February 17, 2004
ASBESTOS LITIGATION REFORM
By: Janet Brierton, Associate Legislative Attorney
You asked for information on asbestos litigation reform.
Asbestos litigation is the longest-running mass tort litigation in United States history. To date, over 600,000 people have filed claims and over 8,400 companies have been named as defendants. At least 60 companies have filed for bankruptcy as a result of asbestos liability.
One reason for the recent increase in claims was the realization by plaintiffs that many asbestos manufacturers had already been driven into bankruptcy and that settlement funds were dwindling. About 90% of current claimants have not manifested illness (i.e., are nonmalignant). But they are filing claims in the hopes of receiving some compensation for their asbestos exposure. Some asbestos-related diseases have a latency period of up to 40 years.
With many defendants in or near bankruptcy and total potential asbestos liability estimated at $200 billion or more, Congress has introduced legislation that would reorganize asbestos claim handling and set up a privately funded, publicly administered fund to pay claims.
In the absence of a federal solution to the asbestos litigation crisis, some states have become more active in addressing the issue. Some state courts have created, or are considering creating, “inactive dockets,” that shift nonmalignant plaintiffs out of active dockets until the time that their condition changes. Other judges are dismissing claims by nonmalignant plaintiffs, but without prejudice, which allows them to sue at a later time should they become ill. Some states have established “pleura registries” that enable nonmalignant plaintiffs to satisfy statutes of limitations by filing lawsuits soon after they show signs of asbestos exposure, but delay processing and resolving the lawsuits until the plaintiffs' injuries progress further. Finally, some states have adopted a “two-disease rule,” which allows plaintiffs who initially sued when they were nonmalignant to bring a second lawsuit if and when a malignancy is diagnosed.
The National Conference of Insurance Legislators (NCOIL) has adopted a resolution urging Congress and the States to enact asbestos litigation reform legislation.
The word asbestos refers to several types of fibrous minerals that exist in nature. These fibers are strong, durable, resistant to heat and fire, thin, and flexible. According to the Insurance Information Institute (“Institute”), about 33 million tons of asbestos were used in industrial sites, homes, schools, shipyards, and commercial buildings in the United States during the twentieth century.
Researchers have identified several diseases that are related to asbestos exposure: (1) asbestosis, a scarring of the lung tissue, (2) lung cancer, (3) mesothelioma, cancer of the lining of the chest or abdomen, and (4) pleural thickening or plaque, a scarring of the pleura membrane that lines the inside of the chest wall and covers the outside of the lung. Some of these diseases have latency periods of as long as 40 years. According to the RAND Institute for Civil Justice (“RAND”), an estimated 27 million people may have been exposed to asbestos during the period of 1940 to 1979. Tillinghast-Towers Perrin, an actuarial consulting firm, estimates that a total of 100 million Americans may have been exposed through products containing asbestos and asbestos used in buildings.
The Institute reports that asbestos has generally not been used in manufacturing and construction since the late 1970s, but its existence in buildings and products is still legal in the United States. While the Environmental Protection Agency banned asbestos in 1989, the Supreme Court remanded the ban in 1991.
Litigation and Bankruptcy
The first asbestos-related lawsuit was filed in Beaumont, Texas, in 1966. According to RAND, 950 cases were filed in federal courts through 1979. From 1980 to 1984, 10,000 were filed. From 1985 to 1989 another 37,000 were filed. RAND has reported that on the state level, forum shopping has been on the increase since the 1990s. Five states viewed as favorable to plaintiffs handled 66% of all state filings between 1998 and 2000: Mississippi, New York, West Virginia, Ohio, and Texas.
According to the Institute, one of the best examples of the impact of asbestos liability is the Johns-Manville Corporation. In 1982, the Johns-Manville Corporation, a leading manufacturer of building and fire proofing materials since 1858, filed for Chapter 11 bankruptcy protection. The bankruptcy proceeding suspended all personal injury lawsuits filed against the company, allowing it to reorganize to preserve its financial viability.
To compensate asbestos claimants, Manville developed a plan that was approved in December 1986 by the U. S. Bankruptcy Court for the Southern District of New York. The plan created the Manville Personal Injury Settlement Trust. Its purpose was to deliver fair, adequate, and equitable compensation to claimants, whether known or unknown, without the need to litigate. During the trust's first nine months of operation in 1988, over 12,600 claims were settled for about $500 million. By the end of 1989, the trust had 89,000 claims on its books.
Due to concerns that the trust would be unable to pay all claims, the trust was redefined as a “limited fund” in 1990 and requirements for claim payout were established. The trust would now pay claims based on a schedule in accordance with particular disease categories. In addition, it would no longer pay claims at 100% of their value. Instead, it would pay only 10%. For example, if a claim were for $100,000, the trust would pay out only $10,000.
