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The Dimensions of Asbestos Litigation. Stephen Carroll September 2002. RAND INSTITUTE FOR CIVIL JUSTICE. Trends in Asbestos Litigation Are Raising Policy Concerns. Asbestos litigation began to attract policy attention in early 1980s

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the dimensions of asbestos litigation
The Dimensions ofAsbestos Litigation

Stephen Carroll

September 2002

RAND INSTITUTE FOR CIVIL JUSTICE

trends in asbestos litigation are raising policy concerns
Trends in Asbestos Litigation Are Raising Policy Concerns
  • Asbestos litigation began to attract policy attention in early 1980s
  • Settlement agreements in late 1980s led many to believe litigation was “manageable”
  • But rapid increases in the number of claims and costs have reawakened interest
  • Growth in litigation appears likely to continue
  • Is there a better way of compensating asbestos victims?
to address these concerns policymakers must know dimensions of the litigation
To Address These Concerns, Policymakers Must Know Dimensions of the Litigation
  • How many claims and of what type?
  • Who are the defendants?
  • How much is being spent on litigation?
  • How much of that goes to claimants?
  • What is the extent of asbestos bankruptcies?
  • What are their broad economic effects?
  • Where is this all headed?

Claims

Costs

Economic effects

Future outlook

The RAND study addressed these questions

over 600 000 claimants to date
Over 600,000 Claimants to Date
  • 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
  • Typical claimant files against several dozen defendants
annual claims filings have risen sharply since 1990
Annual Claims Filings Have RisenSharply Since 1990

90,000

Asbestos Claims Against Five Major Defendants

80,000

70,000

Number of

60,000

claims

50,000

40,000

30,000

20,000

10,000

0

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

other nonmalignant claims account for the growth in claims
“Other” Nonmalignant ClaimsAccount for the Growth in Claims

5

Mesothelioma

Other Cancer

Asbestosis

4

Other

Ratio of the number of claims in each year to the number of claims in 1990

3

2

1

0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

various sources suggest increasing numbers of claimants are unimpaired
Various sources Suggest Increasing Numbers of Claimants Are Unimpaired
  • 1982 4% of claims showed no manifest asbestos-related injury (RAND)
  • 1993 Up to one-half of all asbestos claims have little or no physical impairment (Harvard Journal of Legislation)
  • 1998 No evidence of disease in 57% of asbestos claims (Manville Trust)
  • 200174% of pending claims are unimpaired (confidential report prepared for a defendant)
  • Two-thirds of claims show no evidence of impairment (Babcock & Wilcox)
  • Vast majority of claims provide no evidence of impairment (Rourke)
the number and range of defendants have also increased sharply
The Number and Range ofDefendants Have Also Increased Sharply
  • Our list of defendants includes over 6,000 firms
    • Increasing number of defendants outside the asbestos and building products industry
    • Both large and small businesses
  • At least one company in nearly every U.S. industry (at the 2-digit SIC level) now involved in litigation
  • By 1998, non-traditional defendants account for over 60% of expenditures (confidential study)
estimated total costs of resolving asbestos claims through 2000 54 b
Estimated Total Costs of Resolving Asbestos Claims Through 2000: $54 B
  • Publicly available data are very limited
  • We estimate total outlays of $54 B through 2000
    • U.S. insurers $22 B
    • Insurers outside U.S. $8 to 12B
    • Defendants $20-24 B
  • At least 5 major companies have spent more than $1B each on asbestos litigation
transaction costs have consumed more than half of total spending
Transaction Costs Have Consumed More Than Half of Total Spending

100

Plaintiff Compensation

Plaintiff Expenses

Defense Expenses

80

60

40

20

0

1990s

Litigation

1980s

Litigation

And they are likely to go back up in next decade

but transaction costs of bankruptcy trusts may be low
But Transaction Costs of BankruptcyTrusts May Be Low

100

Plaintiff Compensation

Plaintiff Expenses

Defense Expenses

80

60

40

20

0

1980s

Litigation

Manville

Trust

it is difficult to determine what an individual claimant receives
It Is Difficult To Determine What An Individual Claimant Receives
  • Only plaintiffs and their attorneys know how much claimants receive (net)
    • Claimants receive money from multiple sources over long time periods
    • Defendants pay different amounts for same injuries
    • There are wide variations by jurisdiction
    • Most of the data are not public
  • But some aggregate distributional data are available
most dollars are paid to nonmalignant claimants

Mesothelioma

17%

Other cancer

20%

Nonmalignant

63%

Most Dollars Are Paid to Nonmalignant Claimants

Estimated Allocation of Compensation 1991-2000

bankruptcies are becoming more frequent
Bankruptcies Are Becoming More Frequent
  • 3 bankruptcies in 1982--the first ones
  • 13 more in the rest of the 1980s
  • 9 in the first half of the the 1990s
  • 9 in the second half
  • 22 since January 1, 2000
  • 4 dates to be determined
costs of bankruptcy can be substantial
Costs of Bankruptcy CanBe Substantial
  • Transaction costs of bankruptcy reorganization are generally about 3% of firm value
  • Bankruptcy imposes other costs
    • Disrupts relationships with suppliers and customers
    • Impairs (or eliminates) access to credit
    • Distracts managers’ attention
  • After reorganization, the bankruptcy trust may hold all or most of the firm’s equity
and bankruptcy is only part of the story
And Bankruptcy Is OnlyPart of the Story
  • Defendants’ net payments to asbestos claimants weaken their financial position, cost jobs
    • Reduce retained earnings
    • Increase the cost of capital
    • Reduce investment
    • Reduce creation of new jobs
  • However, other firms’ reactions may offset these losses
the future course of litigation is uncertain
The Future Course of Litigation Is Uncertain
  • Experts’ future projections also vary dramatically
    • Total claims: 1.1 to 3.1 million
    • Total costs: $200 to 265 billion
  • Whether there will be money left to pay future claimants—and who will pay —remain open questions
will there be enough money for future claimants
Will There Be Enough Money for Future Claimants?

Compensation as percent of liquidated value

  • 1988Trust payments began
  • 1990 Payments suspended
  • 1995Payments resumed
  • 2001Payment plan revised

Example of Johns-Manville raises doubts

100%

(Only exigent cases paid)

10%

5%

policy implications
Policy Implications
  • How to resolve asbestos claims fairly and efficiently is still a significant policy question
  • We may have seen less thanhalf of all claims that will ultimately come forward
  • Current bankruptcies provide a window of opportunity for reviewing and rethinking our strategy