In what would be a record-setting settlement of an asbestos-related lawsuit, building-materials maker Fibreboard Corp. and two giant insurers have agreed to bolster a reserve fund to more than $3 billion to cover asbestos injury claims dating as far back as the 1950s.
Under the settlement, which requires approval by a California appeals court, about half the money would pay for known injuries to more than 165,000 people--mainly workers at shipyards and other heavy-industrial settings--who worked with asbestos products manufactured by Concord, Calif.-based Fibreboard. In addition, a $1.5-billion trust fund would be established to cover claims not yet filed.
“It would in fact be the largest asbestos settlement ever announced,” said Lawrence Fitzpatrick, president of the Center for Claims Resolution in Princeton, N.J., a mechanism established by 20 former asbestos makers and their insurers to pay asbestos-related claims.
The previous record involved Denver-based Manville Corp., which created a $2.5-billion trust fund for asbestos victims in 1988 as part of its emergence from bankruptcy.
The insurers are a CNA Financial Corp. subsidiary, Continental Casualty Co., and Chubb Corp.'s Pacific Indemnity Co. unit, which sold the liability insurance to Fibreboard in the 1950s. Both parent companies are expected to suffer third-quarter losses because of the deal.
Fibreboard said the agreement would settle all of its asbestos liability problems. After the Monday morning announcement, the company’s stock jumped $4.75 to $20.25 in American Stock Exchange trading.
“Removing the cloud of uncertainty created by asbestos will give us complete access to equity and debt financing sources and allow us to pursue significant expansion opportunities and acquisitions,” Fibreboard Chairman John D. Roach said in a statement.
Chicago-based CNA said Continental Casualty will add $500 million to its existing reserves for the case, resulting in an after-tax charge to CNA of $325 million, or $5.26 a share, in the third quarter.
Pacific Indemnity, based in Warren, N.J., will add $675 million to its reserves in the third quarter, resulting in an after-tax charge of $358 million, or $3.95 a share, to Chubb.
Pacific Indemnity and Continental Casualty have agreed to drop all pending litigation against each other arising from Fibreboard cases. All three parties are requesting the California appeals court to withhold any action on pending issues involving them until the settlement receives final approval.
In 1990, a California jury ruled that Pacific Indemnity sold the former asbestos maker a one-year general liability insurance policy in 1956 that had no limit on the insurer’s potential liability.
Chubb disputed the likelihood that the policy hadn’t contained a limit, but the jury ruled against the insurer, forcing it to pursue a settlement with Fibreboard.