Discovery of under-the-table negotiations leads to a high-water mark ruling in asbestos coverage action.

NEW BRUNSWICK, NJ/ When it came time for domestic floor tile manufacturer Congoleum Corporation to pay its fair share of asbestos liabilities under New Jersey law, the company turned away from its insurers. Instead of working with its insurers, it secretly negotiated a pre-packaged 524(g) bankruptcy with counsel for the asbestos claimants, whereby it agreed to assign its insurance assets to an asbestos trust in exchange for the claimants’ supporting votes in the bankruptcy.

The secret global settlement underlying the bankruptcy liquidated over $465 million in asbestos claims. Insurers were excluded from the negotiations and the settlement was reached over their objections. In our representation of Certain Underwriters at Lloyd’s and Certain London Market Insurance Companies, Mendes established that the agreement had been made collusively, and uncovered incidents of misconduct by lawyers for Congoleum which ultimately resulted in their exclusion from the case. The case went to trial and in a first-of-its-kind ruling, the court set aside the agreement, finding that is was collusive and resulted in “inherently fraudulent” claims.