Friday, October 19, 2007

The Claimants vs. The Asbestos Industry

Battalions of asbestos attorneys, paralegals, investigators, doctors, academics, claims managers, claims adjusters and the like count on asbestos litigation for all or a substantial portion of their income. The way in which the litigation has unfolded in the past couple of decades has created certain distortions in the way the "system", if it can be called that, works. These distortions do not, generally, play out in favor of mesothelioma victims, who are the most severely injured of those unfortunate enough to have been exposed to asbestos. Remember, those individuals who have uncontested diagnoses of mesothelioma have highly meritorious cases: in addition to the severity of the disease process, the fact is that the only known cause of the disease is asbestos exposure (smoking, for example, has nothing whatsoever to do with it) and the level of exposure required is quite low, especially comparison to the level of exposure required for a disease like asbestosis.

In the vast majority of the early, pioneering cases in the asbestos litigation, however, the plaintiffs were claiming non-malignant diseases (as is the case today). The two categories were scarring of the internal tissue of the lung (asbestosis) and scarring of the lining of the chest cavity (pleural scarring, also referred to as pleural thickening, pleural plaques or pleural encasement, depending on the manifestation of the scarring). The plaintiffs in these early cases were asbestos insulation workers (also commonly called "pipecoverers" or "insulators") who worked at construction sites such as power stations, chemical plants and refineries, and workers who performed the same sorts of tasks in shipyards (commonly called "laggers"). It soon developed that steam fitters and other trades also had very high rates of disease, and those unions were accordingly screened as well, resulting in further influxes of claims into various state and federal court systems throughout the country. This brings us up to the early 1980s.

By the beginning of 1982, it was beginning to become clear that the asbestos-related legal liabilities of the American construction products industry and their insurance companies were going to be mind-boggling. There had been other, massive influxes of product liability personal injury cases before (the most notable up to that time was probably DES, a morning-sickness remedy that caused birth defects to the children of the mothers who took it), but nothing on this scale. Excess level insurance companies (an excess policy for a business is something akin to the "umbrella" coverage offered to individuals on home and/or automobile policies) with low reserves suddenly found themselves being told to fork over millions, which they sometimes couldn't come up with. (A rough analogy with automobile insurance would be if every insured driver in the country, on the same day, got into a massive accident — the system would collapse, because its financial foundations were engineered under the premise that most policyholders don't get into accidents, at least not at the same time). What is remarkable about all this, at least today, is that this was almost entirely based on non-malignant cases — mesothelioma and lung cancer cases comprised a small fraction of the total claims (there are, for example, only about 2500 mesothelioma cases diagnosed per year in the United States).

It is important to remember that the plaintiffs in these cases had, for the most part, sustained extremely heavy occupational exposure to asbestos from the end of (or for the shipyard plaintiffs, during) the Second World War until the early to mid-1970s. Severe asbestosis and severe pleural thickening or encasement are horrendously debilitating diseases, in which the victim is essentially strangled, over a long period of time, by his own lung tissue. In addition, these diseases, after the onset of significant findings on X-ray and pulmonary function testing, are generally progressive — you keep getting worse, even though the asbestos exposure has stopped. As a result, at least in some parts of the country, verdicts in these cases tended to be quite large, even in cases where the objective findings of disease were arguably minimal or hotly contested.

The handwriting was on the wall. The first significant defendant to bail out was Unarco, which filed for bankruptcy in early 1982. Unarco's liability was primarily based on the Unibestos product line, which it had sold to Pittsburgh Corning in 1962. This was not considered, at the time, to be a particularly significant event, as the assets and insurance coverage of Unarco had been limited. Later in 1982, however, Johns-Manville filed for bankruptcy protection. This sent shock waves throughout the country and, in fact, the world, as Johns-Manville was a gargantuan, diversified and quite profitable Fortune 500 company with a healthy balance sheet, so long as the asbestos liabilities were kept off it.

What allowed J-M to pull this off was an obscure change in the bankruptcy laws. Under the old bankruptcy law, debts, such as personal injury liabilities, could only be discharged (i.e., eliminated) if they were liquidated. This means that the debt has been reduced to a sum certain. If you owe American Express ten thousand bucks, that is a liquidated debt. If Paula Jones is suing you for pulling your pants down, that is most assuredly not a liquidated debt, as the amount of money a jury might award (which would be the amount of the debt) is currently unknown. Asbestos personal injury claims, such as those for mesothelioma, are unliquidated until there is a jury verdict. What the new law did was allow liable companies to limit or eliminate liabilities for unliquidated personal injury claims. Since the J-M bankruptcy, a number of significant asbestos defendants have also sought or been forced into bankruptcy protection, including Keene, Eagle-Picher and Celotex. Meanwhile, bankruptcy has been used as a shield by companies in other mass-product liability contexts, such as A.H. Robbins (Dalkon Shield IUD) and Dow-Corning (silicone gel breast implants).

As the litigation has progressed through the 1980s and into the 1990s, the trend of what are called "mass settlements" has emerged. This is only logical, as claims that are grouped by the thousand have to be handled en masse — there is no other way. This type of settlement comes into being when an attorney or law firm representing a large number of asbestos plaintiffs reaches at least a tacit agreement with an asbestos company on what certain types of cases are worth, and what that company's share of that payment should be. A system falls into place where, for each claimant, the attorney submits medical records and evidence of exposure to that company's product, and the company evaluates this submission and writes a check, generally based on the type and severity of the disease the plaintiff has. This is generally done on a "matrix," where, for example, the company will pay x dollars for a mesothelioma, y dollars for a lung cancer, z dollars for asbestosis, and so forth. These types of settlements started to take place relatively early in the litigation with boiler manufacturers and gasket/packing manufacturers whose share of the total liability in many cases was considered (not always correctly) to be much lower than that of the thermal insulation manufacturers.

By settling in this manner, these companies were able to accomplish two objectives. First, they were able to contain and project their total liability based on a past history of amount paid per claim and the mix of claims (how many mesothelioma versus lung cancer versus non-malignancy claims). These are two very important concepts for figuring out the dynamics at work, and they will be revisited later. Second, the companies saved the costs of defending the cases, which include attorneys' fees, expert witness and consulting fees, and other miscellaneous expenditures. These are what are known as "transaction costs," yet another concept that drives the asbestos litigation machine.

What the companies gave up in exchange for these items was the opportunity to scrutinize and evaluate the merits of each claim, which results in some weaker claims being paid where perhaps that claim would not have been successful under the harsh light of the court system. This is not so bad for the companies, though, because although some weak claims are getting paid, the quid pro quo is that a few stronger claims, which could conceivably result in serious liability, are being disposed for a set, relatively low amount, especially when compared with what a jury might be inclined to do.

There are also important advantages to most plaintiffs with these arrangements. The plaintiff gets some cash quickly, which is important when you have big medical bills to pay. Even plaintiffs with mesothelioma have traditionally done well under these types of arrangements, because the serious liability and correspondingly high settlements and verdicts on those cases traditionally came from the manufacturers of thermal insulation, sprayed fireproofing, and other industrial construction products. Those manufacturers did not, generally, undertake mass settlements until later in the litigation.

In the meantime, other developments were taking place. In 1985-86, most of the leading defendants in the litigation, along with their insurance companies, formed an entity called the Asbestos Claims Facility, or ACF (also known as the "Wellington Group"). The idea was to pool resources in order to litigate and settle claims as a group. This entity dominated the litigation, but only for a couple of years. Internal disputes arose, which was really not surprising. Owens-Corning dropped out of the Asbestos Claims Facility in the Fall of 1988, followed closely by Eagle-Picher Industries. The ACF officially dissolved shortly thereafter, leaving some of the original members to re-form into the Center for Claims Resolution, or CCR (for more on this, see the GAF article). Johns-Manville, in bankruptcy since 1982, emerged in 1988 as the "Manville Personal Injury Compensation Fund," settled a whole pile of cases and then ran out of money again (the Fund now pays ten cents on the dollar). Eagle-Picher settled all its remaining cases and went into bankruptcy in 1989; Celotex, Keene and H.K. Porter (a cloth manufacturer) all went into bankruptcy in 1990. A somewhat different twist was executed by Raymark, who had founded a company called Raytech to take over the assets of Raymark without the asbestos liabilities. The courts did not buy it, and Raytech filed for bankruptcy shortly thereafter.

In 1990, an entity made up of federal judges, called the Judicial Panel on Multidistrict Litigation stayed (that is, froze, for the time being) all asbestos cases pending in federal courts around the country. These cases were then all transferred to a single judge in Philadelphia for all further proceedings except trial. This is what is known as "the MDL." This effectively brought much of the asbestos litigation in the country to a grinding halt. Plaintiffs' law firms turned around and started filing cases in the state courts, where the MDL Panel had no jurisdiction, but it would take several years, both for the cases to start to come to trial (at least in most states) and for the state court systems to get geared up to organize and manage the cases.

It was against this backdrop that the next developments came about. The CCR defendants attempted, in cooperation with some plaintiffs' attorneys, to fashion an involuntary "class action" that would take their claims out of the court system and force plaintiffs to settle for varying amounts under something like the "matrix" payments used in settlement agreements. This scheme, known as the "Georgine" class action, was bitterly opposed by many plaintiffs' attorneys as unfair to their clients, and was eventually (last year) thrown out by the United States Supreme Court, putting all the claims against the CCR defendants back into the court system.

In a parallel development, other major defendants in the litigation began to negotiate mass settlements with plaintiffs' attorneys, along the lines discussed previously, but with more bells and whistles. Some, for example, contain a provision that the plaintiffs' attorney, in future cases, is bound to recommend to his or her individual clients that they accept the settlement amounts set forth in the agreement — if the client refuses, the attorney is required to tell that client that he will have to find another lawyer (in many locales, asbestos plaintiffs' attorneys had virtual monopolies, until recently). Furthermore, under such an agreement, the attorney is forbidden from accepting a referral fee for sending that client to another attorney! This is no doubt intended to give the plaintiffs' attorney the needed incentive to make quite sure that every one of his or her clients accepts the settlement amount under the agreement. Of course, in many instances, the client is not aware that the attorney's recommendation to settle that client's case is based not only on the attorney's skill, knowledge and experience, but also on the fact that the attorney is contractually bound by an agreement (that may predate this attorney-client relationship) to recommend that particular amount. As the settlement agreements of this type may also contain a confidentiality clause, the client is generally not told about the terms (or even the existence) of the agreement. This is problematic when the agreement is with a defendant who may have a major chunk of the liability in a given case.

There is another problem with these types of arrangements as they relate to plaintiffs in mesothelioma cases. Generally, these are the cases that the asbestos companies fear. Most plaintiffs' asbestos attorneys, however, have a full range of cases, from clients suffering with mesothelioma (the strongest cases) to clients with minimal non-malignant disease (the weakest). As one might expect, there are often far more weak cases in a given attorney's inventory than there are strong ones. When a plaintiffs' attorney is negotiating a mass settlement of his or her entire "inventory" of cases with an asbestos company (or, as used to be more common, a settlement of a group of cases scheduled together for discovery and trial), the mesothelioma cases can wind up being used as leverage to increase the amounts paid on the weaker cases. The problem with this, of course, is that if a company is willing to pay extra money to settle mesothelioma cases, that money should logically go to the clients with mesothelioma, not the clients with minimal bilateral pleural scarring. The result of all this, theoretically, is that the mesothelioma cases wind up with less than they would if they were standing alone, and the weaker non-malignancy cases wind up with correspondingly more. Again, this is a problem when these types of agreements are used to settle with a defendant that has a major share of the liability in a given case or group of cases.

Yet another problem arises with the provisions under these agreements for future cases. There have been allegations raised that certain law firms have been sponsoring and continue to sponsor mass medical screenings of workers with minimal asbestos exposure, in order to ram these cases through settlement agreements, and in order to generate leverage to reach other settlement agreements. It has also been alleged that this is being done with medical professionals who are perhaps more pliable than they should be in grading x-rays and conducting Pulmonary Function Tests (PFTs) to diagnose asbestosis. The Manville Trust has used these allegations as a pretext to audit virtually all of its asbestosis claims, tying up compensation payments, and some PFT labs have been sued by asbestos companies, who have alleged fraudulent test results. While none of this has a direct application to mesothelioma cases (nobody has ever figured out how to fake one of those), it could have an indirect application, because the resources of the asbestos companies eaten up defending and settling questionable non-malignant cases will obviously not be available to compensate those individuals with mesothelioma.

Unfortunately, the "solutions" to the asbestos litigation that have been proposed, such as the Georgine class action and legislation pending in Congress, victimize all persons with asbestos related injuries, including those with mesothelioma, lung cancer and disabling non-malignant conditions, by cutting off access to the courts, and substituting panels of doctors and bureaucrats who will be oriented toward the asbestos industry.

Recently, a coalition called The Asbestos Alliance, which includes The National Association of Manufacturers and is allied with certain lawyers who represent mesothelioma victims has been urging Congress to prohibit the filing and litigation of marginal non-malignant claims. The idea is to preserve the assets of the remaining defendants to compensate mesothelioma and other cancer victims.


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