Insurer Standing and Plan Confirmation: Good Faith and §524(g) Compliance in Asbestos Chapter 11 Reorganization

Introduction

Truck Insurance Exchange v. Kaiser Gypsum Company, Inc., No. 21-1858 (4th Cir. Apr. 29, 2025), is a landmark Fourth Circuit decision reviewing a Chapter 11 plan confirmed by the District Court for the Western District of North Carolina. After the Supreme Court held that Truck Insurance Exchange (“Truck”) is a “party in interest” under 11 U.S.C. § 1109(b), the Fourth Circuit was tasked on remand with two key questions:

Whether the debtors’ plan of reorganization was proposed in good faith under 11 U.S.C. § 1129(a)(3); and
Whether the plan and its § 524(g) asbestos-trust provisions satisfy the statutory requirements for assumption of liabilities, funding sources, equity control, and equitable treatment of present and future claimants.

The underlying case arose from decades of asbestos-related liabilities against Kaiser Gypsum Company, Inc. and Hanson Permanente Cement, Inc., which led them to seek Chapter 11 relief and propose a § 524(g) trust to resolve present and future personal-injury claims while channeling litigation. Truck, as a primary insurer with non-eroding coverage obligations, objected to plan confirmation on party-in-interest, good-faith, and § 524(g) grounds.

Summary of the Judgment

On remand from the Supreme Court’s decision in Truck Ins. Exch. v. Kaiser Gypsum Co., 602 U.S. 268 (2024), the Fourth Circuit affirmed the District Court’s confirmation order. The court held:

Truck is a “party in interest” under 11 U.S.C. § 1109(b) with the right to object;
The plan was proposed in good faith under 11 U.S.C. § 1129(a)(3), as it emerged from extensive arms-length negotiations, enjoyed unanimous creditor support (except Truck), maximizes going-concern value, and fairly advances Bankruptcy Code objectives;
The plan satisfies each of § 524(g)(2)(B)(i)’s requirements:
- Assumption of asbestos liabilities by the trust;
- Funding—by assignment of non-eroding insurance rights, a $49 million parent contribution, and a five-year secured $1 million note;
- Equity-control rights—through a pledge of reorganized-debtor stock that vests in the trust upon default;
The plan meets § 524(g)(2)(B)(ii)(III) by preventing inequitable treatment of current versus future claimants—in particular, shielding both from the risk of uninsured punitive-damages awards in the absence of a trust.

Accordingly, the Fourth Circuit affirmed the district court’s holding that the Chapter 11 plan is both proposed in good faith and compliant with § 524(g)’s multifaceted requirements.

Analysis

Precedents Cited

Truck Ins. Exch. v. Kaiser Gypsum Co., 602 U.S. 268 (2024) – Supreme Court ruling that an insurer with contractual liability is a “party in interest” under § 1109(b).
In re Kaiser Gypsum Co., 60 F.4th 73 (4th Cir. 2023) – prior Fourth Circuit panel: insurer lacked party-in-interest standing; plan affirmed without addressing merits.
In re Garlock Sealing Techs., LLC, 504 B.R. 71 (Bankr. W.D.N.C. 2014) – illustrative litigation finding evidence of fraudulent asbestos claims.
Good-faith plan standards: In re Combustion Eng’g, 391 F.3d 190 (3d Cir. 2004); In re Am. Cap. Equip., 688 F.3d 145 (3d Cir. 2012); In re Sylmar Plaza, 314 F.3d 1070 (9th Cir. 2002); Bank of Am. Nat’l Tr. & Sav. Ass’n, 526 U.S. 434 (1999).
Statutory interpretation of plurals: 1 U.S.C. § 1 (singular includes plural unless context dictates otherwise).

