Segal McCambridge Legal Blog

The entire article can be found here

By Ben Berkowitz

BOSTON (Reuters) – As anyone in the United States with a TV or Internet connection probably knows, lawyers want you if you’ve been exposed to asbestos, and they’re paying to get you.

At one point earlier this year, 15 of the 100 most expensive keyword search phrases for click-through ads on Google contained the word “mesothelioma,” the deadly cancer caused by asbestos exposure. The single most expensive phrase, online marketing firm SpyFu reported, was “Florida mesothelioma lawyers,” at $177.74 per click.

The hard sell reflects a troubling truth: Half a century after the first wave of lawsuits were filed for illnesses linked to exposure to asbestos and 40 years after new regulation sharply curtailed use of the insulating and fire-resistant mineral, the asbestos-litigation business is booming.

Some of the country’s biggest and best-known law firms — many of them handling asbestos cases almost exclusively — say the number of lawsuits filed annually, after falling off from a peak, has picked up in recent years. More important, they say, is that payouts for plaintiffs who win their cases have soared.

“It’s easy to see why they’re buying time on CNN and the like. All you need to get is a couple of claims in to make that commercial buy worth the money,” says Marc Mayerson, a litigator with the Orrick law firm in Washington and a professor of insurance law at George Washington University, who has represented defendants in asbestos-related cases since the 1980s.

No central registry keeps track of asbestos lawsuits filed yearly or their outcomes. A tabulation of jury verdicts and settlements, based on an average of all asbestos-related lawsuits reported in Westlaw Journal Asbestos, a Thomson Reuters publication, found that the average award was $6.3 million in 2009, $17.6 million in 2010 and $10.5 million in 2011 — amounts much greater than what lawyers say was the norm more than a decade earlier.

Clearly, mesothelioma and other asbestos-related payouts persist at levels companies and their insurers never expected. Insurers have been adding hundreds of millions of dollars to their asbestos-claim reserves. Travelers Cos, in its annual report for 2011, echoed its peers when it cited a “high degree of uncertainty with respect to future exposure from asbestos claims.”

Meanwhile, the dozens of trusts set up by companies forced into bankruptcy by asbestos liabilities are facing such heavy claims that many are paying only a few cents on the dollar. Some have had to suspend settlements. That has created inequality among victims.

UNEXPECTED TARGETS

Some doctors and lawyers attribute the recent rise in asbestos suits to the unexpected emergence of “asbestos wives and daughters,” women exposed to the mineral by male relatives who worked in asbestos-heavy industries.

David Sugarbaker, a thoracic surgeon at Brigham & Women’s Hospital in Boston who is highly regarded among mesothelioma patient groups, says he’s been seeing more women among new patients every year, but “nobody has been able to quite pin it down.”

No hard data show that the incidence of mesothelioma among women has risen significantly. Indeed, the incidence of the disease overall remained largely flat at about 1 person per 100,000 from 1980 to 2008, while the rate for women held steady at roughly one-sixth that of men, according to the National Cancer Institute.

No matter who is doing the suing, lawyers say plaintiffs are increasingly targeting a new set of deep-pocketed “tertiary defendants” — companies that used asbestos products manufactured by others or were otherwise indirectly linked to asbestos. Such companies can now “find themselves in the midst of a lawsuit where the jury verdicts in the plaintiff-favorable jurisdictions are probably averaging $15 million to $25 million each,” Orrick’s Mayerson says.

Nearly everyone involved in asbestos litigation agrees on one dismaying fact: Most plaintiffs today are sick.

About a decade ago, “unimpaired” plaintiffs — people who had some asbestos exposure but weren’t sick and had no evidence they were getting sick — accounted for “literally hundreds of thousands of claims,” says Mike Angelides, managing partner of the Simmons Law Firm, which by its own estimate accounts for 20 percent of all asbestos-related lawsuits filed in the U.S. every year.

Matt Bergman, a Seattle attorney who specializes in asbestos litigation, says the number of lawsuits probably peaked in 2005, when he estimates 16,000 cases were filed, most from people without any illness.

