Asbestos Judgment Reinstated: Insurer Travelers ordered to pay $500 million in asbestos-related settlements

Today the U.S. Court of Appeals for the Second Circuit put to rest the “private hopes and dreams” of insurer Travelers Cos. Inc., in its attempt to avoid its obligation to thousands of asbestos victims.  

The Second Circuit confirmed that the Settlement Agreements Travelers agreed to in 2004 were binding and enforceable contracts between the parties, that all conditions had been satisfied, and that whatever Travelers’ “private hopes and dreams were,” they were not supported by the language of the agreement. 

Attorneys with Motley Rice LLC have played a central role in this case from the first filings and were integral in negotiating the Statutory Direct Action and Hawaii Settlement Agreement reached with Travelers, and they have continued to play a key role in the decade-long appellate proceedings surrounding these cases. 

“We look forward to Travelers now living up to its commitment and making the payments to the claimants who have been waiting now for more than 10 years for their compensation,” says Motley Rice co-founder Joe Rice. “Today’s opinion by the Second Circuit proves that perseverance does pay off. It has been a long and challenging battle for our clients, but we are pleased with this very positive ruling.” 

Travelers had sought to avoid paying these settlements, arguing that certain items were a condition precedent to the obligation to make payments. The Second Circuit disagreed with the company’s arguments and found today that “. . . Travelers’ interpretation amounts to a contractual term that is incapable of ever being fulfilled . . . such an impossible condition – with no support in contractual language and clearly not intended by the parties – would have rendered the contract a nullity from its inception.” 

The Second Circuit cited its 1997 opinion in Klos v. Lotnicze, stating “undoubtedly, that that is the reason why no such requirement is found in the Agreement’s terms or Exhibit As, whatever Travelers’ ‘secret and subjective intent.’ ”  

Additionally, the Second Circuit, citing its 2001 opinion in Reiss v. Fin. Performance Corp., stated, “a court ‘will not imply a term where the circumstances around the formation of the contract indicate that the parties, when the contract was made, must have foreseen the contingency at issue and the agreement can be enforced according to its terms.’ ” The Second Circuit declined “Travelers’ invitation to look beyond the Agreements’ obvious meaning and to consider Travelers’ subjective hopes.”

“Travelers, which has had the benefit of competent, imaginative, and meticulous counsel, waited until the bankruptcy court disposed of the arguments…We, therefore, consider those arguments waived,” wrote The Second Circuit.

“Travelers, after getting everything it bargained for from the Supreme Court’s 2009 decision in the Travelers Indem. Co. v. Bailey case, started down the road of avoiding its contractually agreed to compensation plan,” added Rice. “It attempted to rewrite the contract with the plaintiffs to avoid paying the compensation it had agreed to. Thankfully, The Second Circuit is not going to let them get away with that.”

In 2001, attorneys now with Motley Rice filed a number of claims on behalf of certain asbestos clients who had resolved claims with various asbestos defendants. At that time, the allegations involved statutory violations by Travelers, including “that Travelers conspired to violate state laws prohibiting unfair insurance practices” by fraudulently perpetrating “a state of the art defense in the asbestos litigation.” Travelers sought to enjoin this litigation in 2002 by use of the Manville bankruptcy. After litigating in the Manville Bankruptcy Court for two years, the matter was settled with Travelers agreeing to make a payment of $360 million to the Direct Action Statutory Claimants. Travelers also agreed to settle a similar action that had been brought in Hawaii for $15 million and to pay $70 million toward common-law claims that had been filed.

This case ultimately made its way to the U.S. Supreme Court, which confirmed that the Bankruptcy Court’s 1986 confirmation and insurance orders and its 2004 clarifying order were within the jurisdiction of the Bankruptcy Court and collateral attacks of the 1986 orders were barred by res judicata as they were final some 20 years later. 

The case is Common Law Settlement Counsel, Statutory and Hawaii Direct Action Settlement v. Travelers Indemnity Co et al, 2nd U.S. Circuit Court of Appeals, Nos. 12-1094, 12-1140 and 12-1205.