In a pending asbestos case, the U.S. District Court, Middle District of Louisiana, recently stayed a direct-action claim against two insurers pursuant to the automatic bankruptcy stay provision in 11 U.S.C. § 362(a).[1]

Reulet v. LamoRak Insurance Company – Background

Plaintiffs in Reulet v. Lamorak Insurance Company brought a wrongful death and survival action for damages related to the 2019 death of Decedent, Kirk Reulet. Decedent’s 45-year long career as a welder was the alleged source of his exposure to asbestos that caused his development of terminal mesothelioma. Plaintiffs sought damages from multiple defendants, including a direct action under the Louisiana Direct Action Statute against two insurers of a now-bankrupt non-party, Reilly-Benton Company, Inc. (Reilly-Benton), that manufactured and delivered asbestos-laden products to Decedent’s worksites. Reilly-Benton’s bankruptcy was ongoing and potentially involved thousands of asbestos-related claims. The insurers moved to dismiss or stay the claims against them pursuant to the automatic bankruptcy stay provision in 11 U.S.C. § 362(a).

Court Ruling

Under §362 of the Bankruptcy Code, the filing of a bankruptcy petition operates as an “automatic stay” or injunction with respect to various acts concerning “property of the estate.” The Fifth Circuit has held under “limited circumstances,” including instances “where a siege of tort claimants threaten the debtor’s estate over and above the policy limits,” the policy proceeds are classified as property of the estate. Since insurance proceeds in these “limited circumstances” are property of the debtor’s estate, direct actions against insurers for these proceeds are subject to the automatic stay provision in the Bankruptcy Code.

The Court, in accordance with a recent Eastern District of Louisiana decision, held that the Bankruptcy Court was the best forum to decide whether the plaintiffs’ claims should be pursued through the Reilly-Benton bankruptcy proceedings or otherwise, and stayed the direct action claims against the two insurers.

Read the full case here.

[1] Reulet v. Lamorak Ins. Co., 2022 U.S. Dist. LEXIS 191337, at *22 (M.D. La. Oct. 19, 2022).