IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF MICHIGAN ____________________________________ : : CHAPTER 11 : Case No.

05-55927 (SWR) In re : (Jointly Administered) : COLLINS & AIKMAN CORP : : Debtors. : ____________________________________: LIMITED OBJECTION OF THE ACE GROUP OF COMPANIES TO FIRST AMENDED JOINT PLAN OF COLLINS & AIKMAN CORPORATION AND ITS SUBSIDIARIES ACE American Insurance Company, Westchester Fire Insurance Company, and possibly other members of the ACE group of companies1 (collectively ACE), by and through their undersigned attorneys, hereby file this Limited Objection to the proposed First Amended Joint Plan of Collins & Aikman Corporation and its Subsidiaries (Plan), and in support thereof, aver as follows: Introduction 1. Debtor Collins & Aikman Corporation and its debtor affiliates (Debtors)

have submitted the Plan for confirmation by the bankruptcy court. 2. ACE issued various insurance policies to one or more Debtors

(collectively, the ACE Policies). 3. ACE objects to the proposed Plan for the following reasons:

Century Indemnity Company is the successor to certain companies that issued insurance policies to the Debtors. This Limited Objection does not concern those policies. 1

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a.

The proposed Plan anticipates that the coverage provided by the

ACE Policies will be available, but does not provide for the performance of the insureds obligations. By failing to provide for performance of the insureds obligations, the Plan may

void coverage that might otherwise be available. b. The proposed Plan restricts and interferes with ACEs performance

under the Policies, and for this reason as well may void coverage that might otherwise be available. c. The proposed Plan limits ACEs rights under the Policies and

applicable law, and for this reason as well may void coverage that might otherwise be available. d. The proposed Plan prevents ACE from asserting its rights under

the Policies and applicable law, including without limitation, ACEs rights of recoupment, setoff, rescission and subrogation. e. The proposed Plan provides that none of the Debtors defenses,

Causes of Action or other rights are waived, excused, limited, etc., and that all of the Debtors rights, including rights of recoupment and set-off, are reserved, etc., but does not provide that ACEs defenses, Causes of Action or other rights are reserved, and/or that nothing in the Plan and any Order confirming the Plan will waive, excuse, limit, restrict, diminish, expand or otherwise alter any of the terms, conditions, limitations and exclusions under the ACE Policies, or otherwise indicate that all of the terms, conditions, limitations and exclusions of the ACE Policies remain in full force and effect. Background 4. On May 17, 2005, (the Petition Date) the Debtors filed their voluntary

petitions for relief pursuant to Chapter 11 of Title 11 of the United States Code (Code),

in the United States Bankruptcy Court for the Eastern District of Michigan (the "Court"). These cases are jointly administered under the above caption. 5. No trustee or examiner has been appointed in the Chapter 11 cases. The

Debtors are operating their businesses as Debtors-in-Possession. 6. On or about February 9, 2007, the Bankruptcy Court approved the

Disclosure Statement with respect to the Plan. 7. Pursuant to the Notices of hearing and deadlines with respect to the

proposed Plan, including the Order granting a continuance, ACE files this Limited Objection to the Plan. ACEs Agreements With The Debtors 8. The ACE Policies provide both pre- and post-petition coverage to the

Debtors and their non-debtor affiliates, for real and personal property, international coverage and excess liability, including directors and officers liability, all as set forth in the Policies themselves. 9. The ACE Policies require the Debtors to pay premiums, to provide notice

of claims, and under some policies, to defend claims and pay losses and expenses up to certain retentions. 10. The ACE Policies also give ACE rights to participate in the defense and

settlement of claims in those instances where ACE does not have a duty to defend. 11. The Debtors are obligated to cooperate with ACE in defending claims that

may be covered under the Policies.

12.