As courts began to take a dim view of such suits, lawyers focused on sick plaintiffs. Now, Bergman says, only about 2,000 new cases are filed each year, most of them to do with mesothelioma. “I think the system works best when the people who are bringing the cases are the people suffering the most,” he says.

The Institute for Legal Reform, an arm of the U.S. Chamber of Commerce that has been a vehement critic of asbestos litigation, recognizes the shift. In recent years, “there were more cases with more people that were more severely impaired, and the numbers on those claims went up,” says Lisa Rickard, president of the institute.

Angelides says his firm estimates the number of new cases filed a year at around 1,800, way down from the peak but up from more recent years. “Everybody wishes these claims would go down,” he says, “but it’s not time yet.”

DANGEROUS HUGS

Mesothelioma is a particularly lethal cancer. It arises in the delicate tissue that lines body cavities, most often around the lungs, but also in the abdomen and elsewhere.

Years of research have shown that exposure to asbestos — defined roughly as two weeks of constant contact, usually in the air in a workplace — is a primary cause of mesothelioma. (Exposure also causes asbestosis, a chronic, potentially life-shortening lung disease.)

Once exposed, a person has a one-in-20 chance of developing mesothelioma. The average patient is dead within two years of diagnosis, and more than 90 percent are dead within five years, according to the National Cancer Institute.

The reason people who were exposed in the 1960s and 1970s are still being diagnosed is mesothelioma’s long latency period —- the time between exposure and manifestation of disease -— of between 30 and 50 years. Thus people who worked in tainted industrial settings in the 1960s are still getting ill, as are some family members.

Heather Von St. James, a resident of St. Paul, Minnesota, in her early 40s, is an asbestos daughter.

Many nights while growing up, she says, she greeted her father with a hug at the door when he returned home from his job sanding drywall, a fine white dust powdering his jacket. She often put on that jacket before running outside to feed her pet rabbits.

In 2005, just after the birth of her daughter, she was diagnosed with mesothelioma. She immediately remembered those lawyers’ TV ads she had seen late at night. “I called them at 1 o’clock in the morning when I got the diagnosis because I thought, ‘I’ve got nothing to lose,’” she says.

To fight her disease, she had to have a lung removed. That left her chronically weak and easily fatigued, unable to care for her daughter or continue working as a hair stylist and salon owner. She considers herself lucky, compared to other mesothelioma victims, but hesitates to describe herself as “cured.”

The court that heard her lawsuit estimated that the disability caused by her mesothelioma cost her more than $5 million in lost lifetime earnings. “We didn’t get $5 million. It can never replace what I lost,” says St. James, who is bound by confidentiality agreements not to disclose whom she sued or the precise amount she received. Court records indicate that 3M Co was a defendant — not one closely associated with the decades-long morass of asbestos litigation.

3M did not respond to a request for comment.

LIKE “DEATH AND TAXES”

Asbestos — actually a family of half a dozen fibrous minerals — has been valued since Roman times for its heat-resistant properties. For much of the 20th century it pervaded construction sites, ship and rail yards, and many industrial settings. Canada, Russia and South Africa have been major producers, as was the United States.

Concerns about the health risks of asbestos exposure were raised as early as the 1920s. In a September 1958 memo that plaintiffs lawyers are wont to cite, a National Gypsum Co executive wrote: “We know that you will never lose sight of the fact that perhaps the greatest hazard in your plant is with men handling asbestos. Because just as certain as death and taxes is the fact that if you inhale asbestos dust you get asbestosis.”

The first asbestos-related personal-injury claims popped up in federal courts in the 1960s, but asbestos use continued. According to the U.S. Geological Survey, consumption of asbestos in the United States peaked in 1973 at 803,000 metric tons, out of global production of around 4.2 million metric tons.

Within a few years, mounting litigation, as well as scientific evidence linking asbestos to disease, prompted new government and industry regulations on safe handling and use of the mineral. Since 1973, according to the USGS, U.S. consumption has fallen 99.9 percent, though global use is down only around 50 percent.

