Segal McCambridge Legal Blog

On June 22, 2011, in a 2-1 decision, the Illinois Appellate Court for the Fourth District reversed a judgment against Honeywell and Abex, jointly and severally, in the amount of $1,543,361.66 in a household, secondary exposure case. Holmes v Pneumo Abex L.L.C., No. 4-10-0462 (June 22, 2011).

The background from the opinion:

In May 2006, plaintiff filed a complaint against defendants and others for the wrongful death of his mother, Jean Holmes. The complaint alleged decedent’s husband, Donald Holmes, worked at an asbestos plant operated by Union Asbestos & Rubber Company, later known as Unarco Industries, Inc. (Unarco). During his employment, Holmes was exposed to asbestos and brought the fibers home on his clothes and person, which exposed decedent to the asbestos. Decedent was diagnosed with mesothelioma, and she died in April 2006.

Plaintiff alleged defendants, along with Unarco, Johns-Manville Corporation (Johns-Manville), Raymark Industries, Inc. (formerly Raybestos-Manhattan, Inc.) (Raybestos), Owens Corning, Owens-Illinois, and Metropolitan Life Insurance Company (MetLife), conspired to suppress information about the harmful effects of asbestos and refused to warn employees about the hazards of asbestos. Plaintiff claimed defendants’ agreements and acts done in furtherance thereof proximately caused decedent’s injury and death. Honeywell is the successor by merger to the Bendix Corporation (Bendix), which manufactured automotive brakes and brake linings. At the relevant times, brake linings, including those made by Bendix, were made with chrysotile asbestos. Bendix’s largest supplier of raw chrysotile was Johns-Manville. Abex is the successor to a variety of entities, the original being American Brake Shoe & Foundry Company. Abex made automotive brake products and brake linings with chrysotile asbestos.

In February 2009, plaintiff’s case proceeded to a jury trial. As the parties are familiar with the facts in this case, we will set forth only those facts necessary for the proper disposition of this appeal. The parties do not dispute that decedent developed peritoneal mesothelioma, which caused her death at age 93. Peritoneal mesothelioma has been associated with exposure to asbestos. It was also undisputed that decedent’s only exposure to asbestos fibers was on the work clothes of her husband, who worked at the Unarco manufacturing plant in Bloomington from 1962 to 1963. The asbestos was supplied to Unarco by Johns-Manville and Raybestos. It was undisputed that decedent and her husband were never exposed to any Bendix or Abex products.

Plaintiff presented evidence that showed multiple companies, including Johns-Manville, Raybestos, and Abex entered into a written agreement in 1936 with the Saranac Laboratory (Saranac agreement) to sponsor research on industrial dusts. The evidence showed an agreement among some of the companies to reduce or de-emphasize references to asbestosis in a 1935 asbestos industry study prepared by Dr. Anthony Lanza of MetLife; to have references to lung cancer in animals and asbestosis or cancer in humans deleted from a 1948 asbestos study prepared by Dr. Leroy Gardner and Dr. Arthur Vorwald of Saranac Laboratory and to keep the study and its underlying data from being disseminated to the public; and to prevent publication from 1935 to 1969 of any articles about the dangers of asbestos in Asbestos magazine.

Evidence showed Unarco, Johns-Manville, Raybestos, and Abex did not change their business practices concerning asbestos or attempt to warn their employees. Plaintiff also presented evidence as to the activities of Owens Corning and Owens-Illinois. Owens-Illinois received a 1948 report from Dr. Vorwald that concluded its asbestos-containing Kaylo pipe and block insulation was a potentially hazardous material and capable of producing asbestosis. In various journals, Owens-Illinois and Owens Corning sold Kaylo insulation stating it was “nonirritating” and “nontoxic.”

Plaintiff’s expert, Dr. Barry Castleman, a consultant specializing in toxic substances control, testified he had no information that Bendix was aware of communications that were taking place between Raybestos, Johns-Manville, and MetLife as to the study by Dr. Lanza. He was not aware of Bendix being involved in any effort to prevent Asbestos magazine from publishing articles about asbestos. Dr. Castleman had no knowledge that Bendix ever knew or approved of the Saranac agreement or that it had known about Dr. Gardner’s critical study. He also had no knowledge of any communication between Bendix and Owens-Illinois or Owens Corning.

Dr. Castleman testified Bendix was a member of the Friction Materials Standards Institute (FMSI), a trade organization made up of brake-lining manufacturers. Joel Charm testified Bendix and American Brake Shoe & Foundry Company had a single member of their respective board of directors in common from 1930 to 1934. Bendix and Johns-Manville also had a single member in common on their board of directors from 1959 to 1963.

