Case Doc 465 Filed 04/26/17 Entered 04/26/17 17:19:47 Desc Main Document Page 1 of 10

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1 Document Page 1 of 10 IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF NORTH CAROLINA CHARLOTTE DIVISION In re KAISER GYPSUM COMPANY, INC., et al. 1 Debtors Chapter 11 Case No (Jointly Administered) TRUCK INSURANCE EXCHANGE S REPLY IN SUPPORT OF ITS MOTION FOR RELIEF FROM AUTOMATIC STAY TO PURSUE APPEAL OF STATE COURT ACTION Truck Insurance Exchange ( Truck ), through its undersigned counsel, hereby files this Reply (the Reply ) 2 in Support of its Motion for Relief From Automatic Stay (the Motion ) [Doc. No. 397], to address the Objections filed by the Debtors [Doc. No. 454] and the Official Committee of Asbestos Personal Injury Claimants (the Committee ) [Doc. No. 452], 3 and makes the following showing to the Court: I. INTRODUCTION Debtors concede most factors to be weighed by the court in determining whether to lift the stay, favor lifting the stay the coverage issues involve only state law, their resolution will not disrupt the bankruptcy case but rather will be necessary to its ultimate resolution, and there 1 The Debtors are the following entities (the last four digits of their respective taxpayer identification numbers follow in parenthesis): Kaiser Gypsum Company, Inc. (0188) and Hanson Permanente Cement, Inc. (7313). The Debtors address is 300 E. John Carpenter Freeway, Irving, Texas Any capitalized terms not specifically defined herein shall have the meanings ascribed to them in the Motion. 3 The objection filed by the Committee has been joined in by Lawrence Fitzpatrick, the legal representative for future asbestos claimants (the FCR, and, together with the Committee, the Creditors ) [Doc. No. 453].

2 Document Page 2 of 10 will be no judgment enforcement issues [see list of factors in In re Robbins, 964 F.2d 342, 345 (4 th Cir. 1992), discussed on pgs. 4 5 of Debtors Objection to Lift Stay Motion filed by Truck Insurance Exchange (the Debtors Objection )]. This Court has already weighed these factors in connection with the prior motions filed in these cases, and has lifted the stay to permit the continued adjudication of the Oregon and California environmental coverage actions. Debtors focus solely on whether or not Truck has shown adequate cause for lifting the stay now with respect to the California appeals. While the Debtors concede that there is cause to lift the stay to have the issues on appeal in the California asbestos coverage action resolved ( Debtors recognize that at some point the California appeal should proceed ) 4, the Debtors nonetheless request a further pointless delay of at least 90 days. Truck has shown ample undisputed cause to lift the stay including prejudice from further delay the California asbestos coverage case has been pending for over fifteen (15) years, the appeal already has been stayed for 7-8 months, and timely resolution of the appeal is necessary to any productive negotiations between the Debtors, the Creditors and insurers including Truck. Holding Truck hostage by indefinitely staying its right to have its contribution rights to over hundreds of millions of dollars against the excess insurers determined will not incentivize it to negotiate the reason given by Debtors and the Creditors for continuing the stay. Rather, the stay is a deterrent to productive negotiations. Lifting the stay to allow the appellate court to determine the extent of Truck s coverage obligations and rights will incentivize all interested parties to hold more meaningful discussions. Debtors implicitly conceded that insurance coverage issues must be determined, in its aggressive push to have the Oregon coverage action proceed immediately. Yet those 4 Debtors Objection at p. 2. 2

3 Document Page 3 of 10 environmental liability and coverage issues pale in size compared to the scope of its asbestos liabilities and coverage for the same. This Court already decided there was cause to allow both the Oregon and California state coverage actions on environmental liabilities to proceed immediately, In looking at it more as a totality of the circumstances the bankruptcy stay is designed to give a resting period. It s a shield not a sword and everyone agrees that these issues should be decided in a state court I don t think the stay s supposed to be used tactically to gain an advantage that you might not receive elsewhere, nor do I think keeping the stay in effect under these circumstances would harmonize the interest of the debtor and its creditors. [Transcript of Court s Ruling, March 27, 2017, p. 17]. Another delay 90 days as requested by Debtors is pointless. Truck already agreed to one extension of Truck s Motion on the representation by Debtors they would use the time to negotiate. Yet nothing has been done. Truck is not the only constituency to note the lack of progress in this case. In its Response and Limited Objection to the Debtors second motion to extend exclusivity, the Official Committee of Unsecured Creditors (the UCC ) complained that, although the Debtors planned these cases for over two years[,]... little has been accomplished... toward developing the terms of a consensual plan of reorganization, notwithstanding a previous extension of the exclusivity period. See Doc. No. 421, at 2. Likewise, lifting the stay to allow Truck s appeal to proceed will incentivize the Debtors to work more diligently to pursue negotiations among the significant constituencies in these cases. In short, there is no realistic chance of successful negotiations without moving forward on the coverage issues on the biggest liabilities and asset of these estates the asbestos-related claims and the applicable available insurance to address such claims. Truck is entitled to 3