In the ensuing decades, asbestos litigation overwhelmed one company after another. By government estimates, about 100 companies have been forced into bankruptcy proceedings because of asbestos liabilities — including construction-materials and industrial heavyweights such as Johns Manville (now a part of Berkshire Hathaway Inc), USG Corp and Owens Corning.

The U.S. Bankruptcy Code, amended specifically for the purpose, allows a company to put current and future asbestos liabilities in a trust, fund the trust with certain assets, and walk away to start fresh. Trust administrators determine whether a claim is valid and pay out accordingly. Their decisions can be appealed, but generally, trust claims are more open-and-shut than court litigation.

Each trust values claims differently. The Johns Manville trust values mesothelioma at $350,000, while the Owens Corning trust values it at $215,000, says Steve Kazan, managing principal at Kazan, McClain, Lyons, Greenwood & Harley in Illinois, who litigated his first asbestos case in 1974 and has kept at it since. None of the trusts, lawyers say, come close to paying what the courts do.

The problem for the trusts — and for claimants — is that as claims persist, many of the trusts have to pay out cents on the dollar for each valid claim in order to save for future claims.

Take the example of the Johns Manville trust. In the 23 years since it started, the Manville Personal Injury Settlement Trust has received more than 878,000 claims — 10 times the number initially predicted — and made payments nearing $4.23 billion. The Manville trust’s most recent filing with the U.S. Bankruptcy Court in Manhattan shows claims rose 57 percent in the first nine months of 2011 from a year earlier, to 27,300. Over that time the trust’s assets fell more than 12 percent, to $925.6 million.

As a result, the trust is now paying out approved claims at a rate of 7.5 cents on the dollar. A person with an approved $100,000 claim would receive $7,500.

The USG trust cut its payout rate to 35 cents on the dollar in April 2010 and lowered it again to 30 cents in November 2010. The NGC Bodily Injury Trust, which handles National Gypsum Co claims, warned last November that claim filings were running much higher than expected and cut payments to 18 cents on the dollar.

Last January, the C.E. Thurston & Sons Asbestos Trust suspended all new settlement offers while it recomputed how much it can afford to pay while retaining enough for the future, the trust said on its website.

Reuters sought comment by phone or email from trustees or lawyers for half a dozen asbestos trusts; none responded.

THE INSURERS PAY

Unlike the trusts, the insurance industry thought it had largely solved its asbestos problem through big increases to reserves 10 years ago. It misjudged. “All these insurance companies have dedicated asbestos units, and they’re staffed and they’re busy,” says Larry Reback, an insurance broker with Integro in San Francisco.

Last year, when insurers AIG and The Hartford announced additions of $1.3 billion and $290 million, respectively, to their asbestos reserves, the companies blamed tertiary defendants that never anticipated litigation and now are being sued. AIG and Hartford have repeatedly declined to comment on the additions to their reserves.

Major oil companies are on the list, as people who were working decades ago challenge what the companies knew about asbestos safety at the time. Automakers are being hit with asbestos lawsuits, too, largely related to the asbestos lining in many vehicle brakes. Just this month a federal appellate court said lawsuits could proceed against drugmaker Pfizer Inc over asbestos-linked materials a subsidiary made a generation ago. “We strongly dispute” those lawsuits, Pfizer said.

In February, Travelers said it put $175 million into its asbestos-claim reserves in 2011, up 25 percent from 2010, citing more litigation and larger payouts because of those lawsuits. While announcing an increase in its own reserves, MetLife said in August that it saw asbestos-related claims rise 11 percent in the first half of the year after dropping steadily from 2003 through 2010.

In 2009, A.M. Best, the major rater of insurers, raised its estimate of future industry asbestos liabilities to $75 billion from $65 billion. The number may rise again in the next year, mainly because of mesothelioma claims, says Brian O’Larte, an A.M. Best analyst in New Jersey. All told, by its assessment, the industry is about 4 percent underfunded for the $75 billion in liabilities it faces.

