Segal McCambridge Legal Blog

From Reuters
Asbestos-related diseases have been falling for a decade, but warnings from a pair of U.S. insurance giants about new claims raise questions about the industry’s ability to put the scourge behind it.

While medical evidence suggests fewer new cases of asbestosis and the lung cancer mesothelioma, insurers say they are getting sued more frequently and aggressively by people with claims against “peripheral insureds,” such as contractors that worked on projects where asbestos was used.

As some of these lawsuits succeed in courts across the country, it fuels new suits by aggressive plaintiffs’ lawyers and compounds the problem for insurers trying to understand their exposure.

The disconnect between a waning disease and flourishing claims also exposes a flaw endemic to insurers. When they set aside reserves for indistinct risks, they are making guesses — even if educated ones — on how long a particular risk will endure and what it will cost them to be done with it.

No law says any particular company’s guess has to match anyone else’s, but investors raise alarms about companies where reserves are not in line with peers.

That’s why Hartford Financial’s announcement this month of a $290 million pretax earnings hit from increasing reserves for asbestos cases fostered concerns beyond the insurer’s citation of rising claims for mesothelioma.

“Although these items are one-time events, the result raises questions about … reserve adequacy,” Barclays Capital analyst Jay Gelb said in a note to investors. He was referring to both the asbestos charge and Hartford’s sharp rise in second-quarter catastrophe losses.

American International Group Inc similarly riled investors in early February with a $4.1 billion addition to its reserves, including more than $1 billion related to its asbestos exposure.

Fitch Ratings responded by cutting the credit rating on AIG’s domestic property unit insurance units, calling the charges “a significant outlier” compared to competitors and the whole property insurance market.

According to insurance ratings agency AM Best, the Hartford had the fourth-highest level of asbestos and environmental reserves of all large property insurers at the end of 2009 while AIG ranked seventh. They also ranked in the top seven in terms of average annual asbestos losses in 2005-2009.

AIG and The Hartford are in particularly sensitive positions since they were two of the three insurers who took government bailouts during the financial crisis. Their reserve accounting has not been questioned by any of their regulators.

SAVVIER PLAINTIFFS

For decades asbestos was a favorite material in building products, naval applications and other industrial settings because of its fire-retardant properties. Over time, though, exposure to its microscopic fibers causes health problems.

More recently, many of the rescue workers at the Ground Zero site in New York after the 9/11 attacks were exposed to high concentrations of asbestos – in some cases, reports have said, nearly a million times the normal background level.

To be sure, some of the new claims stem from plaintiffs’ lawyers becoming more effective at suing people who are only peripherally connected to asbestos victims. Late-night cable television is flooded with ads from asbestos lawyers, and “mesothelioma” is among the most valuable of advertising keywords on Google. Since there is still plenty of asbestos in buildings across the country, it is also possible that new cases are adding to insurers’ burdens.

Best warned in February that the insurance industry is generally underfunded in its asbestos reserves. It cited a growing number of legal claims reflecting a weakening of tort reform in some states and the “ongoing filing of mesothelioma claims for years to come.”

Asbestos claims have been a bane of insurers for at least a decade. They nearly brought down the Lloyd’s of London market in the 1990s and have cost some of the industry’s largest players billions of dollars. Insurers like MetLife were accused for decades of helping to conceal the deadly side effects of the fire retardant.

In recent years, insurance investors have been celebrating the steady decline of asbestos-related claims and reserves. According to the Insurance Information Institute, reserves grew every year from 2001 to 2005, then shrank every year since through 2009.

TREND EASING

The trend appeared to be tracking the medical evidence. New cases of malignant mesothelioma, a lung cancer caused only by asbestos exposure that one oncologist called a “tremendously lousy disease,” declined at an annual rate of 1.8 percent from 1999 to 2008, according to the American Cancer Society.

“I am surprised myself to hear insurers are (seeing) more claims, because we think with the reduction of asbestos years back we’re starting to see a reduction in incidence of the disease,” said Kevin Becker, an oncologist at Maimonides Medical Center in New York.

Annual reports from MetLife, the country’s largest life insurer, show new claims and total outstanding claims dropping at a steady pace from 2003 through 2010, declining around 40 percent over the period.

The sums paid annually by the industry as settlements also have generally been shrinking. A.M. Best’s forecast that the insurance industry may ultimately end up paying $75 billion in asbestos claims over time seems inflated to some regulators.

“I can’t speak for everyone out there but (claims) may be a little less than that,” said Joseph Torti, Rhode Island’s superintendent of insurance and the designated spokesman on asbestos issues for the National Association of Insurance Commissioners.