4 Document Page 4 of 10 appellate review of these issues and by simply delaying them, Truck will not concede the correctness of the trial judgments nor will the excess insurers concede their error. The Creditors argue that lifting the stay could diminish the estates by reducing the overall insurance coverage available. Objection of the Official Committee of Asbestos Personal Injury Claimants to Motion by Truck Insurance Exchange for Relief from Automatic Stay to Pursue Appeal of State Court Action (the Committee Objection ), p. 7, 16. However, this is the very reason that stay relief is necessary; without a determination of the issues raised in the California Appeal, the overall insurance coverage available cannot be determined. Hence, the insurers cannot negotiate a meaningful contribution in the bankruptcy proceeding until the California Appeal is resolved. Debtors acknowledged this reality in their filings on case status in the California Asbestos Coverage Action, stating there was no point to further mediation of the issues now pending in the appeal. [See Affidavit of Scott Hoyt, 7, ( the parties do not anticipate scheduling a mediation for Phase I issues, and do not believe mediation for Phase II or III would be productive at this time. )]. Finally, there will be no legally cognizable negative impact to the estate by lifting the stay. First, that the coverage issues on appeal might not be determined as Debtors (and Creditors) want, is not legal cause to delay their resolution. Second, even if the judgments are reversed, there will be no impact on Debtors. Creditors arguments to the contrary are based on a complete misunderstanding of the coverage issues. 5 Truck s primary and Insurance Company 5 The Debtors argue that the determination of the California Appeal could reduc[e] coverage available under certain of the Debtors insurance policies. Debtors Objection, p. 7, 10; see also Committee Objection, p. 7, 16. The California Appeal will not reduce coverage it will determine the nature of that coverage. Because this determination is so critical to the assessment of any potential settlement by the Debtors insurers, including Truck, it is counterintuitive to suggest, as both the Debtors and the Creditors suggest, that Truck would be more 4

5 Document Page 5 of 10 of the State of Pennsylvania s ( ICSOP ) excess above it, have occurrence limits sufficient to pay each and every claim submitted with a date of first exposure ( DOFE ) in the 1970 s and earlier. [Hoyt Affidavit, 5]. The policies have no aggregates and will never exhaust. Although Debtors hypothesized possible prejudice if a claim with a DOFE after 1980 were presented, no such claim has ever been paid. Rather all claims have been paid by the no aggregate policy years before 1981 approximately $241 Million plus an equal amount of defense costs and zero has been paid under the post 1980 aggregate policies. [Hoyt Affidavit, 6]. II. ARGUMENT A. The Factors To Be Weighed Show Ample Cause To Lift The Stay This Court already went through the balancing analysis to lift the stay in its March 27, 2017 ruling, and found sufficient cause to lift the stay so both environmental coverage state actions could proceed. The same analysis should lead to the same result as to the even more important and pressing asbestos coverage action/appeal. This Court in its March 27, 2017 ruling stated: the only Robins factor, I think that there s any real question about, is whether or not modifying the stay will promote judicial economy and whether there d be greater interference with the bankruptcy case if the stay were not lifted. I believe over the long haul, if not the short, allowing both of the state actions to move forward, as they would absent a bankruptcy filing is probably the most efficient process. [Ruling at pp ]. Further delay does prejudice Truck it already has been seeking resolution on these issues for over 15 years and it will be unable to meaningfully negotiate with the excess insurers, willing to settle claims without clarity as to the insurance-related issues in the California Appeal. Indeed, by granting the Motion and allowing the California Appeal to proceed, this Court would be fostering the possibility of a negotiated resolution of these cases in the nearer term. 5