Insurers keep assuming, mistakenly, that liabilities will taper, O’Larte says. “Every time they do a ground-up study, they say, ‘We got it right this time.’” he says. “We don’t assume that.”

(Editing by John Blanton and Prudence Crowther)Reuters

From Courthouse News Service

http://www.courthousenews.com/2012/01/24/43302.htm

 

Insurance companies can challenge a $600 million trust created to settle thousands of asbestos-related claims against a California insulation company, the 9th Circuit ruled Tuesday.
     Burdened by some 2,000 asbestos-related lawsuits and with more on the horizon, Thorpe Insulation and its subsidiary, Pacific Insulation, filed for Chapter 11 bankruptcy protection in 2007.
     A family-owned company, Thorpe installed and removed asbestos-insulation products in Southern California from the late 1940s to the early 1970s in both industrial and commercial buildings. During the last 30 years, it has faced about 12,000 lawsuits for wrongful death and personal injury; since 1978, its insurers have paid out more than $180 million defending and settling such claims, according to the ruling.
     A Los Angeles federal judge approved a reorganization plan for the companies in 2009 that established the Thorpe Insulation Settlement Trust to handle present and future asbestos-related claims. Thorpe’s settlements with 13 insurers funded the trust with more than $600 million in cash and securities, the ruling states.
     But objections came from insurance companies that had refused to settle with Thorpe – Continental Insurance Co., National Fire Insurance Co. of Hartford, Motor Vehicle Casualty Co., Central National Insurance Co. of Omaha and Century Indemnity Co. Among their various claims, the insurers said that the court approved a settlement built in bad faith by attorneys with conflicts of interest.
     U.S. District Judge Dale Fisher affirmed the plan nonetheless, finding that it pre-empted any state-law contracts among the non-settling insurance companies. At any rate, those companies did not have standing to challenge the plan in bankruptcy or federal court because it was “insurance neutral, Fisher said.
     But the federal appeals court in Pasadena reached a different conclusion. Though the three-judge panel agreed that the plan overrides state-level contracts, it reversed as to standing Tuesday
     ”Appellants argue that the plan is not insurance neutral because of possible preclusive effects of the plan, because they are responsible for claims channeled to the trust, because the trust permits direct file suits against appellants, because they are a contingent beneficiary of the trust, and because the plan and trust distribution procedure can be changed without court supervision,” Judge Ronald Gould wrote for the unanimous panel. “We conclude that the plan may economically affect appellants in substantial ways. A plan is not insurance neutral when it may have a substantial economic impact on insurers.”
     ”Because the plan had likely effects that would increase economic exposure of the insurer appellants to asbestos claimants, they had a right to be heard fully and fairly before the plan was finalized,” Gould added.
     On remand, the District Court should “return the case to the bankruptcy court to give appellants the opportunity to present their proof and argument.”
     As the plan is already in motion, Gould acknowledged that this decision throws a wrench into the proceedings.
     ”There is no entirely tidy way to resolve this case because the plan has proceeded without stay and without full input from insurer parties who will be economically affected by the plan,” he wrote. “But we have concluded that the starting place is for us to reverse the judgment of the District Court, and to remand to the District Court with instructions that it remand to the bankruptcy court to permit appellants to submit their proof on all issues they previously preserved.”
     No one with the Thorpe Insulation Settlement Trust was immediately available for comment. 

The decision can be found at http://www.nycourts.gov/reporter/3dseries/2012/2012_00421.htm

From http://newsandinsight.thomsonreuters.com/Legal/

A New York appellate court affirmed a $420.4 million ruling in favor of insurer Travelers Cos, handing it a victory in one of the longest-running and most complex asbestos-related litigations in history.

The dispute has to do with the obligations of certain reinsurers to Travelers, which joined in payments of nearly $1 billion to cover asbestos claims against the company Western MacArthur. Travelers subsequently sought to recover some of its payments from its reinsurance companies.

Among those reinsurers is the U.S. unit of industry leader Munich Re and units of the insurer and reinsurer ACE Ltd. A spokeswoman for Munich Re Americas declined to comment. An ACE spokesman could not immediately be reached for a comment.