Under the Policies and applicable law, ACE has certain defenses, claims

and rights, including without limitation, rights of recoupment, set-off, rescission, and subrogation. 13. ACEs rights under the Policies were recognized by the Debtors and the

Court in the Order approving the Debtors motion to establish procedures for settling certain claims. (Docket entry no. 2485.) 14. There are many other provisions in the Policies, including those, without

limitation, which obligate the Debtors to make records available, to cooperate in the investigation and defense of claims, and to preserve and transfer to ACE any rights the Debtors have against others to recover all or any part of any payment that ACE makes under the ACE Policies. 15. ACE also has the right under the Policies and applicable law to rescind the

Policies under certain circumstances. 16. All of these rights and obligations of ACE, the Debtors and the Debtors-

in-Possession under the ACE Policies are ongoing and continuing. Disclosure Statement and First Amended Plan 17. The Plan is a liquidation plan that will be funded by the sale of the

Debtors assets. 18. One motion to approve the sale of one of Debtors divisions has been

approved and two more are currently pending before the Bankruptcy Court. Objections to the latter two motions and/or the assignment of certain contracts with respect to those motions are due after the due date for objections to the Plan.

19.

At least two trusts are established under the Plan, one for certain secured

and priority creditors (Post-Confirmation Trust) and the other for the remaining creditors (Litigation Trust). Unless an asset is sold to a purchaser of Debtors assets, all other assets will be transferred to the Post-Confirmation Trust. (Plan, Art. V, A.1.) 20. The Plan contemplates that some claims against the Debtors will be paid,

in whole or in part, from insurance proceeds. (Plan, Arts. IV, H and V, E.) 21. However, the Plan also provides that with respect to certain Policies,

neither the Debtors nor the Trusts will be satisfying any premium obligations owed to ACE under the Policies. (See e.g., Plan, Art. V, E.) 22. It is not clear whether the Debtors or the Trusts will be satisfying any

other obligations, and/or whether any other Policies will be assumed or rejected. (Plan, Art. V., G, and Exhibits E and F, list of executory contracts to be assumed or rejected, subject to modification through and including 90 days after the Effective Date.) 23. It is also not clear whether any Policies issued post-petition will be

terminated or performed by the Post-Consummation Trust. (Plan, Art. V, F.) 24. Finally, certain claims are being assigned to the Litigation Trust. It is not

clear whether that includes any alleged Causes of Action against ACE included in Amended Exhibit A to the Plan. 25. At this point, therefore, it is not clear whether the ACE Policies and the

real and personal property covered by some of the ACE Policies, are going to be transferred to the Post-Confirmation Trust or allegedly sold. It is also not clear whether and/or how the Debtors reciprocal obligations related to the pre-petition coverage

provided by the ACE Policies are going to be performed. (Plan, Art. V, E.) It is also not clear whether and how the Debtors reciprocal obligations related to the post-petition coverage provided by the ACE Policies are going to be performed. (Plan, Art. V., P F.) 26. At the same time, it appears that the Plan preserves the Debtors defenses,

Causes of Action and rights under the ACE Policies, while ACEs defenses, Causes of Action and rights, including ACEs rights of recoupment, set-off, rescission and subrogation are being released, enjoined and discharged. (See, Plan, Art. IV, G, Amended Exhibit A to Plan, Art. VI, H, Art. XII) 27. Other causes of action, to which ACE may be subrogated, are also to be

transferred to the Litigation Trust. (Id.) 28. Thus, the Plan tries to obtain the benefits under the ACE Policies without

providing for performance of the Debtors obligations. 29. Finally, the Plan appears to be assigning rights under the Policies to

different Trusts, and therefore splitting up the Policies. 30. The Plan sets forth a disputed claim resolution procedure, but does not

address the Settlement Procedures Order entered by the Court on March 23, 2006, or otherwise allow for the involvement of ACE to the extent required under the ACE Policies. (Plan, Art. VII.) In particular, the Plan provides only for notice to certain parties and only for the Debtors, the Post-Consummation Trust, and for some claims, the Liquidation Trust, to object to and/or to settle claims. (Id.)