6 Document Page 6 of 10 Debtors and Creditors without proceeding towards resolution of its appellate issues. It would like to get its contribution rights (worth hundreds of millions of dollars) against the excess insurers determined before more of them go insolvent. Kaiser already negotiated a settlement with a number of insolvent insurers and Truck has a claim against at least a portion of this. [Hoyt Affidavit 8]. Truck has made a prima facie case of cause to lift the stay just as was presented to this Court with the environmental actions and neither Debtors nor Creditors have responded with any serious evidence or reason showing how further delay would actually advance this proceeding. See 11 U.S.C. 362(g)(2) (party opposing lifting the stay bears the ultimate burden of proof once a prima facie case for lifting it is presented). As discussed below, although the Creditors have cited a number of cases in the Committee Objection, those cases stand for the unremarkable proposition that the automatic stay applies to actions to determine the scope of insurance coverage. See Committee Objection, pp Truck agrees that the automatic stay applies that was the reason for the filing of the Motion. However, the Creditors completely ignore the cases cited by Truck that hold that stay relief is appropriate to permit appeals to proceed where resolution of the appeal will help lead the bankruptcy case to a conclusion. In re Morris, 153 B.R. 588, (M.D. Fla. 1993); Grant v. Thurston Group, Inc., 186 B.R. 659 (N.D. Ill. 1995); In re Lee, 428 B.R. 667 (Bankr. D. S.C. 2009). Truck has met its burden with respect to the Motion. As referenced above, the UCC has already complained about how unproductive the negotiations among the major constituencies in these cases have been thus far. Lifting the stay so the appeal on coverage issues concerning the estates biggest asset insurance for asbestos liabilities can proceed will facilitate negotiations and expedite the administration of these 6

7 Document Page 7 of 10 cases. Debtors have admitted it is not if resolution of the appeal is necessary, but rather only when it should be resolved, as if further delay will somehow give the insurers an incentive to negotiate. But delay will only thwart productive negotiations because neither Truck nor the excess insurers will compromise their coverage position absent resolution of the appellate issues. And there is no impact to Debtors regardless of the outcome on appeal, they will continue to have unexhausting coverage for each asbestos bodily injury claim ( ABIC ). B. Debtors Cannot Use The Stay Tactically To Try And Get An Advantage Against Its Insurers In The Negotiations. It is apparent from the arguments of Debtors and Creditors that they believe stalling Truck s ability to get finality to its coverage obligations in the appeal will somehow force Truck to the bargaining table. They argue that key topics on the plan negotiations to take place during the 90 day delay for the Debtors seek, will include the California insurance coverage appeals. [Debtors Objection p. 1]. Thus, the Debtors strategy seems to be, hold Truck s appeal hostage and hope it negotiates on the basis of the trial judgments that Truck believes are clearly erroneous. The Creditors echo this proposition. 6 However, this is an improper use of the stay as this Court already noted in its March 27, 2017 ruling ( I don t think the stay is supposed to be used tactically to gain an advantage that you might not receive elsewhere. ) [Ruling at p. 17]. Bankruptcy courts can, but rarely will, enjoin litigations, such as coverage litigation, by non-debtors. They will do so only where there is an immediate adverse economic effect on the 6 [A]llowing the coverage action to proceed could effectively alter parties rights and the allocation of asbestos-related claims to various policies. This could impact ongoing efforts to reach a consensual plan of reorganization. Putting coverage litigation on hold is thus an appropriate use of the automatic stay, as a comprehensive solution to the Debtors financial problems may involve their insurance assets. Committee Objection, pp. 5-6, 13. 7

