GILC’S VIEW: On the evolving US bankruptcy landscape, and its impact on insurers

Date: Tuesday, September 24th, 2024 by Michaela Hickson.

As Benjamin Franklin famously said in 1789, “In this world, nothing is certain except death and taxes”.

Truer words have never been spoken, particularly in the context of the evolving landscape of US bankruptcy, and the limbo in which insurers find themselves when seeking finality and protection from underlying tort plaintiffs.

Although insurers have gained traction in the use of policy releases in bankruptcy as a means of bringing finality to liabilities arising from mass tort claims, the US Supreme Court recently dealt a troubling blow to non-consensual, non-debtor third-party releases in the hotly anticipated decision, Harrington v. Purdue Pharma (Harrington v. Purdue Pharma L.P., No. 23-124, 2024 WL 3187799, at *2 (Supreme Court of the United States, 27th June 2024).

The Court found that as part of a Chapter 11 Plan of Reorganisation, the US Bankruptcy Code does not authorise a release between the debtor and a third-party non-debtor seeking to discharge current and future claims against the non-debtor without the consent of affected claimants.

Setting aside the ethics, or lack thereof, of the actions of Purdue Pharma and the Sackler family, it is difficult to separate the facts at issue from the legal principals at play – especially when the facts are so particularly damning.

Despite the outcome, perhaps the decision should not be taken as a blanket rejection of such releases and the value they hold for insurers seeking finality where their assured is involved in bankruptcy. Instead, insurers should investigate and distinguish the alternative avenues under the Bankruptcy Code to preserve the protections and benefits of policy buy-backs.

In the wake of Purdue Pharma, however, until such time as Congress addresses the uncertainty in releases outside of the context of asbestos liability, it is best for insurers to heed the old adage of caveat emptor.

Author: Helen Franzese, partner at Foran Glennon LLP, a member of Global Insurance Law Connect.

This article first appeared in CIR Magazine on 24 September 2024