Firms Hit Hard as Asbestos Claims Rise
A series of multimillion-dollar jury awards to victims of asbestos exposure in recent months is sending shock waves through corporate America, contributing to several major bankruptcy filings and warnings of massive future damages.
The wave of new litigation and a surge in the number of people reporting exposure are a blunt reminder that the asbestos problem, a largely forgotten product liability mess of the 1980s, has not gone away.
More than 75,000 new claims for compensation have been brought so far this year, the most since 1989, from people reporting effects ranging from shortness of breath to mesothelioma, an asbestos-related cancer that typically suffocates the afflicted within 18 months.
The number of people expected to file injury claims could eventually reach 2.5 million, from the current 575,000. And the economic toll of asbestos could run as high as $200 billion, higher than estimates for all Superfund sites combined, Hurricane Andrew or the Sept. 11 terrorist attacks.
The widespread use of the naturally occurring mineral fiber as an insulator and fire retardant in thousands of products from construction materials to yarn through the mid-’70s continues to spin a commercial disaster that is expected to take its toll for at least 40 more years.
The surge in claims coincides with a new understanding of the scope of exposure. Until recently, it was believed that the number of American workers who have or will sustain significant asbestos exposure would reach 24 million to 28 million, an estimate developed by researchers in the early 1980s. This year, that number was revised significantly upward, to more than 100 million potential exposures when a group of researchers added industries and jobs from which claims recently have been made, said David Austern, general counsel for the Manville Trust, a fund set up to compensate people injured by asbestos.
“We’re still operating with relatively little experience” because the onset of mesothelioma can occur decades after initial exposure, said Steve Carroll, a senior economist at the Rand Institute for Civil Justice, a Santa Monica-based think tank. “We don’t know how many people there are out there who aren’t going to manifest a disease for 40 years or 50 years or 70 years.”
The new surge in asbestos claims is surrounded by controversy. Many critics say a great number of the claims are suspect, drummed up by aggressive plaintiffs’ lawyers, bringing a new sense of urgency to concerns that funds are being drained away from thousands of seriously ill and dying victims.
Three funds established in the 1980s to compensate sick asbestos workers reduced payments this year. The Manville Trust, the first major compensation fund that followed the bankruptcy of Johns-Manville Corp., has paid out more than $2 billion but is now paying victims 5 cents on the dollar to assure there will be money left for other claimants. The trust has slashed payments to victims dying of cancer to $10,000 or less--down from hundreds of thousands per claimant in the late 1980s.
That turn of events prompted U.S. District Judge Jack B. Weinstein at a hearing in Brooklyn on Thursday to instruct the parties to the trust to try to forge a new agreement that would substantially raise compensation to the seriously ill.
Estimates of asbestos’ ultimate costs hovered around $40 billion in the 1990s. But a recent analysis of new claims trends by Tillinghast-Towers Perrin, a management consulting and actuarial firm, raised the stakes fivefold. U.S. insurers are expected to cover $60 billion, for which the industry may face a shortfall of as much as $33 billion.
More than 42 companies, including at least 10 in the last two years, have blamed asbestos liability for their decisions to seek bankruptcy protection, and the Rand Institute for Civil Justice recently predicted several more companies would resort to court-supervised reorganization within the next two years. W.R. Grace, U.S. Gypsum, United States Mineral Products and Federal-Mogul Corp. have filed for bankruptcy protection this year, citing asbestos claims.
With the nation’s major asbestos producers in some stage of bankruptcy, lawyers for victims are turning to companies that were once peripheral parties to pick up the tab for asbestos-related claims. Asbestos injury suits that once targeted about 300 mining and production companies have drawn in several thousand firms that cut across more than half of all industrial categories.
Railroads, textile and other manufacturers, food producers and oil refineries are among the most frequently named targets of the newest wave of suits. Companies as diverse as Sears Roebuck & Co., Ford Motor Co. and Viacom Inc. that never produced the mineral fiber are facing injury suits because they sold asbestos-containing products, incorporated them into cars or acquired asbestos-related businesses.
Companies that choose to fight asbestos suits risk getting hit with jury verdicts that are spiraling higher.
In late August, a Texas jury awarded $55.5 million to a 47-year-old father of four who blames his mesothelioma on the asbestos in a Kelly-Moore Paint Co. joint compound he was exposed to while building homes in California in the 1970s.
Less than two weeks later, another Texas jury awarded $130 million to five former laborers and millwrights whose cancers and lung diseases were linked to asbestos exposures on job sites in the 1960s and 1970s. Two of the men died before trial.
And in late October, a Mississippi jury awarded $150 million to six former laborers, who said they had been exposed to asbestos on jobs in the 1950s and 1960s but were not sick.
Halliburton Co.’s Dresser Industries subsidiary was a defendant in the latter two cases. But Wall Street didn’t pay much attention until this month when the Dallas-based oil-field services company was hit with a $30-million verdict. As asbestos jitters reverberated on Wall Street, Halliburton’s stock plunged before company executives assured investors it planned to appeal and had adequate insurance to cover the verdicts if they hold up.
