PITTSBURGH--Asbestos defendant Federal-Mogul Corp. is hoping to overcome several final hurdles to its Chapter 11 reorganization plan following closing arguments on the plan's confirmation in a federal bankruptcy court last week.

Two of Southfield, Mich.-based Federal-Mogul's liability insurers--Travelers Indemnity Co. and Employers Insurance Co. of Wausau--are objecting to one of two versions of the plan, arguing that it impairs their policy rights and fails to comply with bankruptcy rules.

Both insurers told a U.S. bankruptcy judge last week that they will appeal if the plan is confirmed over their objections.

Separately, Hartford Financial Services Group Inc. has refused to join five other insurers in a settlement involving PepsiAmericas Inc., a former owner of a Federal-Mogul manufacturing unit. Minneapolis-based PepsiAmericas had objected to both versions of the plan but agreed to drop its objections with the consent of its insurers. Hartford's refusal has cast doubt on the Pepsi-Cola bottler's participation. A PepsiAmericas spokeswoman declined to comment.

Federal-Mogul is pushing for confirmation of either version of its plan so that it can exit Chapter 11 before year end, when favorable terms on a $3.5 billion exit financing package are set to expire and would have to be renegotiated.

Lawyers involved in the case said they are uncertain how quickly U.S. Bankruptcy Judge Judith K. Fitzgerald will rule on the plan. Another hearing is scheduled for this week.

Auto parts maker Federal-Mogul filed for Chapter 11 protection in 2001, deluged with asbestos injury claims related to brake pads, gaskets and other products it manufactured.

After several years of negotiations and settlements with insurers and other parties, the company filed a fourth amended reorganization plan earlier this year. The plan would create a series of trust funds to handle seven separate "streams" of asbestos claims arising from different Federal-Mogul operations, including its Felt Products Manufacturing Co. unit, its Vellumoid gasket division and businesses it acquired from Pneumo Abex Corp.

The trust funds would receive a majority stake in the reorganized Federal-Mogul's common stock along with proceeds of insurance recoveries.

Travelers and Wausau have objected to the plan's treatment of Felt Products and Vellumoid claims. The insurers argue that the plan violates bankruptcy rules because a trust subfund intended to cover the claims would be funded only with insurance proceeds, not with stock or other contributions from Federal-Mogul. A trust fund for the claims isn't even necessary, insurers add, because they amount to a small fraction of Federal-Mogul's overall liabilities and have large policy limits available to cover them.

PepsiAmerica's objections, meanwhile, relate to Pneumo Abex, a predecessor of which the bottling company owned in the 1970s and 1980s.

Two versions of Federal-Mogul's plan differ mainly in how they treat Pneumo Abex claims. The "A" version of the plan would channel all of these claims into a trust and bar further claims against Federal-Mogul and a previous owner of the business, Cooper Industries Inc. The "B" version would protect only Federal-Mogul.

PepsiAmericas had objected to both versions on the grounds that they would tap PepsiAmericas policies during the period it owned Pneumo Abex to fund Pneumo Abex claims.

While PepsiAmericas later agreed to drop its objections with insurers' agreement, it was unclear late last week whether the bottler would maintain that stance.

Federal-Mogul saga

Major events in the history of Federal-Mogul Corp.