United States District Court, W.D. Pennsylvania
MT. McKINLEY INSURANCE COMPANY and EVEREST REINSURANCE COMPANY, Appellants,
PITTSBURGH CORNING CORPORATION, et al., Appellees
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Appeal from: Bankruptcy Case No. 00-22876.
For MT. MCKINLEY INSURANCE COMPANY, EVEREST REINSURANCE COMPANY, Appellants: James R. Walker, LEAD ATTORNEY, Buchanan Ingersoll & Rooney, Pittsburgh, PA; Tony L. Draper, LEAD ATTORNEY, Charles B. Walther, PRO HAC VICE, Walker Wilcox Matousek LLP, Houston, TX; Fred L. Alvarez, PRO HAC VICE, Walker Wilcox Matousek LLP, Chicago, IL.
For PITTSBURGH CORNING CORPORATION, Appellee: James J. Restivo, Jr., LEAD ATTORNEY, David Ziegler, Douglas E. Cameron, Reed Smith, Pittsburgh, PA; Rosalie J. Bell, LEAD ATTORNEY, Pittsburgh Corning Corporation, Pittsburgh, PA; Andrew J. Muha, Reed Smith LLP, Pittsburgh, PA.
For OFFICIAL COMMITTEE OF ASBESTOS CREDITORS, Appellee: Peter Van N. Lockwood, LEAD ATTORNEY, PRO HAC VICE, Caplin & Drysdale, Washington, DC; David B. Salzman, Philip E. Milch, Campbell & Levine, Pittsburgh, PA.
For LAWRENCE FITZPATRICK, Appellee: Joel M. Helmrich, LEAD ATTORNEY, Dinsmore & Shohl, Pittsburgh, PA; Edwin J. Harron, PRO HAC VICE, Young, Conaway, Stargatt & Taylor, Wilmington, DE; Sara Beth A.R. Kohut, PRO HAC VICE, Young Conaway Stargatt & Taylor, LLP, Wilmington, DE.
Joy Flowers Conti, Chief United States District Judge.
This case is an appeal from the bankruptcy court's order confirming the Modified Third Amended Plan of Reorganization (" plan" ) of debtor Pittsburgh Corning Corporation (" Pittsburgh Corning" ) and issuing an asbestos permanent channeling injunction under 11 U.S.C. § 524(g). The bankruptcy court explained the reasons for the order in an opinion entered on May 24, 2013. In re Pittsburgh Corning Corp., No. 00-22876, 2013 WL 2299620 (Bankr. W.D. Pa. May 24, 2013) [hereinafter " Bankr. Op." ]. Appellants Mt. McKinley Insurance Company and Everest Reinsurance Company (collectively " Mt. McKinley" ) object to the plan and filed a brief seeking reversal of the confirmation order. (ECF No. 56.) Appellees Pittsburgh Corning, the Official Committee of Asbestos Creditors, the Legal Representative for Future Asbestos Claimants, PPG Industries, Inc. (" PPG" ), and Corning Incorporated (" Corning" ) (collectively " plan parties" ) support the plan. The plan parties filed a motion for an order affirming the bankruptcy court's confirmation order (ECF No. 63) and a joint brief in response to Mt. McKinley's brief (ECF No. 64). Appellees Certain Underwriters at Lloyd's, London, and Certain London Market Companies (" LMI" ) filed a separate brief urging affirmance. (ECF No. 65.) For the reasons set forth below, the court will affirm the decision of the bankruptcy court.
A. Pittsburgh Corning's Asbestos History
Pittsburgh Corning was formed in 1937 by PPG and Corning, which were then respectively called the Pittsburgh Plate Glass Company and Corning Glass Works. Bankr. Op. ¶ 3. PPG and Corning each owned--and continue to own--50 percent of Pittsburgh Corning's capital stock. Id. Pittsburgh Corning manufactured and sold glass products. Id. ¶ 26. From 1962 to 1972, Pittsburgh Corning manufactured and sold a high-temperature pipe insulation product called Unibestos, which contained asbestos. Id. ¶ ¶ 33-34.
As early as the mid-1960s, Pittsburgh Corning was named a defendant in lawsuits alleging personal injury from exposure to Unibestos. Id. ¶ 40. The volume of lawsuits increased over the years, particularly in the 1980s and 1990s. Id. ¶ 2. In 1981, there were approximately 15,000 to 20,000 pending claims against Pittsburgh Corning. Id. ¶ 54. In 1985 there were 60,000 to 75,000 claims open. Id. By 2000, there were approximately 235,000 pending Unibestos claims. Id. ¶ 56. Pittsburgh Corning had resolved, by 2000,
more than 200,000 claims, at a cost of about $1.2 billion. Id. ¶ 55.
The mounting Unibestos liability, coupled with declining insurance coverage, caused Pittsburgh Corning to conclude that its liabilities for asbestos claims exceeded the value of its assets. Id. ¶ 2. On April 16, 2000, Pittsburgh Corning filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code. Id. ¶ 1.
