October 20, 2011
More follow-up on asbestos bankruptcy trusts
Two articles from Law.com and Forbes.com on the recent GAO report detailing the secrecy issues surrounding asbestos bankruptcy trusts
LAW.com: GAO Reports Shines Light on Secretive Asbestos Trusts
GAO Reports Shines Light on Secretive Asbestos Trusts
The Government Accountability Office released a new report on Wednesday analyzing asbestos injury trusts, detailing a multi-billion-dollar system of plaintiff claims and payouts that operates largely in secret.
By Brian Glaser
10-20-2011
The Government Accountability Office released a new report on Wednesday analyzing asbestos injury trusts, shining some light on a multi-billion-dollar system of plaintiff claims and payouts that operates largely in secret.
The report, Asbestos Injury Compensation: The Role and Administration of Asbestos Trusts [PDF], reviewed 52 asbestos-related bankruptcy trusts that “have paid about 3.3 million claims valued at about $17.5 billion.”
The GAO found that while the majority of the trusts made general data available, very few provide detailed information about their activities without being directed to by a court of law: “Most asbestos trusts we reviewed publish for public review annual financial reports and generally include total number of claims received and paid. Other information in the possession of a trust, such as an individual’s exposure to asbestos, is generally not available to outside parties but may be obtained, for example, in the course of litigation pursuant to a court-ordered subpoena.”
In fact, the report found that only “one trust’s financial report contained claimant names and amounts paid to these individuals.”
Forbes reporter Daniel Fisher, in a review of the GAO findings, wrote that the report “gives fuel to critics who say the plaintiff lawyers who largely oversee the operation of these trusts prevent them from sharing information about how much their clients have been paid. That allows some plaintiffs to hit up multiple trusts with claims that may contradict each other.”
The month-old report was given to the House Judiciary Committee on September 23, at the request of Texas Republican Lamar Smith, the committee chairman, and is now being released to the public following a 30-day hold.
Accompanying the release of the report was a statement from Lisa Rickard, president of the U.S. Chamber Institute for Legal Reform. Rickard said, “It is becoming clear that rather than acting to prevent abusive claims, the asbestos trusts are effectively encouraging fraud by inhibiting claims information sharing between the trusts and the tort system. We hope that Congress’s growing attention to this important issue will ensure that the trusts operate in a manner fair to asbestos victims and job-creating businesses, not plaintiffs’ lawyers and fraudulent claimants.”
Fisher’s analysis of the report pinpoints several findings of processes in the current trust system that could result in fraudulent claims:
The GAO report said 98% of trust claims go through “expedited review” process that requires only a claim form with “documented evidence” of exposure such as work history, invoices, or deposition testimony of plaintiff or coworkers plus a medical report. Prior investigations have shown how a tiny number of physicians have submitted tens of thousands of diagnoses of asbestos-related disease, many of them subsequently found to be incorrect.
One solution would be to require the trusts to share basic claims information in a central database. But the GAO said 65% of trusts reviewed treated claims information as confidential under rules that consider information submitted as part of a legal settlement process as privileged. Defendants and insurers say the trusts should be treated as non-adversarial settlement vehicles. They frequently seek information about claims paid so they can set off any court award by the amount the plaintiff has already obtained elsewhere.
The report itself does not claim to have documented any regular occurrences of fraud, however, and includes review of the trust distribution procedures (TDP) that each trust has in place: “Although the possibility exists that a claimant could file the same medical evidence and altered work histories with different trusts, each trust’s focus is to ensure that each claim meets the criteria defined in its TDP, meaning the claimant has met the requisite medical and exposure histories to the satisfaction of the trustees. Of the trust officials that we interviewed that conducted audits, none indicated that these audits had identified cases of fraud.”
Forbes.com: GAO Report Details Secrecy Of Asbestos Trusts
By Daniel Fisher
A General Accountability Office study of asbestos injury trusts released today shows that trusts with some $36 billion in assets operate largely in secret, submitting annual financial reports to bankruptcy courts but only revealing information about claims under the threat of subpoena.
