Supreme Court hears dispute over insurers’ right to be heard in mass‑tort bankruptcies

The Supreme Court on Friday heard competing views over whether an insurer that will pay the majority of claims in a mass‑tort Chapter 11 should be treated as a "party in interest" entitled to be heard under 11 U.S.C. §1109(b).

Miss Ho, counsel for the petitioner Truck, told the justices that the statute’s text and history were broad and Congress intended "to bring stakeholders to the table," and that Truck should have a right to be heard because it "will pay the vast bulk of claims in this case" and is also a creditor for millions in deductibles. "If anyone is a party in interest entitled to be heard in this Chapter 11 case, it's the insurer, Truck," she said.

Opponents urged a narrower rule. Counsel for the debtor and the trust argued that a party in interest must have a legal interest in the bankruptcy estate — typically shown by impairment of rights — and that where a plan does not alter an insurer’s preexisting legal obligations the insurer has no statutory right to object to plan confirmation. "A party in interest is someone who has a legal interest in a debtor's bankruptcy estate," counsel Marshall told the Court, urging the bench to treat the question as a threshold inquiry.

Government counsel and other advocates offered middle positions: the text of §1109(b) is broad, they said, but ordinary limiters — tracing to executory contracts, creditors, and doctrines such as feasibility, assumption/rejection, and Article III injury — constrain who will actually litigate plan confirmation. Mister Yang, answering questions from the bench, urged a textual approach that recognizes counterparties to executory contracts and creditors as natural participants.

A central contested issue was timing: whether party‑in‑interest status should be determined "ex ante," at the outset of the case, or at the point a plan is proposed and the court can determine impairment and practical effects. Justice Thomas and others pressed whether a party whose economic exposure would be identical under all proposed plans still has a sufficient interest to participate; Miss Ho responded the statute contemplates potential direct and adverse effects and that such effects are often unknowable at the outset.

The justices also focused on the practical ramifications of permitting insurers to be heard on measures Truck seeks — described during argument as "anti‑fraud" protections — that would require certain claimants to disclose prior exposures and to provide releases permitting trust‑to‑trust information sharing. Counsel for the trust said those rules, as drafted, would intrude on state court procedures and shift protections that state procedures ordinarily supply. "Those requirements are only for a very small class of claims," the trust’s counsel, Frederick, said, but he warned against letting insurers 'co‑opt' bankruptcy to gain advantages outside ordinary rules.

Bench questioning repeatedly returned to whether expanding §1109(b) would open the courthouse doors too widely, what limiting principles would apply, and whether established circuit tests such as "insurance neutrality" — which asks whether a plan materially alters an insurer’s preexisting legal obligations — should govern admission to object. Several justices noted that permissive intervention remains available even if a party lacks a statutory right to be heard on all issues.

The argument concluded after rebuttal from Miss Ho, who reiterated that §1109(b) confers a right to be heard (not a vote) and emphasized that Congress previously removed formal intervention requirements to allow broader participation. "11 U.S.C. §1109(b) gives stakeholders a voice, not a vote, and certainly not a veto," she told the Court. The case was submitted; the Court did not announce a decision from the bench.

What happens next: the justices will consider briefs, oral argument transcript and the record before issuing an opinion that could resolve circuit splits over when and on what issues insurers may be heard in Chapter 11 reorganization proceedings.