From the mid- to late-1990s, the number of asbestos-related claims filed dropped off. But by 1999, a new wave of litigation began. In 2001, 89,438 new claims were filed with the Manville Trust, a 54% increase over claims filed in 2000. Since 1988, the trust has paid out $2.7 billion to 443,000 claimants. Because of the drain on assets, the trust has reduced its payouts per claim to 5%.
According to RAND, bankruptcies tied to asbestos liability are becoming more frequent. In the 1980s, 16 bankruptcies were filed. In the 1990s, 18 were filed. From January 2000 to early 2002, 22 were filed, and at least four have been filed since then.
Reasons for the Recent Litigation
According to the Institute, a number of factors have led to the latest increase in new asbestos-related litigation and claims. First, there has been an increase in the number of defendants that plaintiffs are naming. Because many of the companies involved in the manufacturing of asbestos are no longer in business, plaintiffs are now suing companies that are less directly linked with asbestos – those that used it and those that became owners of companies that had once produced it. RAND estimates that companies in 75 out of the 83 industries in the United States have been sued over asbestos-related claims.
The Institute reports that another factor at work is the impact of joint and several liability. Under this legal construct, defendants can be required to pay a larger portion of damages than they are found liable for if other defendants found liable cannot pay their share of the damages. As asbestos claims drive companies' into bankruptcy, remaining companies are forced to assume more liability, which results in more bankruptcy. The Institute indicates that as more companies file bankruptcy, lawyers are filing more cases so as to be included on the companies' bankruptcy creditor lists.
Lastly, the Institute reports that the factor with the largest impact on the amount of asbestos litigation has been the filing of cases by people who have been exposed to asbestos but who have not yet manifested illness. These claimants are referred to as “nonmalignant.” A Tillinghast-Towers Perrin study found that 94% of the claims filed in 2000 were by nonmalignant claimants. RAND estimates that 65% of total asbestos compensation has gone to nonmalignant individuals.
THE RAND INSTITUTE FOR CIVIL JUSTICE STUDY
According to RAND, asbestos litigation is now the longest-running mass tort litigation in United States history. It has studied the issue since the 1980s. Its most recent study was initiated in 2001. RAND's key findings, listed below, were released in September of 2002.
● Over 600,000 people have filed claims for asbestos-related personal injuries through the end of 2000.
● Annual filings have risen sharply in the last few years.
● An increase in claims for nonmalignant injuries is the major reason for the recent growth in the asbestos caseload.
● The number of mesothelioma cases filed annually has been rising slowly, but they represent a small fraction of all claims.
● The majority of the nonmalignant claimants are “functionally unimpaired,” meaning that the asbestos exposure has so far not affected their ability to perform activities of daily life.
● Cases migrated to different states and venues in the late 1990s. Five states - Mississippi, New York, West Virginia, Ohio, and Texas - handled 9% of cases filed before 1988 and 66% of cases filed between 1998 and 2000.
● Over 8,400 companies have been named as defendants.
● The litigation has spread beyond the asbestos and building products industries. The list of defendants now ranges across 75 out of 83 different types of industries in the U. S.
● Bankruptcies are more frequent: a total of 16 were filed in the 1980s, 18 in the 1990s, 22 from January 2000 and spring 2002, and at least four others since then.
● A total of $54 billion has already been spent on asbestos litigation. Of this, U. S. insurers spent $22 billion, insurers outside the U. S. spent $8 to $12 billion, and defendants spent $20 to $24 billion.
● Transaction costs (e.g., expenses, including attorney fees) account for more than half of the total spending.
● About 65% of the compensation has gone to nonmalignant claimants.
● Compensation for mesothelioma claims has risen sharply since 1993.
● Estimates of the number of people who will file claims in the future and the costs of those claims vary widely, but they are all extremely high. At best, only half of the possible claimants have come forward. At worst, only one-fifth of claimants have filed claims so far. Estimates of the total costs of all claims range from $200 to $265 billion.
According to the Institute, insurers are paying out increasing amounts due to the recent increase in asbestos-related claims. Earlier asbestos claims were mostly filed under the products liability section of commercial policies, which sets a limit on coverage. But as asbestos manufacturers exhausted their coverage liability, they began filing claims under “premises and operations” and “care, custody, and control” policy provisions, which provide unlimited coverage.
A.M. Best reports that insurers' unfunded asbestos exposure (potential claims for which reserves have not been set aside) dropped from $28 billion in 2001 to $20 billion in 2002. The recent increase in litigation is causing the insurers to continually increase reserves. For example, during the second quarter of 2003, the Hartford Financial Services Group increased its asbestos reserves by $3.91 billion, bringing the total to $5.90 billion.