Legal Reasoning

The Fourth Circuit applied a two-fold standard of review: legal conclusions (e.g., statutory interpretation) de novo; factual findings (e.g., good faith) for clear error. Two principal analyses follow:

1. Good Faith under § 1129(a)(3)

Definition: A plan is in good faith if it “fairly achieves a result consistent with the objectives and purposes of the Bankruptcy Code”—preserving going concerns and maximizing creditor recoveries.
Findings: The plan was the product of extensive arms-length negotiations among asbestos claimants, insurers, creditors, and future-claimant representatives; it enjoyed near-unanimous support; and it uses the Debtors’ non-eroding insurance coverage to maximize estate value.
No bad-faith collusion: Truck’s concerns about insurance fraud were speculative and unsupported by evidence of actual fraudulent claims. State and federal courts provide adequate discovery and judicial oversight to deter fraud.

2. Compliance with § 524(g)

Section 524(g) permits asbestos-driven reorganization plans if four principal requirements are met, plus equitable necessity findings:

Assumption of Liabilities (§ 524(g)(2)(B)(i)(I))
- The trust directly resolves uninsured asbestos claims.
- Insured claims are resolved in the tort system, funded by the trust’s assignment of non-eroding insurance rights under Truck’s policies.
Funding (§ 524(g)(2)(B)(i)(II))
- “Securities” prong: A secured five-year $1 million note qualifies as a security.
- “Obligation” prong: The reorganized Debtors must pay the note by its maturity—satisfying future-payments requirement.
- Additional funding from a $49 million parent infusion and excess‐insurance proceeds.
Equity Control (§ 524(g)(2)(B)(i)(III))
- The trust receives a pledge of 100% of reorganized-debtor stock.
- Upon note default (the specified contingency), the trust can foreclose and assume majority voting control.
Equitable Treatment (§ 524(g)(2)(B)(ii)(III))
- Without the trust, uninsured punitive-damages awards could deplete estate assets and favor current over future claimants.
- The channeling injunction and trust funding ensure parity between present and future claimants.

Impact

This decision carries significant implications for Chapter 11 asbestos reorganizations and insurer participation:

Confirms that insurers with coverage obligations are “parties in interest” under § 1109(b), entitled to raise objections without veto power.
Reaffirms the flexible good-faith standard—courts will consider the totality of consensual negotiations and creditor value maximization.
Clarifies § 524(g) mechanics: secured notes qualify as securities, and default contingencies need not be “evergreen” in a rigid sense if insurance proceeds provide substantial funding.
Encourages future plans to balance tort-system litigation for insured claims with administrative processes for uninsured claims while relying on judicial discovery to deter fraud.

Complex Concepts Simplified

Party in Interest (11 U.S.C. § 1109(b)): Any entity sufficiently affected by a bankruptcy that may “raise, appear, and be heard on any issue.”
Good Faith (§ 1129(a)(3)): A plan is in good faith if it furthers the Bankruptcy Code’s goals of preserving going concerns and maximizing distributions to creditors.
§ 524(g) Trust: A specialized asbestos-trust vehicle that channels present and future asbestos claims away from the debtor in exchange for a funded trust and injunction.
Non-Eroding Insurance: Coverage that does not diminish with each claim payment, subject only to per-claim limits.
Channeling Injunction: A court-ordered injunction directing asbestos claims to the trust rather than the reorganized debtor.
Evergreen Funding: A continuous source of trust funding, often through future payments or insurance proceeds.
Equity Control Contingency: A plan feature allowing the trust to acquire debtor stock upon specified defaults, ensuring debtor viability or funding backstop.

Conclusion

On remand, the Fourth Circuit’s decision affirms that insurers like Truck Insurance Exchange have standing as parties in interest to challenge Chapter 11 plans. It also confirms that a § 524(g) asbestos-trust plan may be proposed in good faith when it arises from consensual negotiations, maximizes creditor value, and withstands careful statutory scrutiny. By upholding flexible interpretations of funding mechanisms and equity-control contingencies, the court provides a roadmap for future asbestos reorganizations and underscores the importance of fair, comprehensive trust structures to resolve mass-tort liabilities.