B. Involvement of PPG and Corning
Although PPG and Corning did not manufacture Unibestos, they were also named as defendants in Unibestos lawsuits under a variety of legal theories including alter ego, piercing the corporate veil, respondeat superior, conspiracy, and negligence. Id. ¶ 52. At the time of the bankruptcy petition, PPG faced approximately 116,000 Unibestos claims. Id. ¶ 57. All but 800 of these claimants also asserted claims against Pittsburgh Corning. Id. ¶ 61. When Pittsburgh Corning settled a Unibestos case, it typically obtained a release of any claims against PPG without an additional payment by PPG. Id. ¶ 64. By the petition date, PPG had suffered only one adverse final judgment in a Unibestos case; a jury in April 2000 found PPG liable for 10 percent of the asbestos-related injuries of the plaintiffs in that case. Id. ¶ 65. PPG, unconnected to its relationship with Pittsburgh Corning and Unibestos, manufactured or sold some products containing asbestos. Id. ¶ 69. PPG has never been found liable for an asbestos personal injury related to any non-Unibestos product, although it has settled some cases for a total aggregate value of approximately $2 million. Id. ¶ 75.
At the time of the bankruptcy petition, Corning was a named defendant in eleven Unibestos lawsuits with approximately 11,400 claimants. Id. ¶ 77. These cases also included claims against Pittsburgh Corning. Id. ¶ 82. None of these cases went to trial. Id. ¶ 84. When Pittsburgh Corning settled a Unibestos case, it typically obtained a release of any claims against Corning without an additional payment by Corning. Id. ¶ 85.
PPG and Corning each filed claims in the bankruptcy proceeding against Pittsburgh Corning for contribution and indemnity of Unibestos claims against them. Id. ¶ 95.
More than forty insurers are involved in this case in various capacities. ( See Plan sched. F, T56:5077-92.) During the period when Pittsburgh Corning manufactured Unibestos, Pittsburgh Corning was insured under PPG's primary insurance (from before 1962 to 1966) and PPG's excess insurance (from before 1962 until 1986). Bankr. Op. ¶ 96. Most of the $1.2 billion Pittsburgh Corning used to resolve Unibestos claims before the petition date came from PPG's excess insurance policies under which it was insured. Id. ¶ 97. Pittsburgh Corning asserts that more than $1.3 billion of PPG's excess insurance coverage under which it was insured remained unexhausted as of the petition date. Id. ¶ ¶ 103, 104. A significant amount of this
coverage was disputed, but Pittsburgh Corning settled with many insurers during the pendency of this bankruptcy case. Id. ¶ ¶ 100-02, 110. Pittsburgh Corning also claimed coverage under Corning's excess insurance policies that covered companies " affiliated" or " associated" with Corning. Id. ¶ 114.
Mt. McKinley's role in this case is as an insurer to PPG and Corning. (Mt. McKinley's Br. 7, ECF No. 56.) Mt. McKinley's predecessors issued excess insurance policies to PPG and Corning potentially covering millions of dollars. ( Id. at 8 n.10.) The coverage is disputed. PPG and Corning each seek coverage from Mt. McKinley for contributions they will make to the trust established by the plan in two pending coverage actions. ( Id. at 7-8.)
D. Procedural Background
Pittsburgh Corning filed its voluntary petition for relief under chapter 11 on April 16, 2000. Shortly thereafter, the U.S. Trustee appointed the Official Committee of Asbestos Creditors (" ACC" ) to represent holders of asbestos claims against Pittsburgh Corning. Bankr. Op. ¶ 6. The bankruptcy court appointed a Future Claimants' Representative (" FCR" ) to represent the interests of individuals who assert asbestos personal injury claims against Pittsburgh Corning in the future. Id. ¶ 7.
After several iterations, Pittsburgh Corning, the ACC, and the FCR proposed a second amended plan of reorganization on November 20, 2003. (Second Amended Plan, T5.) This plan garnered the support of PPG, Corning, and more than forty insurers. (Second Amended Plan Trust Funding Agreement, T176:11137-11201.) Other insurers, including Mt. McKinley, objected to this plan. After confirmation hearings in May 2004, the bankruptcy court denied confirmation. In re Pittsburgh Corning Corp., 417 B.R. 289 (Bankr. W.D. Pa. 2006). Pittsburgh Corning, the ACC, and the FCR proposed a third amended plan on January 29, 2009. (Third Amended Plan, T16.) After additional amendments and modifications, all objecting insurers except Mt. McKinley withdrew their objections. (Amended and Restated Stipulation Resolving Plan Objections, T182.)
