Armstrong World Industries Inc. said Monday that it would create a billion-dollar trust to resolve thousands of asbestos-related lawsuits as part of its plan to emerge from bankruptcy.
The flooring maker said it would fund the trust with cash and securities to settle claims by individuals who say asbestos in the company’s products made them ill. In creating the trust, Armstrong follows the example of Johns Manville Corp., a building-products maker that in 1982 filed for Chapter 11 protection.
Manville’s trust, the first created to handle asbestos claims, has paid exposed workers about $2.7 billion. The settlement later became part of U.S. bankruptcy law, allowing companies to establish trusts to settle asbestos suits. Warren Buffett’s Berkshire Hathaway Inc. now owns Manville.
“We’re going to see a lot of these trusts being set up in the next few years,” said Charles Tatelbaum, a bankruptcy lawyer who has handled asbestos-related cases. “It’s the only sure-fire way a company can get free of future asbestos liability.”
Jury awards and settlements in asbestos cases have driven more than a dozen public companies into bankruptcy since February 2000, including Owens Corning, the largest U.S. insulation maker. Consulting firm Towers Perrin estimated this year that asbestos suits may cost U.S. companies $200 billion.
Armstrong filed for Chapter 11 protection in December 2000 after the Lancaster, Pa.-based company reported to the Securities and Exchange Commission that it couldn’t cope with an onslaught of asbestos suits and might face more than $1.35 billion in asbestos claims by 2006.
“Armstrong entered into Chapter 11 to use the court-supervised process to resolve its liability for asbestos personal- injury claims,” Armstrong Chairman and Chief Executive Michael E. Lockhart said. “We believe that the plan we have filed will accomplish that objective.”
Publicly held Armstrong Holdings Inc. became the parent of Armstrong World Industries Inc. in May 2000. The holding company was established to exchange each share of Armstrong World Industries for one share of Armstrong Holdings. Armstrong Holdings owns no significant assets or operations apart from Armstrong World Industries, according to regulatory filings.
Other firms seeking Bankruptcy Court shelter from asbestos suits, including W.R. Grace & Co. and Federal-Mogul Corp., probably will establish similar trusts soon, Tatelbaum said.