Supreme Court hears dispute over whether insurers can be "parties in interest" in Chapter 11

The Supreme Court on Thursday wrestled with whether insurers qualify as a “party in interest” under 11 o 9 b of the Bankruptcy Code and therefore may be heard on any issue in a Chapter 11 reorganization.

Miss Ho, counsel for Truck Insurance, told the justices that Truck "will pay virtually every dollar the debtors owe the asbestos claimants" and that the Fourth Circuit’s rule barring this insurer from raising certain issues ‘‘violates the text, context, and history of 11 o 9 b.’’ She urged the Court to apply an ex ante inquiry to determine party‑in‑interest status so that any entity that could be directly and adversely affected by the proceeding—creditors and counterparties alike—has a right to be heard at the outset.

The argument focused on two rival frames. Miss Ho and the government described 11 o 9 b as deliberately broad to bring stakeholders to the table; Miss Ho emphasized that Truck is both a creditor (for deductibles) and the insurer who will pay the vast bulk of claims. The government (Mister Yang) likewise defended a text‑based approach that treats counterparties to executory contracts and creditors as parties in interest who can be heard in advance because executory contracts will be assumed or rejected during reorganization.

Opposing counsel for the debtor, Mister Marshall, and counsel for the trust, Mister Frederick, urged narrower limits. Marshall said "party in interest" is a term of art tied to a legal interest in the debtor’s estate and that an insurer whose contract rights are not altered by a plan does not have a right to object to plan confirmation. He pointed to established doctrines—often called insurance neutrality—that ask whether a plan materially changes an insurer’s preexisting legal obligations. If it does not, Marshall said, insurers lack the threshold interest required to contest confirmation.

Frederick pressed a related point about the specific anti‑fraud protections Truck sought. He said those procedures apply only to a small class of extraordinary uninsured claims and that imposing Truck’s proposed discovery and disclosure regime would improperly displace state‑court procedures and jury protections. Frederick warned that permitting insurers to import broad discovery or pre‑filing disclosure across state proceedings would be a significant intrusion on state processes.

The justices pressed all sides on two practical questions: (1) when party‑in‑interest status should be determined—at the outset (ex ante) or when a plan is proposed—and (2) how to cabin participation to avoid ‘‘floodgates’’ of marginal participants while still letting materially affected parties be heard. Several justices observed that bankruptcy practice and the code distinguish between being heard and the right to vote; a party can sometimes be heard even if it cannot vote on a plan.

On remedies and process, counsel debated permissive intervention: Marshall noted that entities with more attenuated interests can still seek permissive intervention, leaving cost and docket management to the bankruptcy court’s discretion. Miss Ho countered that Congress eliminated certain intervention formalities when it adopted 11 o 9 b and intended to foster broad stakeholder participation so courts can ensure compliance with the Code.

In rebuttal, Miss Ho reiterated that 11 o 9 b confers a right to be heard, not a veto, and stressed that Truck’s combination of creditor and insurer roles gives it multiple bases to participate in the case. She asked the Court to reverse the lower court’s ruling and remand for further proceedings. The case was submitted.

What happens next: the Court will consider the arguments and issue an opinion resolving whether insurers like Truck may be treated as parties in interest under the statute and, if so, under what standards they may be heard during Chapter 11 proceedings.