LONG-TERM CHALLENGE

But deciding to build or draw down reserves remains a crapshoot for insurers.

Mesothelioma has an incredibly long latency period, meaning 30 years or more can pass between exposure to asbestos and the onset of the cancer. That is why companies such as Travelers and Berkshire Hathaway continue to build reserves.

“Trends were kind of favorable, but you still see the companies with exposure kind of trickling up their reserves from time to time,” said Jim Auden, head of the property and casualty insurance unit at Fitch Ratings.

Another concern for insurers are new and expensive therapies being developed to treat mesothelioma.

The upshot? Asbestos claims and payments are not going away, and no one knows when the bend will turn.

“You wish that this would be completed,” Auden said. “These claims are tied to activities in the ’70s mostly (and) you still can’t get your arms around it.”

From Bloomberg.com
Bondex, Rust-Oleum Maker Unit in Bankruptcy, Is Denied Asbestos Claim Data

Bondex International Inc., the bankrupt unit of Rust-Oleum RPM International Inc. (RPM), can't get data on compensation paid to asbestos victims the company wants to use to calculate future liabilities, a court ruled.

U.S. Bankruptcy Judge Judith K. Fitzgerald in Wilmington, Delaware, today denied Bondex's request for details on payments that some asbestos-victims' trusts may have made to people who also claimed to have been injured by Bondex's home-repair products.

Bondex and Specialty Products Holding Corp filed for bankruptcy last year with plans to set up their own asbestos- victims trust to resolve future and current suits. To calculate how much money the companies, or their parent, RPM, must put into the trust, the companies sought data on past payments.

Bondex's plan to use the data is "all based on a hypothetical that doesn't exist," the judge said in court.

Gregory M. Gordon, a Bondex attorney, said the model the company is trying to create may predict lower future payments by taking into account payments that other trusts made to victims who sued Bondex.

Fitzgerald has allowed Bondex to collect other details from asbestos victims to build its models.

Bankrupt companies and their parents can win immunity from future asbestos lawsuits by setting up trusts to cover medical and other costs associated with exposure to asbestos.

The bankruptcy case is In re Specialty Products Holdings Corp., 10-11780, U.S. Bankruptcy Court, District of Delaware (Wilmington).

From NERA Economic Consulting (www.nera.com) is the recent publication, “Snapshot of Recent Trends in Asbestos Litigation“
From the website:

“In this third annual review of recent trends in filings and settlements in asbestos litigation, NERA Vice President Mary Elizabeth C. Stern, Senior Vice President Lucy P. Allen, and Senior Analyst Adelina Halim extend their analysis to cover a full decade from 2001 through 2010, using publicly available data to analyze trends in asbestos-related liabilities of more than 150 companies. In the report, the authors find that as the decade drew to a close, aggregate results continued to be generally favorable to asbestos defendants: filings are down; total indemnity payments have stabilized well below the 2004 highs; and pending claims continue to fall. At the same time, dismissal rates have continued to drop and average dollars per resolved claim have increased. While these trends may appear to lead to higher costs, these changes are consistent with the mix of claims shifting toward more malignancies (as non-malignant filings drop).

The authors note that the decade had begun with increasing filings, rising total indemnity payments, and mounting pending claims against defendants. However, by mid-decade, all three trends were reversed, with filings, in particular, falling below 2001 levels. With the close of the decade, filings and payments have stabilized for individual defendants below the mid-decade peaks, but the average claim is more expensive to resolve. Going forward, it is yet to be seen whether the pace of the litigation will change as non-malignant claims no longer clog up certain jurisdictions, and what effect, if any, the new asbestos trusts will have on filings and settlements for still-solvent defendants.”

A copy of the publication “Snapshot of Recent Trends in Asbestos Litigation: 2011 Update” can be found here

The Illinois Appellate Court for the Fourth District has overturned a $2.5 million verdict that was one of several controversial jury awards in asbestos cases filed in McLean County.

In the recent opinion, Plaintiffs claimed that Juanita Rodarmel, a Bloomington woman contracted mesothelioma after she was exposed to asbestos on the clothing of her first husband, Leslie Corry, an employee of the former Union Asbestos & Rubber Co. Corry worked at the plant from 1953 to 1956.

In their decision tossing out the 2009 verdict, the court rejected the plaintiff's argument that Pneumo Abex LLC and Honeywell International should be held accountable for Rodarmel's illness because the companies allegedly conspired with other firms to keep secret information about the hazards of asbestos.

