Delaware Bankruptcy Court Clarifies Insurers' Rights in Talc Cases Following Supreme Court Ruling

Conductor

In a significant decision that builds on recent Supreme Court precedent, a Delaware bankruptcy judge has provided fresh guidance on insurers' participation rights in mass tort bankruptcy cases while rejecting an insurer group's attempt to delay confirmation proceedings in Avon's talc-related bankruptcy.

Judge Craig T. Goldblatt of the U.S. Bankruptcy Court for the District of Delaware issued a detailed 28-page memorandum opinion explaining his decision to overrule objections from London Market Insurers regarding the solicitation procedures and confirmation schedule in the AIO US, Inc. bankruptcy case. The ruling, filed June 6, 2025, addresses when and how insurers can challenge aspects of their insured's reorganization plan.

"The question a bankruptcy court faces after Truck Insurance is fundamentally the same one that many bankruptcy courts faced before it – how to calibrate an insurer's right to participate and be heard in its insured's bankruptcy case so as to permit the insurer to protect its legitimate interests, without permitting an insurer to weaponize its procedural rights," Judge Goldblatt wrote.

The case involves U.S. holding companies that formerly owned the international operations of beauty products giant Avon. These debtors filed for Chapter 11 protection in August 2024, partly to address talc liabilities arising from their former U.S. operations, which had been spun off in 2016. During the bankruptcy, the debtors sold their assets – primarily shares of non-debtor foreign entities – to their parent corporation as part of a court-approved settlement in December 2024.

London Market Insurers, who issued policies to the debtors, objected to the company's solicitation procedures, which would temporarily allow talc-related mesothelioma claims at $10,000 per claim and other disease claims at $20 per claim for voting purposes. The insurers also sought to delay the confirmation hearing by six additional months beyond the debtors' proposed July 21, 2025 date.

The opinion provides a detailed analysis of standing requirements in bankruptcy cases, particularly in light of the Supreme Court's recent Truck Insurance decision, which held that insurers are "parties in interest" with a right to appear and be heard in bankruptcy cases filed by their insureds.

Judge Goldblatt clarified that when a party objects to relief sought by another party in bankruptcy court, the objecting party does not need to demonstrate Article III constitutional standing: "The lesson of these cases is that so long as the party that is invoking the court's jurisdiction has a concrete stake in the relief it is seeking, the constitutional requirements are satisfied."

The court also addressed the now-obsolete concept of "prudential standing," explaining that following the Supreme Court's Lexmark decision, this doctrine "is no longer a thing." Instead, the only standing question is whether the London Market Insurers have statutory standing as "parties in interest" under Bankruptcy Code Section 1109(b).

While concluding that London Market Insurers had a right to be heard regarding the timing of the confirmation hearing, the court found their request for a six-month delay unwarranted, noting they had "not identified any confirmation issue that they seek to raise that will require such an extensive delay in the schedule."

Regarding the temporary allowance of claims for voting purposes, the court acknowledged this presented "a closer question" of standing. However, the judge decided to consider the objection on its merits rather than dismissing it on standing grounds, explaining that "when confronted with a close question of a party's right to challenge relief being sought by another party, this Court believes that the more prudent course is to consider the objections on the merits."

The court ultimately found the solicitation procedures appropriate, noting that the ballots "provide the principal protections that would otherwise be afforded by the filing of proofs of claim."

The opinion acknowledges past irregularities in solicitation processes in other talc cases, noting that the court was "duty bound to ensure that the process it is superintending is an appropriate one." The debtors and the Committee had agreed to incorporate certain safeguards, including requiring certification under penalty of perjury that each client provided affirmative consent to ballots cast by lawyers on their behalf.

The decision provides important guidance for insurers involved in mass tort bankruptcies by illustrating the extent to which they can participate in their insureds' reorganization proceedings while preventing them from using procedural rights as tactical weapons in other disputes.

This article was prepared using Stretto Conductor, our new AI-powered assistant that's here to help. Stretto Conductor was able to create this summary of a 28 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Stretto Conductor may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.



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