Episode description

Welcome to Supreme Court Opinions. In this episode, you’ll hear the Court’s opinion in Truck Insurance Exchange v Kaiser Gypsum Co.

In this case, the court considered this issue: Is an insurer with financial responsibility for a bankruptcy claim a “party in interest” that may object to a plan of reorganization under Chapter 11 of the Bankruptcy Code?

The case was decided on June 6, 2024.

The Supreme Court held that an insurer with financial responsibility for bankruptcy claims is a “party in interest” under 11 U-S-C §1109(b) that “may raise and may appear and be heard on any issue” in a Chapter 11 case. Justice Sonia Sotomayor authored the 8-0 opinion of the Court (Justice Samuel Alito did not participate in the consideration or decision of the case).

The text of § 1109(b) is broad, providing a non-exhaustive list of “parties in interest” who have a direct financial stake in the outcome of the case. The plain meaning refers to entities potentially concerned with or affected by the proceeding. The historical context shows Congress has consistently acted to promote greater participation in reorganization proceedings. Section 1109(b) continues this tradition by using the capacious term “party in interest.” The purpose of § 1109(b) is to promote a fair and equitable reorganization process by allowing a broad range of interests to intervene and prevent dominant interests from controlling the process.

Applying these principles, insurers like Truck are parties in interest because bankruptcy proceedings can affect their interests in many ways, such as impairing their contractual rights or exposing them to fraudulent claims. Truck's potential financial harm from the plan gives it an interest. Giving insurers like Truck an opportunity to be heard is consistent with § 1109(b)'s purpose, as they may be the only ones with an incentive to identify problems with a plan that puts them on the hook financially. The lower court's "insurance neutrality" doctrine, which looks only at whether a plan alters the insurer's contract rights or quantum of liability, is wrong conceptually and too limited practically in ignoring the many other ways plans can affect insurers.

Thus, the text, history, and purpose of § 1109(b) support the understanding that financially responsible insurers like Truck have a sufficiently direct stake to be "parties in interest" entitled to be heard.

The opinion is presented here in its entirety, but with citations omitted. If you appreciate this episode, please subscribe. Thank you.