The ruling issued in Springfield appears to have eviscerated the “conspiracy theory” used by attorneys in the Fourth District of Illinois. Specifically, the Court overruled the Burgess v. Abex Corp., 311 Ill. App. 3d 900, 903 (2000) case which had stood for the proposition that the suppression of the report counted as evidence of agreement between asbestos producer Johns-Manville and Abex predecessor American Brake and Block.

They overruled the Dukes v. Pneumo Abex Corp., 386 Ill. App. 3d 425 (2008) decision which allowed several pieces of evidence in support of the conspiracy theory.

Further, the Fourth District held that jury improperly found a duty on the part of employers, in the 1950s, to warn workers against carrying asbestos dust home on their clothes.

The Court wrote that “in 1953 through 1956, the infliction of illness merely from asbestos carried home on clothing was not reasonably foreseeable, given what was known during that period.”

Jurors had awarded $2 million in compensation, $400,000 in punitive damages against Honeywell, and $100,000 in punitive damages against Abex.

The trial court cut compensatory damages to $183,333, after subtracting amounts other companies had paid to settle Rodarmel’s claims.

Some interesting excerpts from the opinion, in terms of Plaintiff’s expert, Barry Castleman’s testimony with respect to animal studies and their casual significance:

“More to the point, perhaps, it was unclear what qualifications, if any, that Castleman had in the field of pathology and, more specifically, in cancer experimentation with mice. He apparently was not a medical doctor or a veterinarian.”

“So that leaves no one – that is, no one with relevant expertise – opining that the eight or nine tumorous mice, in an uncontrolled experiment, were scientific evidence of a causal relationship between asbestos and cancer in humans.”

With respect to Barry Castleman’s testimony on “take-home” exposures to asbestos:

“In summary, then, Castleman conceded the following three points in his testimony. First, it was not until mesothelioma was widely recognized as a disease distinctively related to asbestos that it became possible to scientifically track the risk of asbestos into the homes of workers through the occurrence of mesothelioma among family members. Lung cancer was too nonspecific for that purpose. Second, in the 1950s, mesothelioma was not yet widely recognized as an asbestos disease, that is, a disease distinctive to, or specific to, asbestos. Third, in 1955, it was still an open question whether a person could suffer harm from breathing asbestos in quantities insufficient to cause asbestosis.”

Justice Appleton expressed open contempt for the decision by the trial court for allowing evidence that Johns-Manville (not a party to the case) helped Honeywell’s predecessor, brake maker Bendix, in writing a position paper. “If this paper is evidence of a conspiracy, so is the New England Journal of Medicine.”

Further, the opinion held that membership of companies in trade associations cannot be counted as evidence of some kind of “conspiracy.” “Joining a trade organization was just as consistent with innocence as with guilt.”

The Illinois Appellate Court for the Fourth District opinion in the Rodarmel case can be found here

On June 29, 2011, the Indiana Supreme Court issued three split opinions dealing with what fees are recoverable under the Adult Wrongful Death Statute, holding that attorney fees, litigation expenses, and loss of services can be recovered. Chief Justice Randall T. Shepard and Justice Robert Rucker dissented in each of the three decisions, stating that those items are not permitted under the plain language of the statute.

The justices granted transfer to the three decisions in which separate Indiana Court of Appeals panels had reached opposite conclusions on each of these topics.

The three decisions can be found at
Jeffery H. McCabe v. Commissioner, Indiana Dept. of Insurance

Indiana Patient’s Compensation Fund v. Beverly S. Brown

The Indiana Lawyer has an article on the decisions which is here

A divided Delaware Supreme Court has ruled against the wife of a former DuPont Co. worker in “take-home” asbestos exposure case on grounds that a “special relationship” did not exists and by drawing a distinction between misfeasance and nonfeasance.

The court, relying on its past decision in the Riedel v. ICI Americas Inc. 968 A.2d 17 (Del. 2009) ruled 3 to 2 on Monday that Patricia Price could not change a claim of nonfeasance against DuPont into a claim of misfeasance.

Plaintiff’s husband worked as a maintenance technician for E.I. du Pont de Nemours & Co. at its Chestnut Run, Delaware facility from 1957 until 1991. During his employment, Plaintiff’s spouse worked with and around products containing asbestos. Allegedly, Plaintiff’s spouse transported asbestos fibers home on his clothing, vehicle, and skin. Plaintiff alleges that years of living with her husband, exposure to the asbestos dust and fibers her husband brought home from work and handling and washing his work clothes, exposed her to the fibers and caused her to allegedly suffer from bilateral interstitial fibrosis and bilateral pleural thickening of the lungs.

