CRITICAL ISSUE REPORT
Attorneys go beyond manufacturing to find others to sue
By Phil Zinkewicz
"As the initial targets in the litigation have become unable to pay their share of damages, plaintiffs' attorneys have named additional peripheral defendants."
-- American Academy of Actuaries
Many people erroneously believe that the asbestos crisis of the last three decades has pretty much run its course. Asbestos, seen as the "miracle mineral" in the 1940s and 1950s because of its fire resistant properties, became the "mineral debacle" during the 1960s and 1970s after the discovery that it contained cancer-causing agents that killed people who had come into contact with it. Three decades of asbestos litigation have cost the insurance industry billions of dollars, caused large asbestos manufacturers to fall into bankruptcy, and almost toppled the hallowed halls of Lloyd's of London.
Independent insurance agents probably felt protected from the impact of the asbestos crisis because few agents represented the large asbestos manufacturers who were the prime targets of aggressive plaintiffs' attorneys. But the fact is that the asbestos crisis is not over by any stretch of the imagination. Moreover, plaintiffs' attorneys, having drained what they could from the large asbestos firms, are now looking down the ladder at smaller commercial establishments that may not have manufactured asbestos but that sold products that contain asbestos.
In December 2001, the American Academy of Actuaries issued a public policy monograph called "Overview of Asbestos: Issues and Trends," which said: "The asbestos litigation has been described by the U.S. Supreme Court as an 'elephantine mess' and by A.M. Best as a 'tidal surge.' Litigation that most thought would decline by the end of the 20th century is accelerating. The number of annual claim filings is increasing. The size of awards made to settle claims is also increasing. Two recent estimates from actuarial consulting firms long involved in such work indicate that the ultimate costs arising from U.S. exposure to asbestos could range from $200 billion to $275 billion. Approximately 2,000 people per year are dying from mesothelioma. However, many defendants assert that the majority of claimants filing claims and receiving awards are not impaired. The mass costs of the litigation are forcing otherwise healthy companies to file for bankruptcy."
As testament that the asbestos crisis continues unabated, chemical and paint maker PPG Industries recently signed one of the largest asbestos settlements in U.S. corporate history. PPG agreed to turn over $2.7 billion to people injured by asbestos that its affiliate, Pittsburgh Corning, used to make pipe insulation years ago. PPG is expected to take an after-tax charge of $500 million to cover its share of the associated costs, while a group of more than 30 insurers will pay the rest. The final agreement among the insurers and PPG will be subject to a bankruptcy court supervising the reorganization of Pittsburgh Corning.
Analysts say this is the latest sign of an explosion of asbestos-related legal claims, which may cost U.S. companies more than $200 billion in all. Earlier this year for example, forest products firm Georgia-Pacific Corp. said it would take a $221 million charge after taxes to cover its projected asbestos liabilities through 2011. Also earlier this year, Owens-Illinois Inc., a glass and plastic packaging maker, took a quarterly charge of $475 million to adjust its reserves for estimated asbestos-related costs.
Though the sizes of awards and settlements in the asbestos area are staggering, what is even more troublesome is the fact that plaintiffs' attorneys are going outside the asbestos manufacturing arena and even shopping for clients. According to the actuarial Academy monograph: "As the initial targets in the litigation have become unable to pay their share of damages, plaintiffs' attorneys have named additional peripheral defendants, who did not manufacture asbestos and thus contend they were generally less likely to have known of its dangers to human health, in the lawsuits. Many defendant companies believe they are not getting a fair legal evaluation of their cases in court, and the Supreme Court has twice overturned efforts to resolve the litigation through class-action settlements. While Congress has been called upon to act, no major legislative action has yet occurred."
The magnitude of the problem can be seen in the number of cases related to asbestos that have been filed. The Academy says that there are currently about 2,000 new mesothelioma cases filed each year. There are another 2,000 to 3,000 cancer cases that are likely attributable, at least in part, to asbestos. There are a smaller number of serious asbestos cases. However, according to the Academy, the remaining cases are either pleural injuries or claimants who do not currently exhibit signs of injury. "It is estimated that more than 90%, or more than 54,000 claims filed during the year 2000, are for claimants alleging nonmalignant injuries," the Academy says. "There is significant concern that the awards paid for the nonmalignant claims will exhaust funds that would otherwise be available to compensate individuals who will suffer from the more serious asbestos-related diseases."
This is where the plaintiffs' attorneys' client shopping comes into the picture. What some plaintiffs' attorneys do is join several plaintiffs in a group to file claims against multiple defendants, according to the Academy's report. The plaintiffs' injuries are often very dissimilar, ranging from those who are not currently impaired or who have nonmalignant injuries to those suffering from cancer or mesothelioma. This grouping of claims, defendant companies assert, has forced them to make payments on claims of perceived questionable merit in order to avoid facing the mesothelioma cases in court in front of a sympathetic jury with the potential for substantial punitive damages. "The involvement of multiple defendants results in a more complicated and expensive process for resolving asbestos claims than for typical tort claims," says the Academy.
Julie Rochman, senior vice president for public affairs for the American Insurance Association (AIA) says that many lawyers are practicing a kind of "sophisticated ambulance chasing" when it comes to asbestos litigation. "It has become very lucrative for some plaintiffs' attorneys to consolidate malignant cases with nonmalignant cases," she says. "Some will go so far as to take a van and park it on a corner and offer coffee and doughnuts to people who will come in for a free x-ray. If they find even a hint of an abnormality, say a shadow on the lungs, they will lump that person into an asbestos lawsuit."
The AIA executive says that the federal government should be looking for some national medical criteria to determine those who are sick enough to recover damages. "Those who are not should stand aside. If they do develop a more serious illness, they can come back and sue at a later time," she says.
Again, a major cause of concern expressed in the Academy's report is that lawyers are beginning to sue businesses that were never involved in the manufacture of asbestos products, but who were only peripherally related. "As a result of asbestos litigation, many companies, including nearly all of the asbestos manufacturers, have declared bankruptcy. As the financial stability of these major players has become impaired and they have been unable to pay their share of damages, the share of awards that must be satisfied by the remaining defendants has increased and plaintiffs have named additional peripheral defendants in the lawsuits," says the Academy. "These peripheral defendants are often held jointly and severally liable with the major producers. They are now bearing a substantial portion of the cost of awards relating to decades of asbestos use."
So, the asbestos crisis is not nearly ended. The insurance industry has hope, however, that Congress will soon be influenced to take action in light of the fact that there is disagreement even within the legal profession as to how these cases should be handled. In the meantime, independent insurance agents should look to their mid-sized commercial accounts to see if they present attractive targets for a plaintiffs' bar that is extending its reach.
The author
Phil Zinkewicz is an insurance journalist with some 25 years' experience covering the international insurance and reinsurance arenas. He was the insurance editor of the Journal of Commerce for a number of years, handling all their domestic and international supplements. In addition, he reularly writes for a number of London publications.