A defendant facing thousands of mass tort lawsuits in federal and state courts throughout the country often will seek to address the litigation by seeking Chapter 11 relief under the Bankruptcy Code. The Chapter 11 process provides the debtor with an opportunity to develop a global solution for the mass tort litigation. The automatic stay under Section 362 of the Bankruptcy Code will effectively stay all pending actions against the debtor, which provides the debtor with the necessary breathing space to formulate a plan.

The mass tort debtor’s ability to propose a confirmable plan will largely be driven by its ability to provide meaningful distribution to the tort victims. Typically, the mass tort debtor will not have sufficient immediate assets with which to satisfy the victims’ claims. Thus, a significant component to any distribution made to creditors necessarily will include the debtor’s claims against third parties (who may have played a role in triggering the mass tort) as well as the debtor’s liability insurance. These claims, however, are difficult to monetize. Third-party defendants will defend against any claims asserted by the debtor, and insurers typically have coverage defenses.

Originally published in the New York Law Journal on October 1, 2014.