McGuireWoods Wins Significant Ruling in Bankruptcy Case: Decision Affects Ongoing Asbestos Litigation Claims

October 24, 2008

Lawyers with McGuireWoods LLP recently obtained a favorable ruling in the Third Circuit Court of Appeals on behalf of firm client Skinner Engine Company. In its ruling, a three judge panel preserved Skinner’s right to be a Chapter 11 debtor and preserves the right of all Chapter 11 debtors to confirm liquidating plans.

This verdict is seen as a significant ruling for companies with significant asbestos liabilities because those companies now may file liquidating plans over the strong objections of their insurance companies. When confirmed, Skinner’s plan could herald the next wave of asbestos bankruptcies in which non-operating debtors with significant asbestos liabilities are able to offer a distribution to asbestos creditors and non-asbestos creditors.

Until the mid-1970s, Skinner manufactured ship engines and engine parts allegedly containing asbestos. During the 1980s, Skinner was named as a defendant in a number of lawsuits filed by merchant mariners who alleged exposure to asbestos. In 2003, Skinner ceased operations and sold substantially all of its assets. Skinner’s insurance policies, with aggregate policy limits in excess of $140 million, are Skinner’s last valuable asset.

As the Third Circuit noted in its opinion, which affirmed the decisions of both the Bankruptcy Court and the District Court, the confirmation of Skinner’s pending plan of liquidation represents the only means by which Skinner can make distributions to its trade and asbestos creditors, over 30,000 of whom have sued Skinner for injuries from asbestos exposure and “on this basis alone [Skinner] has satisfied [its] burden to show that [its] Chapter 11 case” serves a valid bankruptcy purpose.

McGuireWoods Partners Sally E. Edison and Robert G. Sable as well as associate Nicholas E. Meriwether, all part of the firm’s Restructuring and Insolvency group in Pittsburgh office, handled this matter for the client.