IN THE UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION In re: ) ) COLLINS & AIKMAN CORPORATION,

et al., ) ) Debtors. ) ) ) ) __________________________________________) Chapter 11 Case No. 05-55927 (SWR) (Jointly Administered) (Tax Identification #13-3489233) Honorable Steven W. Rhodes

CNAS LIMITED RESPONSE TO THE DEBTORS MOTION FOR ENTRY OF AN ORDER APPROVING SETTLEMENT, INSURANCE POLICY PURCHASE AGREEMENT AND RELEASES
U

The Continental Insurance Company and National Fire Insurance Company of Hartford, Successor by Merger to Transcontinental Insurance Company (collectively, CNA), hereby respond, in a limited fashion, to the Debtors Motion for Entry of an Order Approving Settlement, Insurance Policy Purchase Agreement and Release [Docket No. 7623] (the Motion). 1
TPF FPT

Subject to the reservation of rights set forth below, CNA does not oppose or object to approval of the Debtors settlement agreement with Hartford. Rather, CNA responds in a limited fashion for the record. First, the record should be clear that CNA holds an Interest against the Buyout Policies based upon its contribution and other claims as a co-insurer (the CNA Claims). Although the third party claims of insurers are addressed in the Settlement and Insurance Policy Purchase Agreement and Release (the Settlement Agreement), such claims, including the CNA Claims, are not mentioned in the Motion. See Motion at 7.
1
TP

Unless otherwise indicated, capitalized terms used herein shall have the meanings assigned to them in the Motion.
PT

CH1 11256930.1

0W[;''#

0555927070703000000000005

%(

Second, the Proposed Order contains unnecessary relief that should be deleted in order to prevent any confusion or disagreement in the future over the scope of the order. In particular, the first sentence of paragraph 4 and paragraphs 10 and 11 are superfluous. In addition, paragraph 11 is not appropriate as it purports to bind CNA to the terms of an agreement to which it is not a party. Third, CNA does not agree that the CNA Claims may be enjoined pursuant to section 363 of the Bankruptcy Code as suggested in the Motion. Paragraphs 6 and 7 of the Proposed Order

and Section VII of the Settlement Agreement provide (1) for the sale of the Buyout Policies pursuant to Section 363(f) of the Bankruptcy Code free and clear of (a) all Interests in the Buyout Policies and (b) any and all Claims against C&A or the Estates that could give rise to a claim for coverage under the Policies, and (2) enjoin third parties from asserting Interests against Hartford and the Buyout Policies. According to the Motion, such relief is warranted because, pursuant to section 363(f)(5), any entity holding an interest in the Buyout Policies could be compelled in a legal or equitable proceeding to accept a money satisfaction of such interest. Motion at 33. Although CNA disagrees with these conclusions, it nevertheless is willing to consent to entry of the Proposed Order on the condition that the Proposed Order will be implemented in conjunction with the Plan, as modified by agreement of the parties. 2
TPF TPF FPT FPT

Finally, as CNA has noted previously 3 , the Plan, and the relief sought in the Motion, are inconsistent with the relief sought by the Debtors in their Motion for the Entry of Orders
CNA, along with other insurers, and the Debtors have negotiated and agreed to certain modifications to the Plan that clarify the treatment of insurance policies and protect CNAs contractual rights. These Plan modifications have not yet been filed with the Court.
TP PT

3
TP

See CNAs Objection to the Sale Motion [Docket No. 6074] and CNAs Objection to Confirmation of the Plan [Docket No. 7344 ].
PT

2
CH1 11256930.1

Approving Bidding Procedures, Sale of Certain of the Assets of the Debtors Interiors Plastics Group Free and Clear of Liens, Claims, Encumbrances and Interests and Related Relief [Docket No. 4408] (the Sale Motion). In the Sale Motion, which is still pending, the Debtors seek to assign its insurance policies to the proposed buyer of its plastics division, including the Buyout Policies and policies issued by CNA. Clearly, the Debtors cannot assign their insurance policies to a proposed buyer if (1) recoveries under those same policies will be used to satisfy tort claims under the Plan (see Plan at art. IV), and (2) the Debtors are selling certain of those policies (i.e., the Buyout Policies) to Hartford. Thus, the Sale Motion cannot be granted so long as the transaction includes the proposed assignment of the insurance policies, and the Motion cannot be granted, nor the Plan confirmed, while at odds with the Sale Motion. RESERVATION OF RIGHTS
U

CNA reserves it right to modify, amend, supplement or withdraw this response at any time, including, but not limited to, in the event the Debtors fail to file modifications to the Plan consistent with their agreement with CNA and other insurers. Dated: July 3, 2007 Southfield, Michigan Respectfully submitted, STEINBERG SHAPIRO & CLARK By: /s/ Mark H. Shapiro (P43134) 24901 Northwestern Highway, Suite 611 Southfield, Michigan 48075 Telephone: 248-352-4700 Facsimile: 248-352-4488
U U

-and-

3
CH1 11256930.1

David C. Christian II SEYFARTH SHAW LLP 131 South Dearborn Street, Suite 2400 Chicago, Illinois 60603-5577 Telephone: 312-460-5000 Facsimile: 312-460-7000 -andClinton E. Cameron (P45567) ROSS, DIXON & BELL, LLP 55 West Monroe Street, Suite 3000 Chicago, Illinois 60603-5758 Telephone: 312-759-1920 Facsimile: 312-759-1939 ATTORNEYS FOR THE CONTINENTAL INSURANCE COMPANY AND NATIONAL FIRE INSURANCE COMPANY OF HARTFORD, AS SUCCESSOR BY MERGER TO TRANSCONTINENTAL INSURANCE COMPANY

4
CH1 11256930.1