Objections to the First Amended Plan 31. The proposed Plan does not provide adequate means for implementation to

the extent it relies upon coverage provided by any of the ACE Policies, but fails to provide for performance of the Debtors reciprocal and continuing obligations. 32. The proposed Plan does not provide adequate means for implementation to

the extent it relies upon coverage provided by any of the ACE Policies, but limits, interferes, releases, and enjoins ACE from exercising its rights under the terms, conditions, limitations and exclusions of the Policies and under the applicable law. 33. To the extent the ACE Policies contain anti-assignment provisions, the

Debtors cannot assign any of the ACE Policies. 34. The proposed Plan does not provide fair treatment, to the extent the Plan

allows the Debtors to assume and/or assign some or all of the ACE Policies but does not provide for performance of the Debtors reciprocal and continuing obligations. The Debtors cannot assume part of an executory agreement and reject another part. 35. ACE objects to the proposed Plan because the reservation of rights

provisions relate to the Debtors only, and there are no Reservation of Rights or insurance neutral provisions which explicitly state that nothing in the Plan or the Order confirming the Plan waives, excuses, limits, diminishes, expands or otherwise alters or amends the defenses, claims and rights of ACE under the Policies and that ACEs defenses, claims and rights under the Policies and applicable law are expressly preserved and all terms, conditions, limitations and exclusions remain in full force and effect.

36.

ACE further objects to the proposed Plan because the Plan indicates an

intention to have insurance coverage available for claims, but the proposed dispute resolution procedures ignore and possibly violate the insurers duties and/or right to defend claims against the Debtors and/or participate in the defense and/or settlement of claims. As a result, the proposed dispute resolution procedures may jeopardize the coverage that might otherwise be available under the Policies. 37. ACE objects to the release and injunction provisions set forth in the

proposed Plan because ACE may be prevented by these provisions from exercising its rights and duties under the ACE Policies. In particular, the release and discharge provisions may prevent ACE from investigating, administering, settling and/or defending claims that may be covered under the Policies for which the insurers have a duty to defend. As a result, the proposed release and injunction provisions may also jeopardize coverage and prejudice the insurers ability to perform their obligations. 38. Finally, the proposed release and injunction provisions may impair ACEs

rights under the Policies and applicable law, including without limitation, ACEs rights of recoupment, set-off, rescission and subrogation. 39. The proposed Plan and/or any Order confirming the Plan should expressly

state that nothing in the Plan or the Order confirming the Plan waives, excuses, limits, diminishes, expands or otherwise alters or amends the defenses, claims and rights of ACE under the Policies and applicable law, and that all of ACEs defenses, claims and rights under the Policies and applicable law are expressly preserved, including without limitation, all rights of recoupment, set-off, rescission and subrogation, and all terms, conditions, limitations and exclusions of the Policies remain in full force and effect.

Reservation of Rights 40. ACE expressly reserves, and does not waive, all of its rights, obligations,

claims and defenses under the ACE Policies and applicable law. ACE further reserves all rights to assert any and all such rights, obligations, claims and defenses in any appropriate manner or forum whatsoever (including, without limitation, arbitration, the United States District Court or any state court). Nothing contained in this Limited Objection shall be deemed to expand any coverage that may otherwise be available under any ACE Policies or any rights to payment under any settlements. 41. ACE further reserves all of its rights to raise the issues contained in this

Limited Objection and any other related issues in any contested matter and/or adversary proceeding including, without limitation, any adversary proceeding requesting any declaratory and/or injunctive relief with respect to any of the contractual rights that may be adversely affected by confirmation of the Plan. 42. ACE further reserves all of its rights to object to any claim for coverage

under any of the ACE Policies and/or any claim for payment under any settlement agreement, to seek rescission of any Policy, and/or to seek declaratory and/or injunctive relief to the extent that treatment of its rights under the insurance policies and/or confirmation of the Plan violates any term, condition, limitation or exclusion of any of the Policies and/or settlements or gives rise to any defenses on behalf of ACE. 43. Nothing in this Limited Objection shall be construed as an

acknowledgment that any Policy or settlement agreements, if any, cover or otherwise apply to any claims, losses or damages on account of any Claims or otherwise, or that any such claims or Causes of Action have merit.

44.