In October 2010 a lower New York court ruled that the reinsurers were obliged to help cover Travelers. That ruling was affirmed on appeal on Tuesday.

The Appellate Division, First Department, ruled 4-1 that the reinsurance companies were bound by a concept known as the “follow the fortunes doctrine,” which holds that reinsurers share the burdens taken on by the insurance companies with which they do business.

The appellate court found that the lower court “correctly determined that the follow-the-fortunes doctrine required defendants to accept the reinsurance presentation made by (Travelers unit) USF&G.”

A Travelers spokesman could not immediately comment on the ruling.

The facts behind the case date to 1948, when USF&G first wrote a liability insurance policy for Western Asbestos Co. By the late 1970s, people harmed by asbestos began to sue Western Asbestos’ successor company, Western MacArthur, which in 1993 sued USF&G and two other insurers seeking indemnification.

In 2002, the sides reached a settlement, which resulted in Western MacArthur going into bankruptcy. USF&G then sought indemnification from its reinsurers.

The one dissenter in Tuesday’s ruling was Justice Sheila Abdus-Salaam, who said there was a genuine dispute as to whether some of the settlement USF&G reached with Western MacArthur was subject to the reinsurance treaties.

Besides the length of the litigation, the case is notable because of the high-profile law firms involved. Travelers was represented on the appeal by Simpson Thacher & Bartlett, while Wachtell, Lipton, Rosen & Katz represented Munich Re and Boies, Schiller & Flexner represented ACE.

The case is United States Fidelity & Guaranty Company vs. American Re-Insurance Co, New York Supreme Court, Appellate Division, First Department, No. 604517/02.

For American Re-Insurance Company: Herbert Wachtell of Wachtell, Lipton, Rosen & Katz.

For Excess Casaulty Reinsurance Association and OneBeacon America Insurance Company: Kathleen Sullivan of Quinn Emanuel Urquhart & Sullivan.

For ACE Property & Casualty Company: George Carpinello of Boies, Schiller & Flexner.

For respondents: Mary Kay Vyskocil of Simpson Thacher & Bartlett

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.�

On October 19, 2011, the the U.S. Government Accountability Office (GAO) issued the report “Asbestos Injury Compensation: The Role and Administration of Asbestos Trusts”

From the GAO website:

Summary
Asbestos litigation arose out of millions of Americans’ lengthy occupational exposure to asbestos which is linked to malignant and nonmalignant diseases. To date, about 100 companies have declared bankruptcy at least partially due to asbestos-related liability. In accordance with Chapter 11 and 524(g) of the federal bankruptcy code, a company may transfer its liabilities and certain assets to an asbestos personal injury trust, which is then responsible for compensating present and future claimants. Since 1988, 60 trusts have been established to pay claims with about $37 billion in total assets. GAO was asked to examine asbestos trusts set up pursuant to 524(g). This report addresses: (1) How much asbestos trusts have paid in claims and how trusts are administered, (2) How trust claim and payment information is made available to outside parties, and (3) Stakeholder–plaintiff and defense attorneys, trust officials, and other interested parties–views on whether more trust and claimant information should be made available to outside parties and efforts to change the trust system and processes. GAO analyzed trust agreements for 44 of 60 trusts and trust distribution procedures for 52 of 60 trusts, as well as financial reports for 47 of 60 trusts for 2009 and 2010. GAO also interviewed U.S. Bankruptcy Court judges and the trustees, general counsels, or directors from 11 trusts.

