This question was the subject of rulings handed down early in 2011 by the New York bankruptcy court presiding over the chapter 11 cases of Lyondell Chemical Co. In separate bench rulings, bankruptcy judge Robert E.
On the other hand, to the extent the claim for such surety or codebtor by way of subrogation is more advantageous, such as where such claim is secured, the surety may elect subrogation under section 509.
The Bankruptcy Code does not define the terms “contingent,” “reimbursement,” “contribution,” or “subrogation” or the phrase “liable with the debtor.” The definition of these terms for purposes of section 502(e) has been left to the courts, with sometimes inconsistent results.
It also protects PRPs who have settled with the EPA from contribution claims by other PRPs.
If a PRP or another private party files a claim against a debtor’s estate for remediation costs, the claim may be disallowed under section 502(e)(1).
Courts generally look to applicable nonbankruptcy law for guidance (e.g., state, federal statutory, or common law).
Application to Environmental Remediation Claims In addition to claims arising from contractual codebtor relationships, section 502(e)(1)(B) disallows contingent reimbursement or contribution claims created by statute, including claims for contribution arising under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”).
Prior to filing for chapter 11 protection in New York, certain of the debtors as well as various other private parties were designated as PRPs for past and estimated future environmental remediation costs under CERCLA.
The other private parties filed contribution claims against the debtors’ estates for past and future estimated remediation costs.
constrained the court to conclude that contribution claims under CERCLA remain contingent unless and until remediation costs are actually paid by the claimant.
The Bankruptcy Court’s Rulings Judge Gerber declined to view Chateaugay as controlling authority for the proposition that a contribution claim is contingent until the claimant actually makes an expenditure.
Section 502(e)(1)(C) alternatively indicates that a claim for reimbursement or contribution of a surety or codebtor is disallowed to the extent the surety or codebtor requests subrogation under section 509 with respect to the rights of the assured party.