In re: WR Grace & Co, No. 20-2171 (3d Cir. 2021)Annotate this Case
Grace operated a Montana asbestos facility, 1963-1990. Facing thousands of asbestos-related suits, Grace filed for Chapter 11 bankruptcy. Its reorganization plan provided for a several-billion-dollar asbestos personal-injury trust to compensate existing and future claimants. All asbestos-related personal injury claims were to be channeled through the trust (“Grace Injunction,” 11 U.S.C. 524(g)(4)). CNA provided Grace's general liability, workers’ compensation, employers’ liability, and umbrella insurance policies, 1973-1996 and had the right to inspect the operation and to make loss-control recommendations. After 26 years of litigation regarding the scope of CNA’s coverage of Grace’s asbestos liabilities, a settlement agreement ensured that CNA would be protected by Grace’s channeling injunction. CNA agreed to contribute $84 million to the trust.
The “Montana Plaintiffs,” who worked at the Libby mine and now suffer from asbestos disease, sued in state court, asserting negligence against CNA based on a duty to protect and warn the workers, arising from the provision of “industrial hygiene services,” and inspections. The Bankruptcy Court initially concluded that the claims were barred by the Grace Injunction but on remand granted the Montana Plaintiffs summary judgment.
The Third Circuit vacated. Section 524(g) channeling injunction protections do not extend to all claims brought against third parties. To conform with the statute, these claims must be “directed against a third party who is identifiable from the terms of such injunction”; the third party must be “alleged to be directly or indirectly liable for the conduct of, claims against, or demands on the debtor”; and “such alleged liability” must arise “by reason of” one of four statutory relationships, including the provision of insurance to the debtor. The Bankruptcy Court erred in anlyzing the “derivative liability” and “statutory relationship” requirements. While the claims meet the derivative liability requirement, it is unclear whether they meet the statutory relationship requirement.