From 1988 through 2010, GAO’s analysis of available trust payment data show that trusts have paid about 3.3 million claims valued at about $17.5 billion and that each trust has trust distribution procedures (TDP) that govern its administration and establish the process for assessing and paying claims. Typically, TDPs include sections related to the intake and evaluation of claims, payment processes, and audit programs. Claims that meet the TDP’s criteria for a particular disease are paid in the amount specified in the TDP. 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. The 44 trust agreements GAO reviewed all required that trusts submit annual financial reports to the U.S. Bankruptcy Court of jurisdiction. Although TDPs typically provide that the trusts will make claim and payment information available to claimants and other parties, each trust ultimately determines what information it will make available. Of the 47 trust annual financial reports for 2009 and 2010 that GAO reviewed, all included the total amount of payments made and most included the total number of claims received and paid. One trust’s financial report contained claimant names and amounts paid to these individuals. Of the 52 trust TDPs GAO reviewed, 33 (64 percent) included sections related to protecting the confidentiality of claimants’ information and these sections often state that the trusts will only disclose information to outside parties with permission of the claimant or in response to a valid subpoena. Views differ on whether more trust and claimant information should be made available and there have been efforts to change the trust system. Plaintiff attorneys and trusts oppose proposals that would require additional disclosure of claimant information, such as amounts paid to individual claimants, stating that such information is available to the defense through subpoenas and that disclosure otherwise could compromise the confidentiality of claimants’ private information. Defense attorneys support additional disclosure, stating that such information could be used to offset asbestos defendants’ settlements in court and reduce fraudulent claims. In recent years, there have been various proposals to require additional disclosure of claimant information. One of these proposals was recently brought before the Judicial Conference of the United States, the primary policy making body of the U.S. courts. In commenting on a draft copy of this report, the Department of Justice and the Administrative Office of the U.S. Courts provided technical clarifications, which GAO incorporated where appropriate.

The highlights of the report can be found here

The full report can be found here

The Daily Docket: Garlock Loses Bid to Look into Old Asbestos Bankruptcies.

Judge Denies Garlock Bid To Revisit Old Asbestos Bankruptcies

Jacqueline Palank 10 October 2011

A judge denied Garlock Sealing Technologies LLC’s bid to obtain legal documents from decade-old asbestos bankruptcies, warning the consequences of doing so would upend previously struck resolutions to billions of dollars in claims.

U.S. Bankruptcy Judge Judith K. Fitzgerald on Friday denied Garlock’s request to reopen old bankruptcies and to page through documents in which law firms disclosed their clients in those cases, according to court papers.

The judge decided that Garlock failed to provide a valid reason to support its request, which she warned would result in “enormous” consequences if granted.

“The negative publicity with the likely effect on stock and bond prices for those publicly traded entities, employee morale, resulting management issues and administrative burdens…cannot be justified in these circumstances where Garlock did not appear or participate in while the cases were open and active and did not seek access to the 2019s during the life of the cases,” Fitzgerald wrote.

An attorney for Garlock couldn’t be reached for comment Monday.

Garlock sought to pull records from and intervene in bankruptcies filed between 2000 and 2004 by 12 manufacturers that, like Garlock, had been hit with hundreds or even thousands of personal-injury claims by individuals exposed to asbestos in their products.

Until the “bankruptcy wave” began, Garlock said it was able to defend itself from many of these claims by arguing that its products didn’t release “medically significant” amounts of asbestos into the air. Instead, Garlock argued, plaintiffs were likely more harmed by the larger amounts of asbestos contained in other manufacturers’ products.

But once those other manufacturers sought court protection, all pending litigation against them ground to a halt. Since Garlock wasn’t in bankruptcy, plaintiffs were free to continue pursuing litigation and settlement talks against it.

Garlock now questions the resulting settlements it struck with plaintiffs, arguing that law firms and plaintiffs may have lied about whose products exposed them to asbestos in order to collect what they could from Garlock rather than take their chances in bankruptcy.

That’s why Garlock sought the client lists filed in the bankruptcies of such manufacturers as Armstrong World Industries Inc., Pittsburgh Corning Corp., USG Corp. and W.R. Grace & Co. Garlock, which filed for Chapter 11 protection in June 2010, thought the documents could possibly show evidence of plaintiffs’ exposure to asbestos through the bankrupt manufacturers’ products, potentially reducing Garlock’s liabilities.

Fitzgerald, however, discredited this argument as “disingenuous” and said the harm Garlock is alleging it suffered is “imagined.”

