Asbestos crisis rolls on

Rough Notes, Jul 2002 by Zinkewicz, Phil

CRITICAL ISSUE REPORT

Attorneys go beyond manufacturing to find others to sue

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."