8 Document Page 8 of 10 debtor s estate. John T. Hansen, Kurt W. Melchior, What Happens to Insurance Coverage in Case of Bankruptcy, Nossaman LLP at p. 15, The bankruptcy process, generally, must be insurance neutral. This means that the insurer s obligation cannot be increased or modified by any aspect of the reorganization, and its rights must not be impaired by the bankruptcy of the debtor insured. The pre bankruptcy status quo must be maintained. The rights and obligations of the insurer ride through the bankruptcy. Susan N.K. Gummow, John Eggum, Impact of Bankruptcy on Insurance Matters, New Appleman on Insurance Law Library Edition, Chapter 109, LexisNexis Legal Newsroom Insurance Law, (9/27/2013). Debtors and Creditors efforts to freeze Truck s coverage obligations at the trial judgment stage by staying its appeal, is contrary to this Court s March 27, 2017 ruling and the authorities on point. See In re Morris, 153 B.R.588, (M.D. Fla. 1993) (Affirming lifting stay to allow state appellate proceedings to continue, noting the state court appeal would help lead the bankruptcy case to a conclusion. ). In their Objection, the Committee cites cases that hold the purpose of the stay is to give the debtor a breathing spell from [its] creditors to be relieved of the financial pressures that drove [it] into bankruptcy. [Objection of the Official Committee at p. 3]. None of these purposes apply to Truck s appeal or coverage litigation in general. The California Appeal did not create pressure that drove the Debtors into bankruptcy, and none of the cases cited by Creditors on the stay of coverage cases are on point here. For example, in Safety Nat l Cas. Corp. v. Kaiser Aluminum & Chem. Corp., 303 B.R. 299, 303 (D. Del. 2003), cited by the Committee, the court refused to lift the stay to allow a coverage arbitration to go forward because it found it would prejudice the debtor/insured in 8

9 Document Page 9 of 10 forcing it to arbitrate in an inconvenient venue and because it was non binding, it would not necessarily resolve the issues. The court did not base its decision on any possible adverse coverage determination as Debtors and the Creditors argue here. Here in contrast, Debtors selected the venue and the coverage issues will be determined with finality in the California Appeal. Creditors also rely on AC & S, Inc. v. Travelers Cas. & Sur. Co., 435 F.2d 252, (3d. Cir. 2006), involving an arbitration over whether asbestos claims were for product or operations liability. The court vacated an arbitration award rendered in disregard of the stay because it contradicted an agreement between the debtor and its insurer pre arbitration, that afforded more coverage. The court held this agreement was an asset of the estate which was diminished by the arbitration award rendered while the stay was in effect. There is no such asset/agreement collateral to the Truck policies here and Truck seeks to lift the stay, not disregard it. C. Further Delay Serves No Purpose Lost in Debtors obfuscation is any showing that further delay will actually do anything to move this already stalled proceeding along. They complain the appeal will distract from negotiations but they have had months to at least start negotiating and have done nothing. The Debtors argument is belied by the fact that they failed to argue that remanding the Oregon environmental coverage case back to Oregon and immediately proceeding there would be a distraction. Indeed the Court will recall that Debtors argued vigorously at the last hearing for remand to Oregon state court because it could immediately address the coverage issues more quickly than the California court. Proceeding with the California Appeal will not be a distraction 9

10 Document Page 10 of 10 but rather the main attraction the key asset to respond to Debtors most significant liability. 7 Without moving resolution of these issues, there will be no meaningful progress in this proceeding or negotiations between the parties. Debtors and Creditors cite In re Comdisco, Inc., 271, B.R. 273, 280 (Bankr. N.D. Ill. 2002) to support maintaining the stay to prevent resources being diverted to matters not directly related to its [debtors] reorganization. In contrast here, the insurance asset is directly related to and will control the reorganization. III. CONCLUSION For all the above reasons, Truck respectfully requests that the Court enter an order (i) granting the Motion in its entirety to allow the California Appeal to proceed; and (ii) granting such other and further relief as is just and proper under the circumstances. Dated: April 26, 2017 Respectfully submitted, By: Scott R. Hoyt Pia Anderson Moss Hoyt, LLC 136 E. South Temple, Suite 1900 Salt Lake City, UT / (phone); 801/ (fax) shoyt@pamhlaw.com -and- /s/ Michael L. Martinez Michael L. Martinez (N.C. Bar No ) Grier Furr & Crisp, P.A. 101 N. Tryon Street, Suite 1240 Charlotte, NC / (phone); 704/ (fax) mmartinez@grierlaw.com Attorneys for Truck Insurance Exchange 7 Debtors stated purpose in this proceeding is to establish a trust to fund approximately 14,000 pending asbestos personal injury claims and all future claims. [Debtors Supplemental Brief in Support of Remand [Doc. No. 178 at p. 3]]. 10

