Halliburton Rejecting Asbestos Settlements

Since Halliburton Co.’s stock plunged by more than a third last month in reaction to fears over its asbestos-related liabilities, the oilfield services giant has been busy doing damage control, assuring investors that it will maintain its aggressive stance on the lawsuits and that it is adequately insured.

Its latest effort, a conference call with investors Tuesday, sent share prices up last week; Halliburton closed Friday at $14.34 on the New York Stock Exchange, up 43% for the week.

But some analysts and plaintiffs’ lawyers say they are not convinced that the company’s tough stance on injury and death claims will keep the lid on its liabilities. Moody’s Investors Service Inc. also chimed in, cutting Halliburton’s debt ratings two levels based on the risk of increased asbestos costs.

A close look at Halliburton’s legal strategy shows that the company is engaged in a high-stakes game of chicken that illuminates Wall Street’s growing nervousness about asbestos liabilities facing hundreds of companies.

By canceling settlements negotiated by Harbison-Walker Refractories, with which Halliburton subsidiary Dresser Industries shares liability, Halliburton has opened itself to a wave of new litigation. Scores of previously settled cases have been refiled against Dresser, with the added charge of breach of contract, exposing the company to the risk of large jury awards.

At the same time, recent judgments totaling more than $130 million have significantly raised Halliburton’s profile among plaintiffs’ lawyers.

Halliburton executives say the Dallas-based company settled 36,000 asbestos claims last year for slightly less than its average historic cost of $750 each, that insurers picked up all but $220, and that the management remained committed to fighting unreasonable settlement demands.

“We have got a strategy of being willing to take every single case to trial if we have to, but last year ended up in trials that concluded in verdicts in only 17,” Chairman Dave Lesar said last week. “We settle, on average, 140 cases in a positive way every day. We don’t put a press release out every time that happens.”

Although Halliburton wants investors to look at the company’s record, its unresolved claims, which totaled 274,000 at the end of last year and climb by several thousand each quarter, are causing jitters on Wall Street.

“The risk of asbestos litigation ballooning out of control remains substantial and the ultimate liability difficult to quantify,” said A.G. Edwards & Sons Inc. analyst Poe Fratt. “High awards could increase the rate of new claims, increase the settlement demands of plaintiffs and increase the number of cases that are tried in courts where the outcomes are extremely difficult to predict.”

Asbestos exposure doesn’t threaten Halliburton’s viability, USB Warburg analyst James Stone said. “But we do understand where the concern and the fear comes from, and we also understand the reluctance of investors to make a bet on an issue that is so difficult to game as asbestos.”

A previously settled case refiled against Halliburton’s Dresser Industries illustrates the source of some of the market’s fears about liability among corporate America.

Trained as a mechanical engineer, Tom Hazen spent seven years in the 1960s working in industrial plants, including a steel mill in Fontana, where he believed he was exposed to asbestos. Hazen later earned an MBA and spent the next three decades as an executive with a medical devices company. But in May 2000, doctors diagnosed advanced mesothelioma, a fatal cancer of the lining of the chest cavity.

Hazen, then 58, sued several companies, alleging that they shared responsibility for exposing him to products that contained asbestos, that they knew the products were unsafe and that they failed to warn him. Those products included HW Castable 10, an industrial furnace cement made by Harbison.

Harbison and RHI, the Austrian holding company that now runs it, declined to comment on the case, as did Halliburton.

Plaintiffs’ lawyers said Harbison had maintained a low-profile in asbestos litigation by settling such claims, as they did in Hazen’s case. Hazen got the settlement proposal while he was in a hospital, according to his wife and lawyer. He summoned a notary to his bedside and signed it, agreeing to drop his lawsuit in exchange for a payment he believed would help his wife survive financially.

“It was total relief for my husband that he was able to leave something behind for us, and he died 24 days later,” Sandra Hazen said.

But the company failed to live up to its end of the deal, she said. In August, Sandra Hazen joined more than 100 other people suing Harbison to recover asbestos settlements totaling $16 million, an average of $147,000 per claim. Because Dresser Industries ran Harbison as a division from 1967 to 1992, they also sued Dresser.

“The question for Dresser Industries and its stockholders: Do they want to pay the $16 million or do they want to risk going to a Texas jury where we will seek not only that amount but the actual damages in each case and punitive damages?” said Roger Worthington, a lawyer representing Sandra Hazen and others.Last year, a deal broke down that would have had Harbison indemnifying Dresser against asbestos claims filed after 1992. Halliburton then took an active role in defending 125,000 suits that name both companies, Halliburton said. Those claims include as many as 2,500 in some stage of settlement.

In a similar case, Halliburton is appealing a Texas judge’s ruling that Dresser must pay a set of settlements Harbison made with 100 asbestos claimants that total $35.7 million, an average cost per claim of $357,000.

“We obviously think we have a right to a trial,” said Cedric Burgher, Halliburton’s vice president for investor relations. “If we are going to enter into a settlement with anybody, we have a right to negotiate ourselves.” Burgher also said Halliburton had not seen evidence of illness among the 100 plaintiffs.

The plaintiffs’ lawyer said his clients are sick. “During the pendency of this appeal, I will guarantee you that some of my clients will die, never having gotten their compensation,” said Glen W. Morgan.

Halliburton went to trial in 17 cases last year. The company persuaded judges to throw out 35 cases before trial. Of the 17 that went to trial, 11 ended with small or no judgments against Halliburton. Two resulted in judgments of less than $5 million, which Halliburton is appealing, along with the four market-shaking judgments previously reported by the company.

“We won most of those,” Halliburton’s Lesar said. “So anyone who takes the large jury awards that we have under appeal and extrapolates them to the entire claim pool is just doing it wrong.”

But the nature of Halliburton’s asbestos exposure changed when it took on the Harbison claims last year. Until then, most of Halliburton’s asbestos exposure was from the use of materials containing asbestos on projects run by its construction unit.

Juries tend to judge the manufacturers of asbestos products, such as Harbison, more harshly than companies that were users of asbestos-containing products, lawyers said. As such, the recent verdicts may be more relevant than Halliburton’s past experience. Plaintiffs’ lawyers said they are not sure whether Halliburton is factoring that into their evaluation of claims, noting that cases got more difficult to settle after Halliburton stepped in.