The U.S. Court of Appeals for the Third Circuit ruled on May 1, 2012 that a provision of the U.S. Bankruptcy Code allowing the assignment of insurance policies as part of a bankruptcy reorganization overrides the anti-assignment clause of an insurance policy.  In re: Federal-Mogul Global Inc., No. 09-2230 (3rd Cir., May 1, 2012).  Federal-Mogul, a major auto parts manufacturer proceeding under Chapter 11 in the U.S. Bankruptcy Court in Delaware, requested an injunction under Section 524(g) of the Bankruptcy Code to channel present and future asbestos personal injury claims to a separate trust established for that purpose, and proposed to assign various assets to the trust, including Federal-Mogul’s rights to coverage under applicable liability insurance policies.  Federal-Mogul’s proposal purported to preserve the insurers’ defenses to coverage under the plan, but would have barred the insurers from claiming that the plan violated policy provisions prohibiting assignment of the policies without the insurers’ permission.  Affirming lower court decisions, the Third Circuit agreed that Section 1123(a)(5)(B) of the Bankruptcy Code, which allows the proponent of a plan of reorganization to provide adequate means for its implementation “notwithstanding otherwise applicable nonbankruptcy law,” preempted conflicting provisions of the insurance policies.  The court held that Section 1123(a)(5)(B) showed “clear congressional intent that the phrase ‘nonbankruptcy law’ [would] encompass private contracts.”