Increases in both cancer and noncancerous-disease claims are contributing to the surge. But nonmalignant claims, including people who are not sick, are rising much faster. The ratio of nonmalignant to cancer claims has risen from 6-to-1 in 1994 to 16-to-1 this year.
That trend is inciting what may be the most intense round of courtroom brawls since the inception of the asbestos tort juggernaut. An Oakland-based attorney who has represented asbestos victims for 27 years is leading a renegade faction of the plaintiffs’ bar that has joined with many of the corporations they sue in calling for limits on claims from people without serious illnesses.
“It’s too far gone to do anything else,” Steve Kazan said. “The asbestos companies are really cash cows that we should care for and cultivate so we can milk them for years as we need to. But I have colleagues who’d rather kill them, cut them up and put them on the grill now. We’d all have a great time, but there are people who will be hungry in five years.”
Many companies have chosen to settle asbestos claims to avoid the costs of litigation and the risks of big jury awards.
“In a sense, the plaintiffs’ attorneys have the asbestos defendants held hostage,” said Jennifer L. Biggs, a consulting actuary with Tillinghast-Towers Perrin.
“The defendants are willing to pay for the most serious, or mesothelioma cases, but many plaintiffs’ attorneys won’t let them settle those claims alone,” she said. “They will require the defendants to settle a bundle of perhaps 2,000 claims, where over 90% may be for nonmalignant injuries. [Defendants] are often forced to settle, because they don’t want to risk taking the mesothelioma cases to trial, where the plaintiffs may win substantial awards.”
But Ohio-based boilermaker Babcock & Wilcox filed for bankruptcy protection last year after a 15-year settlement strategy turned the company into what spokesman Don Washington called a “field of dreams” for junk claims. The company spent $1.6 billion on 317,000 claims that took paralegals five to 10 minutes each to prepare.
“People have always underestimated how many claims are out there, how many people are going to get sick and how many companies have liability,” said Peter R. Kelso, editor of Mealey’s asbestos litigation and asbestos bankruptcy legal reports.
The nation’s Big Three auto makers, which face suits involving more than 20,000 claimants across the country, are trying another strategy, said David M. Bernick, a trial litigator who is representing the auto makers and other asbestos defendants.
Ford, General Motors and DaimlerChrysler want to refute claims that mechanics are getting sick and dying from inhaled brake dust with epidemiological studies that show they have no higher than average risk for mesothelioma, he said. But, instead of trying each case separately, they are asking to make those arguments categorically in the course of the bankruptcy hearings for Federal-Mogul, an auto parts company facing similar allegations.
Juries haven’t always agreed with the auto makers’ position that their brakes are safe. An appellate court in 1998 upheld an $8-million verdict against Ford for the widow of an auto mechanic who died of mesothelioma after a 35-year career changing brakes and clutches that were made with asbestos.
The flood of claims also owes something to an increased propensity to sue, a trend stoked by an increase in law firms handling such cases from 10 or 15 in the early days to more than 700 today, many of which are filing on behalf of people who are marginally sick at best, Austern of Manville Trust said.
“The decision to file claims today--other than the cancer claims--are not based on medicine,” he said. “It is not somebody getting sick and going to a doctor and then going to a lawyer. The great bulk of asbestos claims now are being filed by people who are not impaired and who are asymptomatic. It doesn’t mean they won’t get sicker. But it does mean they are not sick right now.”
Some law firms solicit asbestos victims through television and newspaper advertisements. Others have flocked to the Internet, where one firm boasts a goal of bringing in more than $100 million for victims on a Web site called “Million Dollar Lungs.”
Some lawyers don’t wait for victims to come to them. Across the country, hundreds of thousands of people have stepped into mobile vans to undergo lung X-rays in mass screenings conducted by companies paid by lawyers, according to motions recently filed in federal court in Philadelphia. Before X-rays are conducted, workers must sign contracts that allow the lawyer who hired the van to represent them, according to the motion filed by several corporate defendants asking that such suits be put on hold.
Such tactics have re-energized efforts to lobby for legislation that would put a hold on claims from people who are not sick. October’s $150-million award to the six retirees who were not sick quickly became Exhibit A in the campaign by the Asbestos Alliance, a newly formed Washington-based coalition of corporate defendants. “It’s enough to trigger the Congressional gag reflex. It’s just atrocious,” said Mike Baroody executive vice president of the National Assn. of Manufacturers and a member of the Asbestos Alliance.
The controversial award was veteran Mississippi product liability lawyer Isaac Byrd’s first asbestos case--and one that he is quick to defend. The jury acted properly, he said, in finding that the six men, whose lungs showed signs of asbestos exposure, should be compensated for their increased risk of developing an illness or cancer later.
“You have only one day in court, and the wrongdoer is supposed to be accountable for all of his wrongs,” Byrd said. “There is no second bite at the apple. That’s why you rely on medical testimony to substantiate the likelihood of something happening in the future.”
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