July 14, 2003

Asbestos

Since the courts refused to gather all asbestos lawsuits into one giant class action, the situation has turned into a total mess: extremely high transactions costs--that is, lots of money for lawyers (accompanied by lots of work for lawyers)--accompanied by a totally random division of payouts: very sick people whose lives have been ruined by asbestos exposure get little, while others with better lawyers or better legal strategies do much, much better.

Why the courts refused to use our class-action legal tools to pursue a just resolution of asbestos claims is a mystery to me. But now the Senate Judiciary Committee is trying to fix the mess. My assessment, however, is that its chances of success are still low...

Economist.com: ...America's Senate Judiciary Committee approved a bill that would establish a fund for asbestos compensation and bring to an end decades of damaging litigation that has already cost American business many billions of dollars and led to several bankruptcy filings. For months Orrin Hatch, a Republican from Utah and the committee’s chairman, had been negotiating an end to the lawsuits over asbestos, scourge of both the physical health and the financial health of America’s insurers. The draft bill proposes to establish a federal trust fund, so far to the tune of $108 billion, but which could rise to around $150 billion, out of which victims of asbestos would be compensated. The amount each would get would depend on how sick they were.

Mr Hatch hopes his bill will become law by the end of the year. If it does, it should limit the costs to American business and insurers of asbestos claims, which in recent years have run out of control. So far, litigation has cost corporate America well over $54 billion. If nothing is done, another $200 billion might be added ton top, says the RAND Institute of Civil Justice, a think-tank in California. One-third of the 600,000 suits filed since the first, in 1966, are still pending. About two-thirds of the total have been brought by the "worried well"—people who are not ill, but think that they might be one day because of past exposure to asbestos. Often the litigation can be as damaging as the eventual damages because of the uncertainty overhanging the business. Shares in ABB, a Swiss-Swedish engineering conglomerate, plunged last autumn after it emerged that an American unit, Combustion Engineering, faced bankruptcy thanks to thousands of crippling asbestos lawsuits. On July 10th, ABB's shares jumped when it secured approval of a $1.2 billion settlement from an American bankruptcy judge, although the ruling is still subject to appeal. The deal would cap ABB's total costs, including compensation already paid, at $2.3 billion, compared with worst-case estimates of $4 billion-10 billion.

Although a limit to all this may be in sight, insurers remain far from happy with Mr Hatch’s plan. They say it will cost too much and will not, after all, put an end to uncertainty about what they will eventually have to pay. On July 3rd the American Insurance Association (AIA), a lobby group, wrote to Mr Hatch to express its "serious concerns". It said it would oppose his bill unless the prospective cost is reduced to the level written into an earlier draft.

Mr Hatch’s bill fixes ten different medical criteria, ranging from mesothelioma, a form of lung cancer, and asbestosis, a progressive scarring of lung tissue, through to shadows on X-rays. Insurers consider some of these too generous, such as a new category, “mixed causation”, created for people whose illness has uncertain causes that could include asbestos. “This makes the fund a magnet for new claims,” says Julie Rochman of the AIA.

Mr Hatch’s first draft said that insurers and companies would each pay $45 billion into the $108 billion fund. The rest would come from the trusts of companies bankrupted by asbestos. However, the Democrats are unhappy with an approach that would seek to establish the size of the fund first: they fear the consequences if the fund runs out and leaves victims uncompensated. They have got Mr Hatch to accept that the maximum award for mesothelioma sufferers should be $1m, compared with the $750,000 first proposed. A further proposal by two Democratic senators to raise the ceiling to $1.1m, which would have increased the fund size to $128 billion, was defeated in committee. The fight is likely to continue as the bill progresses, especially since the unions have portrayed the bill as lining the pockets of insurers and businesses at the expense of dying workers.

Despite their public misgivings, insurers consider the bill to be better than none at all. Privately, they admit they had feared paying much more for asbestos compensation than even the Democratic amendments propose. Business may also be relieved. One controversial beneficiary would be Halliburton, the energy group formerly run by the vice-president, Dick Cheney.

Insurers note that the bill has the great merit of sidelining the lawyers: until now, 40 cents of every dollar spent on compensation has gone in legal fees. No wonder the Association of Trial Lawyers of America (ATLA) is stepping up its fight against the bill. It claims that, if it is passed, defendants and their insurers "will laugh all the way to the bank". Yet the lawyers have little sympathy from anybody except those Democrats who depend on the ATLA's campaign cash. As Hank Greenberg, head of American International Group, the world's biggest insurer, put it: "The only people not benefiting from the Hatch bill would be the trial bar, and that, of course, would make us all very sad."

Posted by DeLong at July 14, 2003 10:50 AM | TrackBack

Comments

"The only people not benefiting from the Hatch bill would be the trial bar, and that, of course, would make us all very sad."

