointed future claims representative, the Plan was confirmed by the bankruptcy court in March 2012 following a nine day trial, over the vigorous objection of Plant's non-settling insurers. The confirmation order was affirmed by the District Court in October, and the Plan became effective on November 16. The non-settling insurers have appealed the confirmation order to the Ninth Circuit, which denied a stay pending appeal. The two most aggressively challenged features of the plan are (a) the merger between Plant and Bayside, and (b) the treatment of non-settling insurers’ state law equitable contribution rights.