The Dimensions of Asbestos Litigation

1. The Dimensions ofAsbestos Litigation Stephen Carroll September 2003 RAND INSTITUTE FOR CIVIL JUSTICE

2. Dimensions of the Litigation • Claims • Costs and compensation • Economic effects • Future outlook

3. Over 730,000 Claimants Through 2002 • Number of claims filed annually has risen sharply • Average severity of claimed injuries is declining • Little change in frequency of seriously ill claimants • Increasing proportion of claims for less serious injuries • Dramatic shifts in filing patterns • Typical claimant files against several dozen defendants

4. Annual Claims Filings Have RisenSharply Since 1990 Asbestos claims against five major defendants 90,000 80,000 70,000 60,000 Number of claims 50,000 40,000 30,000 20,000 10,000 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

5. Nonmalignant Claims Accountfor the Growth in Claims 30 Mesothelioma Other Cancer 25 Nonmalignant Ratio of the number of claims in each year to the number of claims in 1980 20 15 10 5 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 A4632-2 0503

6. Controversy over Injury and Impairment • Many say most recent claimants are “unimpaired.” • Others say relevant issue is whether claimants satisfy legal criteria for injury. • Controversy turns on value judgments and medical criteria. • Studies suggest that most claimants without malignancies are not currently functionally impaired.

7. Filings Moved from Federal to State Courts Percent of filings in federal courts

8. And from Some States to Others 100 MD Other states 80 TX 60 Percent IL OH NJ 40 MS PA WV 20 NY CA 0

9. Dimensions of the Litigation • Claims • Costs and compensation • Economic effects • Future outlook

10. Estimated Total Costs of Resolving Asbestos Claims Through 2002: $70 B • Publicly available data are very limited • We estimate total outlays of $70 B through 2002 • At least 5 major companies have each spent more than $1 B on asbestos litigation

11. Most Dollars Were Paid toNonmalignant Claimants Distribution of Claims Estimated Allocation of Compensation Mesothelioma Other cancers 4% 9% Mesothelioma 20% Other cancers 20% Nonmalignant Nonmalignant 86% 60%

12. Transaction Costs Have ConsumedMore Than Half of Total Spending 100 Plaintiff Compensation Plaintiff Expenses Defense Expenses 80 60 Percent 40 20 0 1990s Litigation 1980s Litigation And they are likely to go back up in the future

13. Dimensions of the Litigation • Claims • Costs and compensation • Economic effects • Future outlook

14. More Than 8,400 Firms Have Been Named as Defendants • Our list of defendants includes more than 8,400 firms • Increasing number of defendants outside the asbestos and building products industry • Both large and small businesses • At least one company in 75 (of 83) U.S. industries (at the two-digit SIC level), now involved in litigation • By 1998, nontraditional defendants account for more than 60% of asbestos expenditures (confidential study)

15. Distribution of Defendantsby Industry (2-digit SIC) Percent SIC

16. Distribution of Defendantsby Industry (2-digit SIC) • 8–10 percent of defendants: 3 industries • Construction special trade contractors • Wholesale trade-durable goods • Water transportation • 4–5 percent of defendants: 5 industries • Fabricated metal products, except machinery and transportation equipment • Building construction general contractors and operative builders • Chemicals and allied products • Stone, clay, glass, and concrete products • Industrial and commercial machinery and computer equipment • 1–3 percent of defendants: 18 industries • Less than 1 percent: 49 industries

17. Bankruptcies Are Becoming More Frequent • First bankruptcy in 1978 • 19 in the 1980s • 17 in the 1990s • 29 in 2000s through 2002

18. And Bankruptcy Is OnlyPart of the Story • Defendants’ net payments to asbestos claimants weaken their financial position, cost jobs • Upper-bound estimates of effects on defendants: As of 2000 Eventually Reduced levelof investment $10 B $33 B Jobs not created 138,000 423,000 • However, other firms’ reactions may offset the overall effects on the economy

19. Dimensions of the Litigation • Claims • Costs and compensation • Economic effects • Future outlook

20. The Future Course of Litigation Is Uncertain • Analysts’ projections of total claimants and costs vary dramatically • Total claimants: 1 million to 3 million • Total costs: $200 billion to $265 billion • Whether there will be money left to pay future claimants—and who will pay —remain open questions

21. Widespread Agreement About the Current State of the Litigation... • Recent surge in filings • Majority of recent claimants are not currently functionally impaired • High transaction costs • Large number of bankruptcies • Spread of litigation through economy • Future claimants’ prospects are uncertain

22. Disagreement About • Whether reform is needed • If so, what reform would best remedy perceived problems

24. Verdicts Are Infrequent but AttractGreat Attention • Since 1993, out of hundreds of thousands of claims, few have been tried to verdict • 527 trial verdicts • 1,598 plaintiffs reaching verdict • Plaintiffs won two-thirds of the time • Mesothelioma plaintiffs were most successful • Most claims were tried in groups • In most trials, juries heard a small number of claims

25. A Few Large Awards Accounted forMost of All Dollars Awarded Distribution of Awards ($) Distribution of Dollars 1K–100K 10M 100K–1M 10M >1M–10M 0 100K–1M 1K–10K >1M–10M 10K–100K Source: RAND compilation

26. Five States Account for Most Verdicts 100% 90% Other MD 80% LA 70% CA 60% TX PA 50% 40% 30% 20% 10% 0% Plaintiffs Trials

27. An Increasing Share of VerdictsAre in Texas and Maryland Trials 100% Other 90% LA 80% PA 70% CA MD 60% TX 50% 40% 30% 20% 10% 0% '93-'95 '96-'98 ’99-'01