In a recent decision of the United States Bankruptcy Court for the District of Delaware, Jeld-Wen, Inc. v. Van Brunt, Adv. Proc. No. 07-51602 (Bankr. D. Del. June 9, 2008), the court held that a claim for injury allegedly due to exposure to asbestos was not discharged, survived the company’s exit from Chapter 11, and could be asserted against the successor company in a State court action under the circumstances presented: (i) under applicable governing non-bankruptcy law, such a claim does not arise until injury manifests; (ii) the injury was not discovered until after the company had emerged from bankruptcy; (iii) the company’s confirmed plan of reorganization did not include a channeling injunction accommodating future asbestos related claims; and (iv) the published notice of the plan of reorganization did not provide notice to potential future asbestos claimants that their claims would be discharged by confirmation of the plan.

Plaintiff Jeld-Wen, Inc. (“Jeld-Wen”) is successor-in-interest to Grossman’s, Inc. (“Grossman’s), a retailer of building materials and home improvement products. The court confirmed Grossman’s chapter 11 plan of reorganization (the “Plan”) in December 1997, and all claims against Grossman’s were discharged by the order confirming the Plan. Through the Plan, Jeld-Wen acquired all the stock of Grossman. In May 2007, defendants Mary and Gordon Van Brunt (the “Van Brunts”) sued Jeld-Wen in New York state court for injuries allegedly resulting from exposure to asbestos-containing materials and products acquired from a Grossman’s store in 1977. In June 2007, Jeld-Wen moved to reopen the chapter 11 case to have the court determine that claim such as those of the Van Brunts were discharged by the Plan. Jeld-Wen then commenced an adversary proceeding seeking a permanent injunction enjoining the Van Brunts’ claims on the grounds that the events which gave rise to the alleged injuries occurred before the Grossman’s Chapter 11 case and, therefore, the New York state court claims were discharged by the confirmed Plan.

The court noted that at the time of the chapter 11 case, Grossman’s was not aware of any lawsuits against it based upon alleged exposure to asbestos that had been filed prior to the bankruptcy, and thus there was no channeling injunction in the Plan. Mary Van Brunt was diagnosed with mesothelioma in 2007. In determining whether the asbestos claims arose prior to the effective date of the Plan and were therefore barred from assertion, the Court referred to Third Circuit authority holding that the question of when a right to payment arises is to be determined by state law. Under New York State law, which the parties agreed applied, asbestos personal injury causes of action arise when an injury manifests itself. The Court reasoned the asbestos claims did not arise until a symptomatic manifestation of asbestos injury. Since Mary Van Brunt did not manifest her injuries until many years after the Plan was confirmed, the Court concluded that the confirmation order did not bar the asbestos claims.

Insurers and reinsurers should be aware of this decision because of its holding that under certain circumstances asbestos claims may be brought against the purchasers or successors of bankrupt debtors and, consequently, their insurers, after the debtor has emerged from bankruptcy, where the claims for asbestos bodily injury manifest thereafter.

Jeld-Wen has appealed the Delaware Bankruptcy Court’s decision to the United States District Court for the District of Delaware (Jeld-Wen Inc. v. Van Brunt, Civil Action No. 08-427, Judge Joseph J. Farnan, Jr.). The issue presented on appeal is whether the court erred in concluding that the Van Brunts did not have a claim that arose prior to the effective date of the debtors’ plan of reorganization.

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