ACE reserves the right to seek an adjudication that Debtors, individually

or collectively, have waived or forfeited any available coverage under the insurance policies. 45. ACE also reserves its rights to amend, modify or supplement this Limited

Objection in response to, or as a result of any discovery being conducted in connection with modifications made to the proposed Plan and/or confirmation of the Plan and/or any submission in connection with the Plan or these Chapter 11 Cases filed by any party-ininterest. 46. ACE also reserves the right to adopt any other objections to the filed by

any other party. Conclusion 47. For the reasons set forth above, the proposed Plan should not be confirmed

unless the objections raised herein are resolved. WHEREFORE, for all the foregoing reasons, ACE American Insurance Company, Westchester Fire Insurance Company and other members of the ACE group of companies, respectfully request the Court to not confirm the Plan unless the limited objections raised herein are addressed, together with such further relief as the Court deems appropriate.

10

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 Bazelon, Less & Feldman

By: /s/JENNIFER L. HOAGLAND Jennifer L. Hoagland, Esquire 1515 Market Street, Suite 700 Philadelphia, PA 19102 Telephone (215) 568-1155 Telecopier (215) 568-9319 Attorneys for ACE American Insurance Company and West Chester Fire Insurance Company Dated: May 7, 2007
Blmfield.11877.60160.870745-1

11

IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF MICHIGAN ____________________________________ : : CHAPTER 11 : Case No. 05-55927 (SWR) In re : (Jointly Administered) : COLLINS & AIKMAN CORP : : Debtors. : ____________________________________:

CERTIFICATE OF SERVICE
The undersigned certifies that on May 7, 2007 a true and correct copy of the

foregoing Limited Objection of ACE American Insurance Company To Confirmation of The First Amended Joint Plan of Collins & Aikman Corporation and its Debtor Subsidiaries was served upon the following either electronically or via facsimile at the phone numbers listed:
Kirkland & Ellis, LLP Richard M. Cieri, Esq. Citigroup Center 153 East 53rd Street New York, NY 10022 (212) 446-4900 (Facsimile) rcieri@kirkland.com (E-mail) Kirkland & Ellis, LLP Attn: David L. Eaton, Esq. Ray C. Schrock, Esq. Marc J. Carmel, Esq. 200 East Randolph Drive Chicago, IL 60601 (312) 861-2200 (Facsimile) deaton@kirkland.com (E-mail) rschrock@kirkland.com (E-mail) mcarmel@kirkland.com (Email) Butzel Long, P.C. Thomas B. Radom, Esquire 100 Bloomfield Hills Parkway Bloomfield Hills, MI 48304 (248) 258-1439 (Facsimile) Carson Fischer, P.L.C. Joseph Fishcer, Esquire Lawrence A. Lichtman, Esquire 4111 West Andover Road Second Floor Bloomfield Hills, MI 48302 (248) 644-1832 (Facsimile) jfischer@carsonfischer.com (Email)

Akin, Gump, Strauss, Hauer & Feld L.L.P. Michael S. Stamer, Esquire 590 Madison Avenue New York, New York 10022 (212) 872-1002 (Facsimile)

Simpson Thacher & Bartlett, LLP Peter V. Pantaleo, Esquire Alice B. Eaton, Esquire 425 Lexington Avenue New York, New York 10017 (212) 455-2502 (Facsimile)

Wachtell, Lipton, Rosen & Katz Harold S. Novikoff, Esq. Gregory E. Pessin, Esq. 51 West 52nd Street New York, New York 10019 (212) 403-2000 (Facsimile)

U.S. Department of Justice Office of the United States Trustee 211 West Front Street, Suite 700 Detroit, MI 48226 (313) 226-7952 (Facsimile)

Respectfully submitted, PLUNKETT & COONEY, P.C.

By: /s/DAVID A. LERNER Attorneys for ACE American Insurance Company and West Chester Fire Insurance Company 38505 Woodward Ave., Ste. 2000 Bloomfield Hills, MI 48304 (248) 901-4010 dlerner@plunkettcooney.com P44829

Blmfield.11877.60160.870744-1