William Dyson, an industrial hygienist, testified for defendants. He stated he prepared a bibliography of household exposure articles and listed a 1960 article by Dr. J.C. Wagner that spoke to mesothelioma as a result of take-home exposure to a family member.

Following closing arguments, the jury found for plaintiff and against both defendants. The jury assessed $2,632,611.66 in damages. The trial court later entered an amended judgment against defendants, jointly and severally, in the amount of $1,546,361.66. In May 2009, Honeywell and Abex filed posttrial motions, which the court denied. This appeal followed.

The Fourth District found that no relationship existed between the defendants and the decedent and thus, defendants owed no duty to decedent. The Fourth District analogized its decision in Holmes with the Second District’s decision in Nelson v. Aurora Equipment Co., 391 Ill.App.3d 1036, 1037, 909 N.E.2d 931, 933 (2d Dist.2009). The Holmes and Nelson opinions, however, are counter to the Fifth District’s opinion in Simpkins v CSX Corp., 401 Ill.App.3d 1109, 1119, 929 N.E.2d 1257, 1266 (5th Dist. 2010) which found a duty to individuals such as Mrs. Holmes. Simpkins is on appeal to the Illinois Supreme Court.

Further, the Holmes court stated that even if they were to find a relationship between the parties, there would be no duty because the danger of household exposure was not reasonably foreseeable until after decedent's husband worked at the UNARCO plant. Plaintiff’s own expert, Dr. Castleman testified that the first epidemiological study applicable to “take-home” exposures was at the earliest the Newhouse and Thompson publication in October 1964.

In dissent, Justice Knecht indicated his agreement with the Fifth District’s opinion in Simpkins. The Justice stated, "One does not require an epidemiological study to recognize disease and death from asbestos exposure dating back to the nineteenth century."

James Wylder of Wylder Corwin and Kelly represents the Holmes family and the case was tried in McLean County, located in the Fourth Appellate District.

As of June 30, 2011, the Holmes opinion can be found here

By Jenni Young

On June 28, 2011, Illinois Governor Pat Quinn signed into law House Bill 1698, which included some significant workers' compensation reforms. The legislation follows after increasing criticism from Illinois businesses due to a recently enacted corporate income tax hike. Among the reforms are limitations on wage differentials , utilization of employer PPO preferred medical provider plans, usage of American Medical Association guides to evaluate impairment, utilization of medical fee schedules, reductions of medical fee rates, utilization of electronic billing, and caps and reductions on carpal tunnel recovery. Further, the legislature codified the causation requirement, amending Section 1 of the Illinois Workers' Compensation Act to state that "to obtain compensation under this Act, an employee bears the burden of showing, by a preponderance of the evidence, that he or she has sustained accidental injuries arising out of and in the course of the employment" and created a defense for employers if an employee's intoxication is determined to be the proximate cause of the employee's injury.

Significantly, the exclusive remedy provision of the Act, which prohibits employees from filing civil actions against their employers for injuries arising out of and in the course of employment, remains unchanged.

Currently, reporting requirements under the Medicare Secondary Payer (MSP) Act require claims resolved on or after October 1, 2011 for over $5,000 to be reported to the Centers for Medicare and Medicaid Services (CMS) starting January 1, 2012. In an effort to analyze the impact of the threshold on both funds recovered and costs of compliance, RAND looked at data from auto injuries and medical malpractice claims in a recently published Occasional Paper, “Recovery Under the Medicare Secondary Payer Act: Impact of Reporting Thresholds.” RAND authors Eric Helland and Fred Kipperman concluded that maintaining a reporting threshold for cases resolved, such as $5,000, will have a minimal impact on revenue and significantly relieve reporting burdens. Using auto accidents as an example, and  assuming there is no reimbursement to Medicare from recoveries on claims under the threshold, “retaining the $5,000 reporting threshold would reduce recoveries by 2.4 percent, or $24 million, while reducing the number of claims that must be reported by 43 percent.” As many insurers have implemented procedures to address conditional payments on every claim involving a Medicare recipient, regardless of the reporting threshold, it is possible this reduction in recovery will be even less, with great savings to the insurance industry. As costs are often passed on to consumers, many may benefit should CMS maintain a $5,000 reporting threshold.
The RAND paper may be accessed at http://www.rand.org/pubs/occasional_papers/OP332.html

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In Wilson v. State Farm, a ruling made June 14, 2011 in the USDC, WD KY, the court found an insurer did not act in bad faith in its refusal to pay a settlement while Medicare as Secondary Payer issues remain unresolved.    In summary, a settlement agreement was reached, the defendant wanted to resolve Medicare liens before paying the plaintiff and plaintiff's counsel refused to cooperate and would not let State Farm talk to Medicare. Instead he "asked State Farm to deposit the full policy limits in an escrow account from which the Medicare lien would be paid. Plaintiff agreed “to hold State Farm . . . harmless from any claim by Medicare.” Medicare was not involved in nor bound by this agreement. As an alternative, State Farm suggested including Medicare as a payee on the settlement check. Plaintiff rejected this request. Finally, State Farm decided to await Medicare’s determination of the value of its lien and then issue separate checks to Medicare and Plaintiff."