I second that. You can often tell how good legislation is by its enemies. That trial lawyers oppose something that is good for industry and good for the public surely shows that the torts system as it normally function is seriously skewed in the ambulance chasers' interests.

Posted by: PJ on July 14, 2003 11:37 AM

Prof DeLong writes:

"Why the courts refused to use our class-action legal tools to pursue a just resolution of asbestos claims is a mystery to me."

There are limits to what the courts can do by way of class actions. In particular, in the ordinary class action for damages, a court must find that "questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy." (Federal Rule of Civil Procedure 23(b)(3).)

What does this mean? Among other things, it means that the issues at the center of the dispute must be pretty close to the same for every class member.

For instance, I would guess that in most asbestos cases, whether the plaintiff was ever exposed to asbestos is almost never in dispute. The big question is whether the exposure caused the plaintiff's illness. That's by nature an individualized question, and there's no benefit to trying such cases en masse before a single jury -- in fact, it's positively worse than trying them individually.

Simplifying somewhat, that's why there's never been a successful class action by smokers against tobacco companies. (The tobacco lawsuits that led to the big settlements were brought by states alleging that they were injured by having to make Medicare and other payments for tobacco-related illnesses.)

Posted by: alkali on July 14, 2003 12:00 PM

Thanks. The lawyers in the family agree with these doubting comments. When Orrin Hatch is proposing legislation, look to your wallets or here the needs of asbestos sufferers. As a physician, I have little sympathy for companies that knew well the hazards of asbestos for decades but did not suitably protect workers from the awful exposure consequences.

Posted by: rhonda on July 14, 2003 12:31 PM

There may also be reluctance by many companies to
expand class-action criteria. This is for asbestos,
but other companies may be worried about consequences.
The disadvantage of class-actions, from the defendants' viewpoint, is that the plaintiffs can pool resources, expertise and money. If cases are handled one-by-one, any that look like they'll succeed can be offered out of court settlements, under the condition that the defendants agree to sealing the records. Other defendants can by exhausted by delays.

Posted by: Barry on July 14, 2003 12:31 PM

Barry writes:

"There may also be reluctance by many companies to expand class-action criteria."

Just to be clear on the procedure: usually what happens is that a plaintiff will file a case against a defendant, and then that plaintiff will move the court to certify him as a representative of all persons who fall within a specifically defined "class" of people with similar claims.

(The plaintiff making the motion usually offers a definition, e.g., "All persons who bought FraudCo stock in the initial public offering." The definition has to be written in a way that makes it reasonably clear who's in the class: "All persons suffering from diseases or injuries caused by product X" is not a good class definition because it begs the entire question of who if anyone was injured by the product.)

Typically, the defendant will then oppose the motion, usually by arguing that there are legal and factual differences between the claims that members of the proposed class would bring. Defendants do this sometimes for the reason Barry suggests -- i.e., it's easier to wear down individual plaintiffs -- but they also do it because there often are real differences between the claims of various class members.

Whether the motion for class certification will be granted is up to the court, of course. There are now special rules of procedure in federal court to allow immediate appeals of decisions on these motions, because for obvious reasons it can be very important for all parties whether a class is certified in a case.

Under the rules, a defendant can move for class certification too, but it's pretty rare in practice.

Posted by: alkali on July 14, 2003 01:31 PM

Yeah, leave it to corporations and Orrin Hatch to decide that when you die a painful early thanks to industrial malfeasance, you certainly don't deserve more than $1.1 million dollars.

This cap is peanuts for somebody who's 50 years old and has a spouse with a mortgage and college tuition and medical and legal expenses and lost future income.

Younger people often die from asbestos illness, including a US Congressman, whose name escapes me at the moment. He was exposed for just a couple of years in college, and died at 46.

Posted by: jacko2 on July 14, 2003 04:09 PM

It is a very tough call. I have some experience in the matter as my father passed away of asbestosis. If I recall correctly his net gain from litigation was around 400-500 thousand. All of this money came in drips and drabs as each company settled with the class. My father was fortunate in retireement ,his medical bills where paid for by a combination of union, corporate and medicare. He showed limited symptoms of the disease from age 60-67. After this it got progressively worse and was extremly uncomfortable- emphysema, nasty cuoghs etc.. Finally passed away at 75. I don't know if this timeline is typical or not. He was on the front lines of asbestos use as steam fitter in the 40's and 50's and later in construction management. A regular "Golden Boy" for his class. If these settlements reflect an after medical cost payout it looks to me like a better deal for the victims. The medical costs for someone uninsured are staggering. I do not begrudge the lawyers. If it weren't for them no one would have collected a penny and noone would have been held accountable. And, I'm always suspect when the gop wants to help.

Posted by: JM on July 15, 2003 07:00 AM
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