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Federal Judge Upholds Bankruptcy Judge’s Denial of a Motion for Limited Modification of the Stay in an Insurance Coverage Adversary Proceeding

On April 16, 2000, Pittsburgh Corning Corp. (“PCC”) filed a voluntary petition for relief under Chapter 11 of the US Bankruptcy Code for asbestos-related liabilities. In May of 2000, PPG Industries, Inc. (“PPG”) subsequently filed a declaratory judgment action (adversary complaint) against PCC and its insurers seeking insurance coverage for asbestos-related claims against PPG arising from its use of a PCC product, Unibestos. The US Bankruptcy Court for the Western District immediately stayed the adversary proceeding. In 2003, the stay was extended by the Bankruptcy Court’s Order, at the request of PPG, through the confirmation process. 

In May of 2004, and afterward, the Bankruptcy Court heard arguments and evidence regarding confirmation of the plan. Thereafter, the Bankruptcy Court took the proposed Plan of Reorganization, along with the proposed Findings of Fact and Conclusions of Law under advisement. 

Mt. McKinley Insurance Co. and Everest Reinsurance Co. as insurers involved in the adversary proceeding believe that since the stay of the adversary proceeding, substantial evidence has evolved regarding the asbestos litigation nationwide. Therefore, Mt. McKinley Insurance and Everest Reinsurance filed a Motion for Limited Modification of the Stay for the narrow purpose of permitting discovery into the suspect or fraudulent asbestos-related personal injury claims asserted against PCC, the Debtor.        

The US District Court agreed with the US Bankruptcy Court findings that, 1) the discovery request was premature prior to the US Bankruptcy court’s confirmation or rejection of the final plan for reorganization, which would, if confirmed, result in appointment of Trustees to manage the Adversary Proceeding; 2) PPG and PCC retain their files containing any responsive documents, which will not, therefore, be lost to future discovery; and 3) when this becomes an issue, the Bankruptcy Court would not permit payment of any claims supported by medical documentation from any of the doctors involved in the fraudulent scheme. Mt. McKinley Insurance Co. and Everest Reinsurance Co. v. Pittsburgh Corning Corp., et al., No. 06CV 01085, W.D. of PA (2006). 


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