In the 1990s, plaintiffs started filing asbestos actions against Travelers in various state courts. As relevant, many of these claims alleged that Travelers conspired with other insurers and asbestos manufacturers to hide the dangers of asbestos and to raise fraudulent defenses to personal injury claims or that Travelers had violated common law duties by failing to warn the public about the dangers of asbestos. Such claims sought to recover from Travelers, not derivatively for Manville’s wrongdoing, but for Travelers’ own alleged misconduct.
In 2002, Travelers relied on the 1986 Order in moving the Bankruptcy Court to enjoin the pending state court actions. The Bankruptcy Court eventually entered an order dated August 17, 2004 (the “Clarifying Order”) finding that the 1986 Order barred the pending actions and “[t]he commencement or prosecution of all actions and proceedings against Travelers that directly or indirectly are based upon, arise out of or relate to Travelers[’] insurance relationship with Manville or Travelers[’] knowledge or alleged knowledge concerning the hazards of asbestos,” including claims for contribution or indemnification.
Some individual claimants and Chubb Indemnity Insurance Company (“Chubb”) objected to the Clarifying Order and subsequently appealed. They argued that the state court actions fell outside the 1986 Order and that the Clarifying Order improperly expanded the 1986 Order to bar actions beyond the Bankruptcy Court’s jurisdiction (because the Clarifying Order purported to bar actions premised on Travelers’ own alleged misconduct, not just its derivative liability for Manville’s wrongdoing). The District Court affirmed, but the Court of Appeals for the Second Circuit reversed. Travelers appealed the Second Circuit’s decision to the United States Supreme Court.
The Supreme Court, in an opinion delivered by Justice Souter, initially found that the time to appeal from the 1986 Order had expired almost two decades ago. Thus, the Court could not reach the argument of whether that 1986 Order exceeded the Bankruptcy Court’s jurisdiction. The 1986 Order was final and not subject to attack. Therefore, the Supreme Court determined that the only issue properly before it was whether the 1986 Order barred the state court actions.
The Supreme Court held that the state court actions fell within the scope of and were barred by the 1986 Order. In so ruling, the Court found that even though the subject actions were premised on Travelers’ own alleged misconduct (as opposed to Travelers’ derivative liability for Manville’s wrongdoing), they still fell within the broad language used by the 1986 order, e.g., arising out of or relating to. The Court refused to consider extrinsic evidence of what the parties understood about the scope of the 1986 Order concluding that “it is black-letter law that the terms of an unambiguous private contract must be enforced irrespective of the parties’ subjective intent.” The Court went on to find that the Bankruptcy Court had subject matter jurisdiction to issue the Clarifying Order which, in it view, embodied a correct reading of the 1986 Order.
Significantly, the Supreme Court did “not resolve whether a bankruptcy court, in 1986 or today, could properly enjoin claims against nondebtor insurers that are not derivative of the [insured] debtor’s wrongdoing.” Rather, its holding was based solely on the face of the 1986 Order, which could not be challenged almost twenty years later.
Justice Stevens, joined by Justice Ginsburg, issued a dissenting opinion which concluded that the 1986 Order only barred claims against Manville’s insurers seeking to recover from the bankruptcy estate for Manville’s own misconduct, not claims seeking to recover from insurers for their own misconduct. In support of this view, the dissenting opinion cited to the record in the prior bankruptcy action which contained evidence that even the parties to the 1986 Order did not believe it would bar claims premised on the insurers’ alleged misconduct. According to the record, the settling parties did not believe that the Bankruptcy Court had the power to enjoin third-party claims against nondebtors that did not affect the debtor’s estate. Additionally, the dissenting opinion disagreed that the current appeal was seeking to rewrite the 1986 Order. Rather, the current appeal was objecting to the Clarifying Order. As such, the dissenting opinion found that the appeal was timely and that the 1986 Order did not bar the claims pending against Travelers.