SCOTUS favors Native American tribes, insurance companies, and the IRS in rulings

In a series of decisions on Thursday, the U.S. Supreme Court ruled that the Internal Revenue Service accurately assessed the value of a small construction supply company after one of its two shareholders died. It also held that the U.S. Department of Health and Human Services had to provide funds to Native American tribes seeking to run their own healthcare programs. The justices also ruled that an insurance company saddled with asbestos-related personal injury claims could bring its frustrations with a bankruptcy plan before a lower court.

Connelly v. United States: Two brothers who were the sole shareholders of the Crown C Supply company took out life insurance policies on themselves, on behalf of their company, so that the business could buy back either of their shares in the company if they passed away. This would ensure that the business could stay within the family if either of the brothers died. They also decided the company was obliged to purchase those shares if the other brother chose not to purchase them himself.

One of the brothers passed away, and the remaining brother decided he didn’t want to buy his deceased brother’s shares. The living brother filed the tax return for his brother’s estate and valued his brother’s shares at $3 million. The IRS audited that tax return, and during the audit, the living brother obtained an outside accounting firm’s assessment that the Crown C Supply was worth $3.86 million—excluding the $3 million value of the life insurance policy payout. The $3 million was excluded because it was automatically used to purchase the deceased brother’s shares, an obligatory expense for the company.

The IRS claimed that the $3 million could not be deducted from the company's value. It estimated the company’s worth at $6.86 million and demanded the deceased brother’s estate pay nearly $900,000 in back taxes. The district court, the appeals court, and the Supreme Court all sided with the IRS.

Becerra v. San Carlos Apache Tribe: The Indian Self-Determination and Education Assistance Act enables Native American tribes to establish their own healthcare programs instead of relying on the Indian Health Service, or IHS, of the U.S. Department of Health to do so. To manage the healthcare programs, the law requires the tribes to use all profits from Medicare, Medicaid, and private insurers to further their healthcare programs.

However, the law requires IHS to provide secretarial funding for the tribes’ healthcare programs and help cover expenses, such as overhead costs they incur. IHS must reimburse the tribes for the latter costs so that their healthcare programs stand on equal footing with those otherwise provided by IHS.

Two Native American tribes running healthcare programs under self-determination contracts with the IHS, the San Carlos Apache Tribe and the Northern Arapaho Tribe, sued the U.S. government for breach of contract. The tribes alleged they were not receiving help covering overhead costs, including contract support costs, that the self-determination contracts required them to receive from IHS. The Supreme Court sided with the two tribes, ruling IHS had to reimburse them for those costs.

Truck Insurance Exchange v. Kaiser Gypsum Co.: Two companies involved in manufacturing and shipping products containing asbestos, Kaiser Gypsum Co. and Hanson Permanente Cement, filed for Chapter 11 bankruptcy. They did so after facing thousands of asbestos-related lawsuits. Part of the U.S. bankruptcy code allows companies facing asbestos-related claims to set up a trust in their bankruptcy proceedings to assume responsibility for all present and future asbestos-related claims. That section of the bankruptcy code seeks to provide those seeking relief from personal injury a place to direct their claims while preventing those claims from disrupting the companies’ entities’ post-bankruptcy reorganization efforts. As a part of establishing the trust, the court overseeing the process must hear all interested parties’ concerns.

Kaiser and Hanson set up a trust through a reorganization plan. Truck Insurance Exchange provided insurance to Kaiser and Hanson. Under its contract with the companies, the insurance company was required to defend asbestos-related claims and reimburse the businesses up to $500,000 per claim. Both companies were required to pay only a $5,000 deductible per claim.

Under the reorganization plan, Truck was still required to defend asbestos-related claims on behalf of the trust after the bankruptcy proceedings. It argued that the way the trust was designed, with differing treatment for insured and uninsured claims, exposed it to thousands of fraudulent asbestos claims, possibly costing it millions of dollars. However, Truck alleged that the court overseeing the bankruptcy process did not properly consider Truck’s concerns on the matter. The court dismissed Truck’s concerns, and the court of appeals affirmed that decision. However, the Supreme Court ruled that the framework the court of appeals used was incorrect, as was its ruling. It ordered that Truck be heard on its concerns about the reorganization plan since it was an interested party.

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