Source: http://www.insurancejournal.com, September 19, 2014
By: Jonathan Matisse
A federal bankruptcy judge has approved a $2.9 million settlement that would benefit 300,000 people whose water was contaminated in a January chemical spill.
Judge Ronald Pearson filed the order this past Tuesday in U.S. Bankruptcy Court in Charleston. Pearson’s approval lets a U.S. District Court judge consider the deal as a separate lawsuit.
The proposal would rely on almost all of the insurance proceeds from a $3 million policy provided by AIG Specialty Insurance Co. for bankrupt Freedom Industries. The company’s January spill spurred a tap-water ban for days. Freedom filed for bankruptcy eight days later.
The settlement would let a to-be-determined panel pick public interest projects to fund. That could include long-term health monitoring or more water testing because people were exposed to little-known coal-cleaning chemicals that leaked from a Freedom tank.
The company whose water supply was contaminated opposed the deal. West Virginia American Water said the settlement would keep thousands of creditors from recovering anything on bankruptcy claims.
The water company is seeking $1.1 million from Freedom after replacing its carbon filters. It also wants Freedom to cover potential damages in dozens of spill lawsuits facing the water company.
“Ultimately, the proposed settlement driving the motion would prevent creditors from receiving any payment out of millions of dollars contained in the estate,” West Virginia American Water wrote in opposition last month. “In short, it is just wrong!”
On Tuesday, Pearson wrote that he doesn’t object to alternate ways of satisfying claimants other than doling out small payments to thousands of creditors.
James Lane, the case’s claims agent, said in early August that thousands of claims were seeking more than $170 million combined. More were being tallied.
“This Court holds no monopoly of ideas to resolve claims in this case, and as such, the Court has no intention to stand in the way of any reasonable efforts to recognize, compromise, equalize, or treat those claims,” Pearson wrote.
Freedom and 24 residents and businesses that sued after the spill proposed the deal, which would settle their cases. Bankruptcy proceedings froze dozens of lawsuits against Freedom. They are being handled as bankruptcy claims.
The settlement lets claimants pursue their individual claims, but little money will likely be available for those.
Under Freedom’s liquidation plan that includes the settlement, West Virginia American Water says it would only be able to recover $29,000, or 1 percent of the insurance pot, if it kept pursuing its claim.
The Charleston Gazette first reported Tuesday’s order.