The Delaware Supreme Court held that nonfeasance involves the failure to protect someone with whom you have a special relationship and to whom you owe a duty. Misfeasance involves a general affirmative duty to protect others against harm.

The Delaware high court said DuPont’s alleged failures to prevent Plaintiff’s spouse from taking asbestos fibers home on his clothing or to warn the Plaintiffs about asbestos do not support a claim of misfeasance. It also said Plaintiff’s nonfeasance claim must fail because DuPont had no special relationship with her and owed her no legal duty.

Some selected portions from the opinion:

Here, Mrs. Price's allegations, stripped of all reformatory recharacterization, are that: (1) Mr. Price, an employee of DuPont, worked with and around products containing asbestos for 34 years, (2) asbestos fibers settled on his skin, clothing, and vehicle, (3) DuPont did not provide locker rooms, uniforms, or warnings to the Prices regarding the dangers of asbestos, (4) DuPont did not prevent Mr. Price from transporting the asbestos fibers home on his skin, clothing, and vehicle, and (5) Mrs. Price, because she lived with Mr. Price and washed his clothes, developed several diseases from her exposure to the asbestos he brought home from work.
These allegations generate a reasonable inference that DuPont wrongfully (negligently) failed either to prevent Mr. Price from taking asbestos home or to warn the Prices of the dangers associated with Mr. Price wearing his work clothes home. That, according to our Riedel opinion, is pure nonfeasance—nothing more.

As of July 13, 2011, the Delaware Supreme Court opinion can be found here

The oral argument in the Delaware Supreme Court can be heard here

From the Madison County Record McLean County continues inching closer to becoming a ‘judicial hellhole’

Illinois’ reputation as a lawsuit magnet was not made overnight. It took time as hotspots such as Madison, St. Clair and Cook Counties became destination jurisdictions for personal injury lawyers looking to hit the “Lawsuit Lottery.”

Madison, St. Clair and Cook Counties have long been fixtures in the annual “Judicial Hellhole” report and for years these three counties have appeared to be unwilling to share the spotlight for being some of the worst jurisdictions in the country for legal fairness.

Unfortunately for Illinois, the usual suspects have apparently added a new member to the gang. Last December, McLean County was cited in the American Tort Reform Association’s annual Judicial Hellholes report as a jurisdiction to watch. The inclusion of McLean County in the report was intended to be a warning of what could happen should the situation in McLean County get any worse.

Sadly, the situation has indeed gotten worse.

Shortly after being cited in the report, a McLean County jury delivered an eye-opening $90 million judgment against Honeywell International Inc., Pneumo Abex, Owens-Illinois Inc. and John Crane Inc. when there was no evidence the plaintiff ever worked for these companies or was exposed to asbestos by any products made by the three companies.

In a recent asbestos case filed against Honeywell International Inc., McLean County Judge Paul Lawrence directed a verdict for the plaintiff before the defense even had a chance to say anything. A few days later, the jury awarded the plaintiff $4.3 million.

Judge Lawrence applied the conspiracy theory to the case even though neither the plaintiff nor her husband ever worked at Honeywell or were in any way ever connected to the company.

This is the equivalent of filing a lawsuit against Sears for something that happened 50 years ago at a J.C. Penney store.

In the past, Madison, St. Clair and Cook Counties have been at the center of Illinois’ growing legal climate concerns. Now McLean County seems to be descending deeper and deeper into Hellhole status. The situation is not improving, rather, it is getting worse.

It does not take long to build a reputation as a lawsuit magnet but it takes a long time to shed that reputation. Just talk to the folks in Madison County.

The last thing our state needs right now is yet another Judicial Hellhole jurisdiction. The reality is that businesses look carefully at where to locate a business and the litigation climate is a significant factor in the decision making process. It is not the only factor, obviously but it certainly is something companies consider. Once a county develops a reputation as a magnet for lawsuits, it is difficult to recruit new business and opportunities. The last thing McLean County needs is a reputation of being a plaintiffs’ paradise.

Lawmakers recently passed significant tax hikes into law and put Illinois communities at a competitive disadvantage in terms of attracting new businesses and opportunities. We simply cannot afford to add to our growing reputation as a state hostile to job growth and job creation by enshrining yet another Judicial Hellhole jurisdiction in Illinois.

McLean County, and all Illinois counties for that matter, should be working to create more jobs instead of creating a litigation climate that only serves to import lawsuits and drive jobs and opportunities away.
 

