In May of 2008 a fire started on a ship under construction in Mobile, Alabama. The fire raged on the ship, being built by Bender Shipbuilding and Repair Company (“Bender”), for 24 hours before it was extinguished. By the next year Bender had to file for Chapter 11 bankruptcy protection. In the course of the bankruptcy case, Bender’s attorney argued that Caterpillar omitted a necessary fire plug in the engine’s crankshaft it provided for the supply ship under construction. Without such plug, the engine blew a rod which ignited the fire.
This mishap represents one of many injury claims against Caterpillar, Inc. stemming from its U.S. truck and bus engine, an area of its business it decided to abandon 4 years ago, Since then it has had to defend itself against 15 lawsuits pertaining to defects in their engines installed in boats, trucks and buses.
But last week the matter with Bender was settled as Caterpillar, Inc. agreed to pay $46 million to the parties aggrieved by the fire. Of this amount, $12 million shall be paid to Bender. Because Bender’s bankruptcy case is still pending, the settlement required approval by the bankruptcy judge in Alabama presiding over the case. The other $34 million is split among insurers and the owner of the ship for whom Bender was constructing the large vessel. Were Bender not in bankruptcy the company itself could affirm the deal provided the other parties do the same. But once a company files for Chapter 11 protection, the bankruptcy judge retains the obligation to approve such multi-party deals to ensure the settlement is neither unfair to the debtor nor to its creditors.
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