Girding for Battle : Dow Corning Prepares for Flood of Lawsuits Over Breast Implants

By SUSAN MOFFAT

March 13, 1992 12 AM PT

TIMES STAFF WRITER

Facing hundreds of lawsuits and threats of thousands more over its breast implants, Dow Corning is girding itself to handle financial liabilities of still unknown proportions and taking measures to protect its hugely successful business of supplying silicone to industries including aerospace, automobiles and computers.

The company is appealing a recent jury verdict of $7.3 million in damages by a woman who said her implants caused connective tissue disease, and it argues vigorously that it has no liability in the case.

Although Dow Corning’s cash position is strong, with a debt-to-capital ratio of 26%, the controversy over breast implants is beginning to tighten access to credit.

Chief Financial Officer Edward Steinhoff said the company has stopped borrowing in the short-term commercial paper market because lenders are concerned about the firm’s situation. He declined to discuss whether Dow Corning’s banks were adjusting its credit line in response to potential liabilities.

But, he said, “we don’t see anything limiting our getting the money we need at a reasonable cost. We just have to work harder.”

So far, Dow Corning is saying it doesn’t expect lawsuits to be a threat to the company. The company said recently that it has $250 million in insurance to cover possible claims. Lawrence Reed, Dow Corning’s chief operating officer, earlier said, “We believe we have reserves adequate for what we know today.” The company already announced that it had set aside $25 million to handle costs of shutting down its breast implant manufacturing business in the fourth quarter of 1991.

But J. Douglas Peters, a Detroit attorney who has filed a number of suits against Dow Corning, said he figures that the company’s eventual liability could run from $1 billion to $2 billion.

Peters and many plaintiffs’ lawyers argue that the company may be in no rush to settle lawsuits, waiting instead for cases to accumulate so that it can make a case for a Chapter 11 bankruptcy filing--a process that could mitigate the ultimate payout and might not necessarily be disruptive to the company.

Reed countered that the company is “absolutely not thinking in terms of bankruptcy” and said the bulk of the company’s product lines are going strong.

Peters noted that in another case involving a medical device, A. H. Robins, maker of the Dalkon Shield intrauterine contraceptive, filed for bankruptcy protection in 1985 after lawsuits by women and their families who said the IUDs caused infertility, miscarriages and even death.

A. H. Robins sought protection when liability from hundreds of thousands of claims from women exceeded its assets. Under Chapter 11 bankruptcy protection, the company set aside $2.4 billion to settle the suits, and sold itself to giant American Home Products in 1989 in a $700-million stock swap.

Many women who had the devices complain that the bankruptcy settlement unfairly limited their compensation, despite the fact that the restructured company enjoys strong sales of such popular products as Chap Stick and Robitussin cough syrup.

As of mid-February, Dow Corning said about 200 lawsuits relating to its breast implants had been filed. But more are being filed daily, and some lawyers are predicting that tens of thousands may be filed by some of the estimated 1 million to 2 million women who have breast implants made by various manufacturers, including Bioplasty, Mentor and McGhan.

Dow Corning may be liable for injuries caused by other makers’ implants because they supply the silicone gel that fills many of them, plaintiffs lawyers said.

Sal Liccardo, a San Jose lawyer, has filed about 110 suits against Dow Corning and other implant makers, is preparing about a hundred more and is getting 15 to 30 calls a day from women who say they have health problems related to the implants.

Peters said his firm is preparing more than 150 cases after about 400 phone calls from women with implants. He expects damage awards of about $500,000 for each plaintiff, and, he said, there may be well over 20,000 lawsuits. About 700,000 women have implants made by Dow Corning, Peters said. It could take six to 10 years of litigation before women can collect any money, he said.

Despite disaster scenarios laid out by lawyers, some industry analysts are relatively optimistic about Dow Corning’s ability to handle the suits without taking extraordinary measures. Alex Henderson, an analyst with Prudential Securities Research, said he figures that Dow Corning could handle up to a $3.6-billion pretax charge against earnings for potential liability.

The interest on that amount of liability would come to about $220 million a year, about equivalent to the company’s 1991 operating profit, Henderson said. He noted that outside the breast implant business, most of Dow Corning’s product lines are doing well.

Dow Corning is a 50-50 joint venture of Dow Chemical and Corning Inc. Both companies said they have no liability because Dow Corning is independently managed. But some lawyers believe that suits could reach as far as the parent companies, especially if Dow Corning runs out of assets to handle the suits.

Corning, which relies on Dow Corning for about a quarter of its earnings and saw its share price plummet after press attention to the breast implant problems, is facing 10 shareholder suits charging that it did not reveal negative information on the silicone company. The company denies the charges and says problems at Dow Corning will have “no significant impact” on Corning’s earnings in 1992.

From Silicon to Silicone... Silicone is perhaps most famous for its use in breast implants, but its applications are myriad 1. What is Silicone?

SILICON is the second-most abundant element on earth and occurs only in combination with other elements. Its symbol is Si, and it is close to carbon in its chemical properties. Purified, it appears as a dark-gray, hard solid. It is present in many types of rocks and sand. One cubic mile of seawater contains about 15,000 tons of silicon.

2. Extracting the Element

Commercially, silicon is obtained from quartz, which is mined in open pit mines throughout the world, including California, British Columbia, Brazil and Norway. The quartz is then reduced in an electric arc furnace to silicon. Electric Arc Furnace

Purified, it appears as a dark-gray, hard solid. Silicon is used in the manufacture of computer chips, transistors and solar cells. Silicon dioxide is the main ingredient of glass.

3. The Formation of Silicone

Silicone is a polymer, or a chain of molecules, made by heating silicone with other materials to form a compound of oxygen, carbon and other elements. The final products can be liquid, powder, and solid or gel and tend to be slippery, water repellent and weather resistant. Products using silicones include aircraft and automobile parts, computer components, shampoos, antiperspirants, baking pan coatings, building sealants, lenses, artificial human joints, fabric finishes, paints, lubricants for machinery including CD players and clocks, and breast implants.. Earth’s Composition The chemical composition of the entire Earth’s crust is dominated by eight elements, which together make up more than 99% of the crust.

Oxygen: 48.5%

Silicone: 28.9%

Aluminum: 8.3%

Iron: 4.8%

Calcium: 4.1%

Potassium: 2.4%

Sodium: 2.3%

Magnesium: 1.9%

Silicone Polymer

Si=Silicon

H=Hydrogen

C=Carbon