“To date [Garlock] has not identified a creditor in its case who also was a creditor in one of these bankruptcy cases and whose exposure evidence was allegedly concealed,” Fitzgerald wrote.

Garlock, of Palmyra, N.Y., manufactures hydraulic and metallic gaskets, conveyor belts and other products. It has been a defendant in asbestos personal-injury lawsuits for more than three decades.

From The Rand Corporation

Thursday August 18, 2011

A new study by the RAND Corporation explores the way that asbestos bankruptcy trusts—created to compensate people injured by the mineral—may be influencing tort cases.

The study finds that the current way that the trusts and the tort cases are linked together may result in payments that are not consistent with the basic principles of the tort liability system.

Researchers say that, in some cases, the trusts may allow some plaintiffs to receive more compensation than if all of the companies involved in asbestos litigation had remained financially solvent. In addition, the study finds that payments by defendants that remain solvent might not be fully adjusted to account for the payments available from the trusts.

“Asbestos-related litigation is expected to continue for some time,” said Lloyd Dixon, lead author of the study and a senior economist with RAND, a nonprofit research organization. “Both plaintiffs and the defendants that remain solvent have a great deal at stake with regard to how payments from trusts enter into the determination of injury awards.”

Asbestos litigation in the United States began in the 1970s and grew rapidly. As payments for injuries mounted, many of the primary asbestos defendants declared bankruptcy, leaving behind personal injury trusts that pay future asbestos claims. During the past three decades, 56 asbestos personal injury trusts have been established; the largest 26 of these paid $10.9 billion to settle 2.4 million claims through 2008.

Over the past 10 years, payments by the asbestos bankruptcy trusts have played an increasing role in compensation for asbestos injuries, but there is no standard system to coordinate payments from trusts and lawsuits. The RAND study examines how the asbestos trusts may influence the tort case and how trust payments may be factored into tort awards in different states.

Researchers selected six states to examine closely, most of them with high numbers of asbestos cases: California, Illinois, New York, Pennsylvania, Texas and West Virginia. The statutory laws and court procedures vary considerably across the states examined.

Dixon, who wrote the study with Geoffrey McGovern, an associate behavioral/social scientist at RAND, said the potential effects of the trusts vary across states, depending on the type of legal principles used to determine liability, as well as court rules and procedures. A state’s liability standard determines who can be sued and for what share of the total harm.

Researchers say the key to determining how trusts affect compensation in asbestos lawsuits is whether evidence is developed about a plaintiff’s exposure to the asbestos produced or used by the bankrupt companies. If this sort of information is developed, then a plaintiff’s compensation will not be inflated and payments made by the solvent defendants will be adjusted to reflect compensation available from the trusts.

When such information is not developed, plaintiffs in some circumstances can recover, in effect, once for their injuries in the tort system and then again from asbestos trusts. Under some circumstances, solvent defendants may be required to pay more than their share of the harm.

“The development of evidence about a plaintiff’s exposure to the products and practices of the bankrupt firms is an important determinant of the effect of the trusts on the total plaintiff compensation and payments by the remaining solvent defendants,” Dixon said. “The creation of the trusts poses a new challenge to the tort system and courts have responded in very different ways.”

Researchers say an increase in total compensation would benefit current plaintiffs, but reduce the trust resources available to future plaintiffs. This reduction in trust resources is particularly of concern to plaintiffs who were exposed only to the products and practices of bankrupt companies, and are thus solely reliant on the trusts for compensation.

The study, “Asbestos Bankruptcy Trusts and Tort Compensation,” can be found at www.rand.org.

Research for the study was funded by the RAND Institute for Civil Justice and contributions from the following asbestos defendants, insurers and others: Bondex International; Coalition for Litigation Justice; Crane Company; Dow Chemical Company; E.I. Dupont De Nemours and Company; Exxon Mobil Corporation; Garrison Litigation Management Group; General Electric Company; Georgia-Pacific; The Hartford; Herzfeld & Rubin; Owens-Illinois General; Saint-Gobain Corporation; Swanson, Martin & Bell; and the U.S. Chamber of Commerce.