The bankruptcy court held confirmation hearings on the third amended plan in June 2010 and again denied confirmation. In re Pittsburgh Corning Corp., 453 B.R. 570 (Bankr. W.D. Pa. 2011). After additional modifications, the bankruptcy court issued an opinion and order confirming the plan on May 24, 2013. Bankr. Op., 2013 WL 2299620, at *1-2. After issuing the opinion and final order, the bankruptcy judge who presided over the case retired from the bench. Mt. McKinley filed a motion for reconsideration. The newly assigned bankruptcy judge granted the motion for reconsideration with respect to an uncontested clarification of the plan and denied the motion in all other respects. In re Pittsburgh Corning Corp., No. 00-22876, 2013 WL 5994979 (Bankr. W.D. Pa. Nov. 12, 2013.)
E. Substance of the Plan
The key feature of the plan is the creation of the " Pittsburgh Corning Asbestos
PI Trust" (the " trust" ). (Plan § 9.1.1, T56:4858.) The trust will resolve and pay asbestos personal injury claims asserted against it. Pittsburgh Corning, PPG, Corning, and certain insurers will contribute assets to fund the trust. In return, the plan calls for the bankruptcy court to issue a permanent injunction under 11 U.S.C. § 524(g) channeling " Asbestos PI Trust Claims" to the trust and enjoining recovery of such claims against " Asbestos Protected Parties."  The plan channels asbestos claims against Pittsburgh Corning to the trust. With respect to PPG and Corning, however, the plan channels only asbestos claims arising out of exposure to Unibestos or other asbestos products manufactured, sold, or distributed by Pittsburgh Corning. (Plan § 1.1, T56:4820-24.) Claims against PPG or Corning arising out of exposure to asbestos through PPG or Corning products not related to Pittsburgh Corning are not channeled. ( Id., T56:4820, 4834-35.)
Fully funded, the trust will control assets worth more than $3 billion. Id. ¶ 380. These assets include 100 percent of the stock of the reorganized Pittsburgh Corning and $290 million in insurance payments or settlements between Pittsburgh Corning and its insurers. (Plan § 9.1.3, T56:4858.) PPG will contribute approximately $825 million in a series of cash payments, 1,388,889 shares of PPG common stock or its cash equivalent, its 50 percent stake in Pittsburgh Corning, and its 50 percent stake in Pittsburgh Corning Europe. (PPG Trust Funding Agreement 11-12, T56:5025-26; PPG Trust Funding Agreement sched. A, T56:5051-52.) Corning will contribute between $240 million and $290 million in cash, its 50 percent stake in Pittsburgh Corning, and its 50 percent stake in Pittsburgh Corning Europe. (Corning Trust Funding Agreement 9-10, T56:5160-61.) Forty-eight insurers (the " participating insurers" ) will contribute cash payments totaling in aggregate approximately $1.7 billion. (PPG Trust Funding Agreement sched. A, T:56:5051-52.) As part of the trust funding agreement, PPG and Corning will relinquish certain insurance claims against the participating insurers. (Insurance Claims Agreement 2-3, T56:5242-43.)
The trust will have three trustees selected by the ACC and FCR. (Plan § 9.1.2, T56:4858.) The trust will also have an advisory committee of five members. (Asbestos PI Trust Agreement § 5.1, T56:4898.) The initial members of the advisory committee are members of law firms representing asbestos claimants. (Confirmation Hr'g Tr. 248:17-20, May 5, 2004, T12:1412.) The advisory committee members have a fiduciary responsibility to the present holders of channeled asbestos claims. (Asbestos PI Trust Agreement § 5.2, T56:4899.) The FCR has a fiduciary role representing the interests of future claimants. ( Id. § 6.1, T56:4902.)
The trust will resolve channeled asbestos claims according to the terms of the trust distribution procedures. (Plan § 3.2.5, T56:4846.) The trust distribution
procedures provide for an expedited review process to evaluate asbestos claims. (Trust Distribution Procedures § 5.3(a), T56:4932-36.) Under expedited review, claims are categorized into eight disease levels with defined medical diagnoses and levels of exposure to Unibestos or another Pittsburgh Corning asbestos product. ( Id.) Each disease level has an accompanying scheduled value. The scheduled values range from $400 for level I (other asbestos disease) to $175,000 for level VIII (mesothelioma). ( Id.) A claimant who receives payment for a nonmalignant asbestos-related disease (disease levels I-IV) may assert a second claim if the claimant develops and is diagnosed with a malignant disease (disease levels V-VIII). ( Id. § 5.9, T56:4945.) Instead of expedited review, a claimant may elect individual review, in which case the trust will liquidate the value of the claim based upon the historical value of similar claims in the tort system. ( Id. § 5.3(b), T56:4936-38.) The liquidated value of claims is subject to a maximum value limit based upon the applicable disease level. ( Id. § 5.3(b)(1), T56:4937.) The maximum values range from $10,000 for disease level II to $500,000 for disease level VIII. ( Id. § 5.3(c), ...