UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION ____________________________________

: : : In re : : COLLINS & AIKMAN CORP : : Debtors. : ____________________________________:

CHAPTER 11 Case No. 05-55927 (SWR) (Jointly Administered)

LIMITED OBJECTION OF ACE AMERICAN INSURANCE COMPANY TO MOTION FOR ENTRY OF AN ORDER APPROVING PROCEDURES FOR (A) SETTLING NON-TAX CLAIMS, (B) SETTLING TAX CLAIMS AND (C) MAINTAINING THE CLAIMS REGISTER ACE American Insurance Company, a member of the ACE group of companies ("ACE"), by its undersigned attorneys, files this Limited Objection To Motion For Entry Of An Order Approving Procedures For (A) Settling Non-Tax Claims, (B) Settling Tax Claims And (C) Maintaining The Claims Register (Motion), and in support thereof avers as follows: Background 1. ACE issued various insurance policies to one or more Debtors (collectively, the

Policies). These Policies include GPA D35310514 (real and personal property issued on or about December 1, 2001);. DOXG21661314001 (excess D&O coverage issued on or about February 23, 2005); and CXC046707 (international coverage issued on or about December 1, 2003). (ACE Policies). 2. Debtors have filed this Motion seeking authority to settle claim amounts with

respect to claims filed by claimants who are not taxing authorities, defined in the Motion as Non-Tax Claims, in an amount not to exceed $200,000. (Motion, 10 - 11(a).)

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The Motion further provides for the settlement to be effective only upon notice to

counsel for the Debtors pre- and postpetition secured lenders and counsel to the Committee. (Motion, 11(d).) 4. Debtors provided ACE with a one (1) day extension of time to object to the

Motion, therefore, this Limited Objection to the Motion is timely. Objections to Motion 5. The Procedures for Non-Tax Claims proposed by the Debtors may modify the

terms and conditions of the ACE Policies. 6. In particular, the Procedures for Non-Tax Claims fail to provide notice to ACE of

the claims to which the ACE Policies might apply, and it appears to provide for the Debtors to enter into settlements without any input from ACE. 7. Pursuant to the ACE Policies, the Debtors are required to provide notice to ACE

of every occurrence that may result in a claim. In addition, under the ACE Policies, ACE may have the duty to defend claims. Under the ACE Policies, ACE also has the right to associate in the defense, investigation, and settlement of claims to which the insurance applies, and/or to control the defense, investigation and settlement of claims. In addition, Debtors also have an affirmative, continuing contractual obligations to defend and/or cooperate with ACE in the defense and investigation of all claims to which the insurance applies. 8. To the extent the Procedures for Non-Tax Claims fail to provide notice to ACE of

each claim to which the insurance applies, they are in violation of the ACE Policies. In doing so, the proposed Procedures for Non-Tax Claims proposed by Debtors unilaterally modify the Debtors' contractual obligations under the ACE Policies and, as such, violate and prejudice ACE's rights under the ACE Policies to resolve and possibly pay claims.

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The violation of Debtors contractual obligations under the ACE Policies could

vitiate any otherwise available insurance coverage for the claims. Accordingly, the failure of the Procedures for Non-Tax Claims to require Debtors to comply with their contractual obligations and to otherwise provide adequate treatment of the ACE Policies may excuse ACE from any further obligations to provide coverage or render other performance to Debtors under the ACE Policies. 10. ACE is also entitled to confirm that any settlements and/or allowed claims

resulting from the process will not purport to determine ACE's coverage obligations under the ACE Policies. 11. ACE also objects to the Motion and the Procedures for Non-Tax Claims to the

extent that they authorize Debtors to resolve claims without affording ACE an opportunity to review and object to such resolutions. 12. Based upon the foregoing, the Procedures for Non-Tax Claims should provide for

the following with respect to ACE: a. timely notice of Debtors attempt to resolve any claims to which the insurance might apply; b. the ability to participate in the settlement negotiations and/or to object to the proposed settlement; c. the ability to prevent Debtors from waiving any defenses to the claims; d. the ability to enforce Debtors continuing duties of cooperation under ACE Policies; e. the ability to prevent Debtors from settling a claim in a manner which ACE deems improper or unreasonable

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The Bankruptcy Code cannot be used to provide debtors or claimants with greater

benefits than those due under applicable non-bankruptcy law. The Bankruptcy Code cannot be used to alter the contractual rights of ACE or the contractual obligations of the Debtors under the ACE Policies. 14. Nothing contained in the Motion or the Procedures for Non-Tax Claims should be

deemed an adjudication or other determination of the extent of the ACEs coverage obligations under the ACE Policies. To the extent that Debtors seek to bring coverage disputes,

disagreements or claims under the ACE Policies, ACE objects to litigating any such disputes, disagreements or claims pursuant to the Procedures for Non-Tax Claims and this Court has no authority to adjudicate such coverage issues without the ACEs consent. Reservation of Rights 15. Nothing in this Limited Objection should be construed as a waiver by ACE of any

terms, conditions or defenses available under the ACE Policies and all such terms, conditions or defenses are expressly reserved. Similarly, nothing herein shall be construed as an

acknowledgment that any ACE Policies cover or otherwise apply to any Non-Tax Claim, or that such claims are covered or otherwise eligible for payment under any ACE Policies. ACE expressly reserves the right to object to coverage under any ACE Policies due to the failure of Debtors to cooperate in the defense of Non-Tax Claims. 16. Any of Debtors actions, or failures to act, pursuant to any Procedures for Non-

Tax Claims which prejudice ACE may result in a waiver or forfeiture by Debtors of any coverage under the ACE Policies. In that regard, ACE reserves the right to seek an adjudication, by a court of competent jurisdiction, that Debtors have waived or forfeited any available coverage under the ACE Policies with respect to any Non-Tax Claims resolved under the Procedures for Non-Tax Claims without ACE express written consent. -4-

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ACE reserves all of its rights to object to, or otherwise contest allowance of, any

Non-Tax Claims, notwithstanding Debtors purported waiver of any defenses; and to assert any claim against Debtors under the terms of the ACE. 18. Objection. WHEREFORE, ACE respectfully request that the relief requested by the Motion be denied to the extent that it adversely affects or otherwise prejudices its rights under the ACE Policies; and for such further relief as the Court deems appropriate. ACE further reserve the right to amend, modify and/or supplement this Limited

Dated: March 21, 2006

Respectfully submitted, PLUNKETT & COONEY, P.C.

By: /s/DAVID A. LERNER 38505 Woodward Ave., Ste. 2000 Bloomfield Hills, MI 48304 (248) 901-4010 dlerner@plunkettcooney.com P44829 and Jennifer L. Hoagland, Esquire Bazelon, Less & Feldman 1515 Market Street, Suite 700 Philadelphia, PA 19102 Telephone (215) 568-1155 Telecopier (215) 568-9319 Attorneys for ACE American Insurance Company
Blmfield.11877.60160.731571-1

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