Plaintiff filed an action claiming "to delay payment of the $50,000 more than thirty days merely to protect Defendant from later liability to Medicare" was bad faith. Plaintiff ad a separate count under a KY statute that would allow for 12 percent interest and reasonable attorneys fees where an insurer failed to settle a claim without reasonable foundation. While the bad faith action was pending, State Farm learned the lien amount and paid the plaintiff and Medicare.  

The court found that " to comply with federal law and to protect its own legitimate interest against overpayment is reasonable and certainly is not in bad faith. Defendant did not delay payment in order to pay less or harass Plaintiff. Motorists Mut. Ins. Co., 996 S.W.2d at 452-453 (stating that “there must be proof or evidence supporting a reasonable inference that the purpose of the delay was to extort a more favorable settlement or to deceive the insured with respect to the applicable coverage”). While it may serve Defendant’s self interest to comply with federal law, such action was not bad faith, especially when Plaintiff apparently refused to cooperate with Defendant’s attempts to pay the claim more quickly."

The court also found that the delay was based on a " ' reasonable  foundation' " when the delay in payment of the settlement was to seek "assurances concerning the amount and payment of the lien."

This is a great ruling for companies who are struggling with resolving Medicare issues on settled cases, working under threat of suit for sanctions.

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From the Wall Street Journal

Supreme Court Revives Suit Against Halliburton

WASHINGTON—The U.S. Supreme Court on Monday revived a securities-fraud lawsuit against Halliburton Co., ruling that a lower court was too quick to throw out the case.

The lawsuit alleged Halliburton misled investors about its asbestos liabilities, its revenue on certain construction contracts and about the benefits of its 1998 merger with Dresser Industries.

A federal appeals court in New Orleans ruled last year the class-action lawsuit couldn’t proceed because the plaintiffs hadn’t shown that the company’s alleged misstatements inflated the company’s stock price.

But the Supreme Court, in a unanimous opinion written by Chief Justice John Roberts, said the appeals court wrongly required the investor plaintiffs to prove an essential piece of their case at early stages of the litigation.

From Business Insurance.com

OneBeacon does not owe CNA reimbursement for asbestos defense: N.Y. court

As of June 6, 2011, the opinion can be found here

NEW YORK—Timely notice must be given to obligate an insurer to pay defense costs, a New York Supreme Court’s appellate division has ruled.

The case, Continental Casualty Co. et al. vs. Employers Insurance Co. of Wausau and Robert A. Keasbey Co., stems from a long-running asbestos liability dispute. At issue is how to allocate defense costs among insurers involved in the litigation against now-defunct contractor Keasbey.

In a previous ruling, a judge agreed with Continental’s parent company—CNA Financial Corp.—that the four insurers involved, including CNA, had an equal duty to defend Keasbey, and that CNA was entitled to be reimbursed by OneBeacon America Insurance Co. for one-quarter of the cost of defending Keasbey.

According to Thursday’s decision, Keasbey never bought a policy directly from OneBeacon, but was covered by two wrap-up policies issued by OneBeacon that provided liability coverage to contractors working on a specified project at a nuclear power plant. Neither policy had an asbestos exclusion.

The court said defense coverage provided to Keasbey under CNA’s primary policies was exhausted by 1992, but that CNA did not find evidence of the OneBeacon wrap-up policies until 2003 and sought to make OneBeacon reimburse CNA for its costs in defending Keasbey in asbestos actions since March 1, 2003.

Review overturns previous ruling

Upon review, a New York Supreme Court appellate division reversed much of the previous ruling. The court said CNA is not entitled to be reimbursed by OneBeacon for the costs of defending Keasbey in asbestos actions from March 1, 2003, to Sept. 30, 2007, or for any portion of the costs defending the same actions after Sept. 30, 2007, because it had "failed to establish that it gave OneBeacon timely notice of any of the actions."

The court also held that to the extent CNA paid for Keasbey’s defense in any asbestos actions commenced after Sept. 30, 2007, CNA was barred from seeking reimbursement from OneBeacon unless it established that it had provided OneBeacon with "timely notice of that particular action under the terms of the OneBeacon policies."

The court, however, also held that CNA "has no further obligation to defend or indemnify" Keasbey in asbestos actions involving primary comprehensive general liability policies it had issued to Keasbey from Feb. 15, 1970, to Feb. 15, 1987.