Because Congress has not reached a federal solution to the asbestos litigation crisis, the Institute reports that state courts have become more active in addressing the issue. To ensure that the sickest plaintiffs are compensated first, the Institute indicates that courts in Illinois, Maryland, Massachusetts, Michigan, New York, Texas, and Washington have created, or are considering creating, “inactive dockets” that shift nonmalignant plaintiffs out of active dockets until the time that their condition changes. Other judges are dismissing claims by nonmalignant plaintiffs, but without prejudice, which allows them to sue at a later time should they become ill.
According to RAND, some states have established “pleura registries” that enable nonmalignant plaintiffs to satisfy statutes of limitations by filing lawsuits soon after they show signs of asbestos exposure, but delay processing and resolving the lawsuits until the plaintiffs' injuries progress further. States that have established pleura registries include Arizona, Connecticut, Hawaii, Illinois, Maryland, and Massachusetts. But support for registries declined after many states, including Maryland, Ohio, New Jersey, New York, and Texas – all states with large asbestos caseloads – adopted a “two-disease rule,” which allows plaintiffs who initially sued when they were nonmalignant to bring a second lawsuit if and when a malignancy is diagnosed.
According to the Institute, the U. S. Supreme Court has indicated in several instances that it expects Congress to resolve the asbestos crisis. Most recently, in a five to four decision, the Supreme Court ruled that workers who have asbestosis could recover damages based on their genuine fears of developing cancer, even if they have not been diagnosed as having cancer (Norfolk & Western Railway Company v. Ayers, 538 U.S. 135, 123 S.Ct. 1210, 155 L.Ed.2d 261 (2003)).
Congress has made several attempts over the years to control asbestos claims and litigation. The most recent proposal, the Fairness in Asbestos Injury Resolution Act of 2003, SB 1125, was favorably reported out of the Judiciary Committee with amendments in July of 2003 and placed on the Senate Legislative Calendar.
SB 1125 as introduced:
● Creates a privately funded, publicly administered fund to provide resources for an asbestos injury claims resolution program.
● Establishes a U. S. Court of Asbestos Claims, comprised of five judges appointed by the President with the advice and consent of the Senate. Directs the Chief Judge of this court to appoint magistrates, as necessary, for the processing of claims.
● Establishes asbestos injury claims resolution procedures, including: (1) who may file claims; (2) a general rule concerning no-fault compensation; (3) essential elements of a claim with particular attention to medical criteria and exposure requirements; (4) eligibility determinations and claims awards; (5) medical evidence auditing procedures; and (6) a claimant assistance program.
● Establishes: (1) the Asbestos Insurance Commission to determine insurer liability for asbestos injuries; (2) the Office of Asbestos Injury Claims Resolution to administer the Fund; and (3) the Asbestos Injury Claims Resolution Fund to pay claims for awards.
● Requires the Administrator of the Office of Asbestos Injury Claims Resolution to assess fund contributions from defendant participants based on tiers and sub-tiers, with an aggregate contribution level of $45 billion over the life of the fund. Provides for adjustments based on financial hardship as well as a method for determining prior asbestos expenditures.
● Delineates enforcement mechanisms for failure to make contributions, including liens and civil actions. Treats these liens in the same manner as liens for federal taxes in the case of a bankruptcy or insolvency proceeding.
● Permits the administrator to assess additional participants for contributions to the fund.
● Grants the U.S. Court of Appeals for the District of Columbia exclusive jurisdiction over any action to review a final decision by the Asbestos Court. Grants the U.S. District Court for the District of Columbia exclusive jurisdiction over any action to review a final determination by the administrator or the Asbestos Insurers Commission. Permits a private right of action against reinsurers.
NCOIL ASBESTOS RESOLUTION
The National Conference of Insurance Legislators (“NCOIL”) drafted a Resolution Regarding the Need for Effective Asbestos Reform. The NCOIL Property-Casualty Insurance Committee adopted the resolution on August 5, 2003. The NCOIL Executive Committee adopted it on November 21, 2003.
According to the resolution, NCOIL supports federal and state asbestos reform legislation that:
● Provides for the ongoing, fair compensation of functionally impaired asbestos victims;
● Allows for the tolling of the statute of limitations, based on medical criteria, for asbestos claims brought by unimpaired victims;
● Ensures the financial solvency of businesses exposed to asbestos-related lawsuits;
● Requires claimants to file suit in the jurisdictions in which they were exposed to asbestos, or in the jurisdiction of the defendant's principal place of business; and
● Limits consolidation of asbestos claims.
Further, NCOIL supports “a properly constructed, reasonable, and balanced mechanism to fund asbestos liabilities that incorporates these principles” and urges Congress and the States to enact reform legislation.