11 Case Doc Filed 04/26/17 Entered 04/26/17 17:19:47 Desc Affidavit of Scott Hoyt in Support Page 1 of 3 IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF NORTH CAROLINA Charlotte Division In re KAISER GYPSUM COMPANY, INC., et al Debtor. Case No Chapter 11 (Jointly Administered) AFFIDAVIT OF SCOTT HOYT, ESQ. IN SUPPORT OF TRUCK S REPLY TO MOTION FOR RELIEF FROM AUTOMATIC STAY I, Scott Hoyt, Esq. being duly sworn, depose and say: 1. I make this affidavit in my capacity as the lead attorney for Truck Insurance Exchange ( Truck ) in support of Truck s Reply on its Motion for Relief from Automatic Stay. 2. I am fully familiar with the facts set forth herein through my own personal knowledge as lead counsel for Truck in its litigation with Kaiser Cement and Gypsum Corp. ( Debtors ) 1 in various insurance coverage actions brought by Truck and Debtors in California over the past 30 years. If called to testify in connection with this Bankruptcy Case, the following would constitute my testimony. 3. Truck issued (19) nineteen years of primary liability coverage to Debtors, from Although the pre 1971 and post 1980 policy years have aggregate limits, the The Debtors are the following entities (the last four digits of their respective taxpayer identification numbers follow in parentheses): Kaiser Gypsum Company, Inc. (0188); and Hanson Permanente Cement, Inc. (7313) The Debtors address is 300 E. John Carpenter Freeway, Irving, Texas

12 Case Doc Filed 04/26/17 Entered 04/26/17 17:19:47 Desc Affidavit of Scott Hoyt in Support Page 2 of 3 80 years do not and Debtors have selected the 1974 year to respond to all asbestos bodily injury claims ( ABIC ) under California s all sums law. 4. Under California s all sums law, the insured can select any policy triggered by a loss in effect from date of first exposure ( DOFE ) and after and that policy then must pay the entire loss/ all sums with a contribution right thereafter against the other policies also triggered by the loss. 5. The excess policy above Truck s selected 1974 year was issued by Insurance Company of the State of Pennsylvania ( ICSOP ) and like Truck s, has no aggregate limit. Together the Truck and ICSOP 1974 policies provide total occurrence limits in an amount sufficient to have covered, and to continue covering the amount of any and all ABIC against Debtors. 6. Although Debtors have hypothesized there might be a need for the Truck policy aggregate limits in the future should claims with a DOFE after 1980 be presented, this is pure speculation. To date approximately $241 Million have been paid in indemnity for ABIC under the 1974 policy year and nothing under the years. 7. The parties to the California asbestos coverage action filed a Joint Statement in the trial court on June 4, 2014, informing the court that The parties do not anticipate scheduling a mediation for Phase I issues, and do not believe mediation for Phase II or III would be productive at this time. At no time after this to the present did Debtors, Truck or the excess insurers tell the court there that mediation or any other settlement discussions on the issues now on appeal would be productive. 2

13 Case Doc Filed 04/26/17 Entered 04/26/17 17:19:47 Desc Affidavit of Scott Hoyt in Support Page 3 of 3

14 Case Doc Filed 04/26/17 Entered 04/26/17 17:19:47 Desc Certificate of Service Page 1 of 1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF NORTH CAROLINA Charlotte Division In re KAISER GYPSUM COMPANY, INC., et al 1 Debtor. Case No Chapter 11 (Jointly Administered) CERTIFICATE OF SERVICE The undersigned hereby certifies that copies of the foregoing Truck Insurance Exchange s Reply in Support of its Motion for Relief from Automatic Stay to Pursue Appeal of State Court Action were served via ECF on those parties registered to receive electronic service in this case. This, the 26th day of April, /s/ Michael L. Martinez Michael L. Martinez Grier Furr & Crisp, PA 101 North Tryon Street, Suite 1240 Charlotte, North Carolina The Debtors are the following entities (the last four digits of their respective taxpayer identification numbers follow in parentheses): Kaiser Gypsum Company, Inc. (0188); and Hanson Permanente Cement, Inc. (7313). The Debtors address is 300 E. John Carpenter Freeway, Irving, Texas

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION 1 1 1 1 STEVEN H. FELDERSTEIN, State Bar No. 0 THOMAS A. WILLOUGHBY, State Bar No. 1 FELDERSTEIN FITZGERALD WILLOUGHBY & PASCUZZI LLP 00 Capitol Mall, Suite Sacramento, CA 1 Telephone: () -00 Facsimile: