Fund for Injury Victims Empty, so Judges Reopen Manville Case

Two judges supervising hundreds of asbestos injury lawsuits on Friday ordered the Manville Corp. bankruptcy case reopened to overhaul a financially ailing trust fund designed to compensate victims of asbestos-related diseases.

In a joint order, a federal judge and a New York state judge said the Manville Personal Injury Settlement Trust was out of money and suggested that the company advance it $200 million to $300 million so it can resume payments to victims.

The trust was formed in Manville’s 1988 reorganization, six years after it was driven into bankruptcy court by lawsuits over production of asbestos, the insulation and building material found to cause severe and sometimes fatal illnesses.

The trust came under fire last month because of a cash shortage induced by more cases, larger payouts and quicker settlements than expected. The trust told the judges that claimants filing this year wouldn’t get paid until 2004.

“Many more than a hundred thousand claimants all over the country and the limited assets cry out for a more workable and compassionate system,” U.S. District Judge Jack B. Weinstein and New York State Supreme Court Judge Helen E. Freedman said in an order.

The judges are supervising nearly 500 asbestos lawsuits against the trust and other defendants stemming from employment at the Brooklyn Navy Yard dating to the 1940s.

Last month, the judges sharply criticized trust management and said the bankruptcy court could lift an injunction barring asbestos victims from suing Manville directly. Currently, only the trust can be sued. On Friday, they supported keeping the injunction in place if changes in the trust are made.

As part of its Chapter 11 bankruptcy reorganization, Manville placed $2.5 billion in assets, mostly stock, into the trust. The company also agreed to contribute $75 million annually beginning in 1991 plus 20% of annual net income from 1992 until all claims are paid.

The trust told the judges this week that it had paid out almost all of its $800 million in cash. It said the fund has not been mismanaged, denying claims that hundreds of millions of dollars were paid to a few plaintiffs’ lawyers.

The judges said more than 130,000 remaining claims require an estimated $6.5 billion, and with incoming claims and costs, the trust needs at least $7.5 billion. But the trust now is worth only about $1.5 billion, they said.

The trust has paid an average of about $42,000 on each of the first 22,000 claims plus 8% administrative costs, the judges said.

They ordered Manville and the trust to return to bankruptcy court and attempt to make changes in the trust’s operation. If no changes are made by July 9, they promised action on their own.

The judges recommended replacing “first-in, first-out” lump sum payments with periodic installments based on claimants’ disease, age and financial needs. They said the trust should monitor claimants’ health to quickly pay those with advanced sicknesses.

“The trust cannot pay one widow in Brooklyn today and a widow living elsewhere--whose husband died of the same disease--20 years from now,” the judges wrote in a seven-page order.

But citing the trust’s weak financial position, the judges suggested that no interest payments be made to claimants on deferred payments. They also suggested that the trust cut administrative costs and fees paid to its own and plaintiffs’ attorneys.

Weinstein and Freedman said developing a “workable and fair compensation program” would eliminate the need to allow claimants to sue Manville directly. Allowing lawsuits against Manville would hurt the trust, the judges said, by reducing the value of its stock holdings. If Manville is protected against litigation the trust’s stock could grow 50% to $1.5 billion.

Manville stock rose 25 cents to $7.12 1/2 in New York Stock Exchange trading Friday.

Denver-based Manville issued a statement saying it was pleased that the judges supported continuing the injunction barring lawsuits against the company.

The firm, which makes fiberglass, forest, construction and other products, said it is “willing to discuss issues related to cash flow and liquidity of the trust.” It declined further comment on the court order.