From the June 17th, 2011 Chicago Tribune: “Move over, Madison County“

Illinois is known for a few things that make it unique among all states: the tallest tower in America; Chicago-style deep-dish pizza; Abraham Lincoln.

But it also has another claim to fame: the state known for handing out multimillion dollar jackpot-justice verdicts. This distinction is reasserting itself in McLean County with frivolous “no-causation” conspiracy claims. It works like this: trial lawyers target solvent businesses in asbestos lawsuits even if they have no connection to their clients. They score big fees, settlements and damages by claiming that one or more companies conspired from the 1930s to the 1970s to suppress health and safety information concerning asbestos.
This is a setback for Illinois. The state struggled for years to shed a reputation as a plaintiff’s lawyer paradise. Its infamy was born a decade ago when Madison and St. Clair counties created a cottage industry for out-of-state class-action lawsuits that would have been rejected by almost every other court in the country.

Now, McLean County has become a hot spot for a similar abuse of justice. This threatens all companies because it demonstrates a company doesn’t have to cause any injury to be held liable — and face a bill in the tens of millions of dollars.

Plaintiffs claim they were injured when they were exposed to asbestos at the former Union Asbestos and Rubber Co. in Bloomington, Ill. UNARCO is bankrupt and is, therefore, never named as a defendant. So the plaintiffs sue other unrelated but financially viable companies — Owens-Illinois, Honeywell International and Pneumo Abex — claiming a conspiracy.

The Illinois Supreme Court has rejected the conspiracy claim theory. Supreme Courts in California and Texas and federal courts in Maryland have also ruled that you can’t sue a company for conspiracy if there is no relationship between the plaintiff and the company.

Yet the suits keep coming in McLean County. In March, the McLean County Circuit Court awarded one of the largest conspiracy claim asbestos verdicts ever — nearly $90 million — to a plaintiff whose only relationship was with the bankrupt UNARCO. He had no relationship at all with the three financially viable companies — Owens-Illinois, Honeywell and Pneumo Abex.

In April, McLean County Circuit Judge Paul Lawrence barred Honeywell from even defending itself against a plaintiff who sued the company for the alleged wrongful death of her husband. Lawrence halted the trial — before the defense could open its mouth — and directed a verdict for the plaintiff. The jury awarded $4.3 million.

Lawrence applied the conspiracy theory — even though neither the plaintiff nor her husband were ever employees, customers, visitors or in any way connected to Honeywell.

It’s akin to General Motors in 2011 being held liable for a defective part on a Ford Model T that injured someone in the 1920s ... simply because both companies make cars.

And, unfortunately, even if the verdict is overturned on appeal, the damage has already been done. The costs of litigating these cases and the real risk of a huge verdict force many defendants to settle.

Abraham Lincoln, who toiled as a young circuit lawyer in the same McLean County court, said once: “Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often a real loser — in fees, expenses, and waste of time.”

In a decision available here, the Florida Supreme Court held in American Optical Corp., et al. v. Williams, et al., No. SC08-1617; American Optical Corp., et al., v. Spiewak, et al., No. SC08-1616 (Fla. Sup. Ct. July 8, 2011) that the Asbestos and Silica Compensation Fairness Act (the Act) could not be retroactively applied. The Court found that those who had filed cases had vested rights such that, as found the Fourth District, “new legislation enacted after that accrual which substantially affects the cause of action may not be retroactively applied to that cause of action.”

In determining that the claimants had a vested right, the Court cited to case law that “clearly demonstrates that particular physical symptoms were not required, and changes in the lung evidencing asbestos-related disease were sufficient to trigger a cause of action.” It further found that development of symptoms of impairment “has never been the legal factor in determining ‘manifestation’ or accrual under Florida law.” The Court stated that the inhalation of asbestos fibers, which “became embedded in the lungs of the plaintiffs” constituted an actual injury. Thus, with this vested cause of action, the Act did not meet the two-part test to determine if a statute may be applied retroactively.

First, the Court determined that the Legislature did specifically intend for the Act to apply retroactively. However, next, the Court determined that the Act violated the Florida Constitution. Despite the Legislature’s statement that the Act was remedial in nature and did not impact vested rights, for the reasons set forth above, the Court disagreed, stating that under the Act, “vested rights simply vanish.”

The Court further concluded that the unconstitutional portion of the Act could not be severed in regard to the Appellees, thus the entire Act could not be applied in regard to their cases.

For more information on the author of this post, click here.