The report, conducted at the request of Rep. Lamar Smith (R-Texas), the chairman of the House Judiciary Committee, gives fuel to critics who say the plaintiff lawyers who largely oversee the operation of these trusts prevent them from sharing information about how much their clients have been paid. That allows some plaintiffs to hit up multiple trusts with claims that may contradict each other. The trusts paid 461,000 claims totaling $3 billion in 2010. They have disbursed $17 billion so far to millions of workers who claim they came down with breathing disorders or cancer due to asbestos.
The report looked at 52 of the 60 trusts created in the wake of asbestos-related bankruptcies and found that only one publicly disclosed the identity and claims of people it had paid. Most of the rest resist such disclosure, citing the confidentiality of claimant medical records. The report's authors downplayed the risk of fraud, however, saying most trusts audit claims.
"Although the possibility exists that a claimant could file the same medical evidence and altered work histories with different trusts, each trust's focus is to ensure that each claim meets the criteria defined in its (trust rules), meaning the claimant has met the requisite medical and exposure histories to the satisfaction of the trustees. Of the trust officials that we interviewed that conducted audits, none indicated that these audits had identified cases of fraud.
The U.S. Chamber, which represents companies targeted by asbestos lawsuits, wasn't convinced. In a release accompanying the report Lisa Rickard, president of the Chamber's Institute for Legal Reform, said:
"It is becoming clear that rather than acting to prevent abusive claims, the asbestos trusts are effectively encouraging fraud by inhibiting claims information sharing between the trusts and the tort system. We hope that Congress's growing attention to this important issue will ensure that the trusts operate in a manner fair to asbestos victims and job-creating businesses, not plaintiffs' lawyers and fraudulent claimants.
The report was completed Sept. 23 but only became available today after a 30-day hold.
Critics of the asbestos-trust system point to examples like the Kananian case in Ohio, where lawyers were sanctioned for submitting conflicting work histories to multiple trusts on behalf of a man who died of mesothelioma, which is usually attributed to asbestos. In that case lawyers filed papers placing their client in harm's way throughout his life, from laying on the top berth of a ship with rattling asbestos-clad pipes above his head in World War II, to removing asbestos-laced linoleum flooring in his basement himself, to smoking Camel cigarettes with asbestos filters that were marketed toward women for a couple of years in the 1950s. Internal documents revealed one of Kananian's lawyers telling colleagues to "immediately brief all personnel ... that they are not to 'make up' information to make a claim qualify."
A similar scandal erupted in Texas after a federal judge demanded the records for thousands of plaintiffs claiming they'd come down with silicosis and found most had already hit up the asbestos trusts for money. Doctors say the two conditions almost never occur in the same patient and the outbreak of silicosis claimed in the lawsuits would have dwarfed any recorded in the medical literature.
Approximately 100 companies have declared bankruptcy at least partly due to asbestos-related liability so far. In the usual pattern lawyers for asbestos plaintiffs claim they represent the largest class of creditors and set up a trust to hold the bankrupt company's assets and disburse them to their clients over time. The trusts have grown from 16 with $4.2 billion in assets in 2000, to 60 with $36.8 billion in assets this year.
The GAO report said 98% of trust claims go through "expedited review" process that requires only a claim form with "documented evidence" of exposure such as work history, invoices, or deposition testimony of plaintiff or coworkers plus a medical report. Prior investigations have shown how a tiny number of physicians have submitted tens of thousands of diagnoses of asbestos-related disease, many of them subsequently found to be incorrect.
One solution would be to require the trusts to share basic claims information in a central database. But the GAO said 65% of trusts reviewed treated claims information as confidential under rules that consider information submitted as part of a legal settlement process as privileged. Defendants and insurers say the trusts should be treated as non-adversarial settlement vehicles. They frequently seek information about claims paid so they can set off any court award by the amount the plaintiff has already obtained elsewhere.
Lawyers have a way around that, however: They simply wait until the trial is over before submitting claims to the bankruptcy trusts.
During hearings, three plaintiff attorneys said everything the defendants want is available through discovery in litigation and the trusts are "analogous to ay other settling party and related negotiations and payments are privileged."
Defendants argue more information should be disclosed because payment information might reveal plaintiffs have already gotten more than the claims are worth.
The Institute for Legal Reform proposes quarterly reports disclosing every claim made and details including exposure history. The GAO report said quarterly reports won't necessarily root out fraud and one person receiving payments from several trust "does not itself reveal impropriety."
