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The Collaborative Clearinghouse for Lawsuits and Other Claims Against ACE Group Insurance Companies

ACE More Comfortable in Court, Blocks Alternate Dispute Resolution in Lawsuit against Twinkies Manufacturer

June 3, 2012 - Twinkies baker Hostess Brands Inc., slogging through a second trip to bankruptcy court, is now battling with ACE American Insurance Co. over Hostess’ plan to pursue out-of-court resolution to hundreds of legal claims that it faces.

The ACE Group unit has filed an objection in U.S. Bankruptcy Court in New York to a proposal by Hostess Brands to adopt an alternative dispute resolution process, according to law360.com.

ACE American, law360 reported, contends that the process could impinge on the insurer's rights or run afoul of state insurance laws.

Hostess, which declared bankruptcy in January, proposed the alternative dispute resolution procedures in an effort to head off litigation of hundreds of bodily injury, wrongful death and other tort claims against it.

The procedures delineate a process that starts with direct settlement talks and then, absent a deal, continues to either mediation or arbitration with a claimant, according to the motion.

But according to ACE American, law360 wrote, the debtors don’t have the ability to handle all of the administrative work and oversight involved in the process and may expect their insurance company to handle some of those duties. But these tasks aren’t part of its policy with Hostess and the procedures should not impose any additional obligations on the insurer, ACE American said.

ACE American also said that Hostess Brands needs to clarify that it will pay deductibles and not treat them as general unsecured claims, according to the objection. The insurer also took issue with a provision giving lenders an effective veto of any large settlement.

ACE American cited other issues with the Hostess Brands proposal, including that it could run afoul of various state laws that would limit or preclude arbitration in insurance agreements.  ACE American sought to condition approval of the procedures on proposed changes it has suggested.

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