The RAND Institute for Civil Justice helps make the civil justice system more efficient and equitable by supplying government leaders, private decision-makers and the public with the results of objective, empirically based, analytic research.

Here is a link to the study, “Asbestos Bankruptcy Trusts and Tort Compensation”

From Bloomberg.com
Pfizer to Lend Its Bankrupt Quigley Unit Up to $65 Million

By Tiffany Kary – Aug 1, 2011 4:30 PM CT

Pfizer Inc. (PFE) agreed to lend its Quigley unit as much as $65 million in cash to extend the subsidiary’s bankruptcy, potentially giving Pfizer further protection against claims for asbestos-related health issues.

Quigley asked U.S. Bankruptcy Judge Stuart Bernstein for permission to borrow the money in court papers filed July 29 in Manhattan. The cash would extend Quigley’s $20 million loan agreement from 2004, when the unit entered bankruptcy, and finance the case until Feb. 24, 2012, Quigley said.

The additional money and time will free Quigley to work with Pfizer, the world’s largest drugmaker, and a committee of creditors “toward confirmation and consummation of a reorganization plan,� Quigley said.

Lawyers for the U.S. Trustee, an arm of the Justice Department, asked in December to end Quigley’s bankruptcy. Creditors alleging asbestos-related health issues have been unable to sue New York-based Pfizer during the case, and many of them have died, the U.S. Trustee said.

Christopher Loder, a Pfizer spokesman, said the company looks forward to working through a bankruptcy plan with Quigley and creditors, which the extension of the credit agreement will allow.

“In 30 years of asbestos litigation, Pfizer has never been found to be derivatively liable for Quigley’s liabilities,� Loder said. Quigley’s products were made for decades before Pfizer acquired it, he said.

Reorganization Hearing
A hearing on a request to dismiss Quigley’s bankruptcy or approve proposed terms of its reorganization, set for Aug. 4, was adjourned without being rescheduled, according to court papers.

Quigley Co., founded in 1916, made three products for the steel industry from the 1940s to the 1970s that contained asbestos. Pfizer bought Quigley in 1968, and the company stopped most operations in 1992. Pfizer said it never made or sold any Quigley products, and some claimants hadn’t released Pfizer from alleged “derivative liability.�

Bernstein refused to allow Quigley to exit Chapter 11 court protection in September, saying Pfizer had manipulated the process to benefit itself. Pfizer and a committee of asbestos claimants won his approval of an agreement that will support the new Chapter 11 plan, which still requires court approval.

A committee of creditors known as the “Ad Hoc Committee of Tort Victims� asked in October 2010 to have Quigley’s bankruptcy dismissed so it could bring tort claims, which are otherwise blocked by bankruptcy law.

‘Asset-Less Dummy’
In court papers, the group called Quigley an “asset-less dummy entity that was resurrected, handed Pfizer’s money-losing claims handling unit, and then propped up by Pfizer pursuant to a non-arm’s-length contract of limited duration — all in order to provide Quigley’s extremely well-heeled non-debtor parent Pfizer with a channeling injunction against present and future asbestos claims.â€�

The group said Quigley has depleted insurance assets to sustain $54 million in operating losses and $34 million in professional fees.

Quigley’s sixth outline of a plan to reorganize, filed in April, would have resolved disputes over how much Pfizer should contribute by having it turn over a 281,581-square-foot building leased to a brewery to help pay asbestos claims. The terms of that reorganization also required Pfizer to forgive a secured claim of $86 million, a $12.6 million bankruptcy loan and unsecured claims of $33 million. The drugmaker would also contribute $81 million in insurance proceeds, according to court papers.

Asbestos Claims
Asbestos claims against Quigley may total $4.45 billion during the next 42 years, according to testimony cited by Bernstein in September. In November, Pfizer reported a $701 million third-quarter charge for asbestos litigation related to Quigley.

The case is In re Quigley Co., 04-15739, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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