By Emily Chasan

NEW YORK, March 2 (Reuters) - A U.S. judge has rejected a bankruptcy reorganization plan from floor covering maker Congoleum Corp CGMC.PK and ordered dismissal of its more than five-year-old Chapter 11 bankruptcy case.

Congoleum Corp, which is appealing the ruling, filed for bankruptcy protection in December 2003, citing a need to resolve legal claims against the company related to the use of asbestos in its products decades ago.

In an opinion on Feb. 26, U.S. Bankruptcy Judge Kathryn Ferguson, wrote that the company had submitted an "unconfirmable" bankruptcy plan, citing issues with payments to two lawyers for some of the asbestos claimants.

A group of insurance companies involved in the case had previously asked the judge to reject Congoleum's reorganization plan, saying the company's bankruptcy plan violated the bankruptcy code.

The insurance companies claimed that the plan allowed clients of the two attorneys to receive preferential treatment, the lawyers to receive $1 million each in payouts, and Congoleum to be released from most of its legal liability for the asbestos case. The insurers would then be left with the liability.

The two plaintiffs' lawyers, Perry Weitz and Joseph Rice, did not immediately return calls for comment.

The bankruptcy dismissal is effective 20 days from the date of the ruling. If the ruling stands, the company will lose protection from creditors and be forced to deal with the asbestos claims in civil court.

Congoleum, founded in 1886, has more than 900 employees and four manufacturing facilities. According to its website, it is known for inventing "no wax" vinyl flooring.