Court upholds settlement in asbestos lawsuits

WASHINGTON — The Supreme Court on Thursday agreed to let an insurance company settle some asbestos lawsuits for about $500 million in exchange for blocking any future litigation resulting from its long relationship with Johns Manville Corp., once the world’s largest producer of asbestos.

Travelers Cos. had been named in lawsuits alleging that it tried to hide dangerous health effects of asbestos. The company argued that asbestos claims must be paid out of a trust created by Johns Manville in the 1980s and approved by a federal bankruptcy judge.

Asbestos is a mineral that was commonly used until the mid-1970s in insulation and fireproofing material. Exposure can increase the risk of lung cancer, mesothelioma and other ailments, according to federal health agencies.

Travelers settled with several groups of plaintiffs in 2004 with the caveat that federal courts make clear the company would not have to face any new similar lawsuits. The 2nd U.S Circuit Court of Appeals overturned lower-court approval of the settlement, saying a bankruptcy judge lacked the authority to act so broadly.

The high court on Thursday overturned that decision and sent the case back to the New York-based federal appeals court.

“So long as respondents or those in privity with them were parties to the Manville bankruptcy proceedings, and were given a fair chance to challenge the bankruptcy court’s subject matter jurisdiction, they cannot challenge it now by resisting enforcement of the 1986 orders,” said Justice David Souter, writing the court’s 7-2 opinion.

A Travelers spokesman was not immediately available for comment.

Sandler, O’Neill & Partners analyst Paul Newsome said the ruling appears positive for the insurer.

“One of the big issues for asbestos liability has been that companies think they have maxed out their limits and they think they have paid all their claims and then all of a sudden they have either new claims or old claims that somehow get bigger,” Newsome said.

The court made clear that the decision applies only in this case. The high court also did not decide whether all of the people who want to challenge the Travelers settlement are bound by the Manville Trust agreement. “On remand, the Court of Appeals can take up this objection,” Souter said.

Justices John Paul Stevens and Ruth Bader Ginsburg dissented.

The 1986 order by the bankruptcy judge “bars only those claims against Manville’s insurers seeking to recover from the bankruptcy estate for Manville’s misconduct, not those claims seeking to recover against the insurers for their own misconduct,” Stevens said.

The consolidated cases are The Travelers Indemnity Co. v. Bailey, 08-295, and Common Law Settlement Counsel v. Bailey, 08-307.

AP Business Writer Ieva M. Augstums in Charlotte, N.C., contributed to this report.