This post follows up on a prior post that described the Manville asbestos trust halting its prior practice of licensing its claims data to third parties for uses such as estimating future claim counts, seeing evidence of claiming trends, and weeding out fraudulent claims.
After the original post, I heard two sets of comments through emails, phone calls and personal conversations. First, I heard multiple comments that fall into the general category of complaints that the Manville data cutbacks are exacerbating an already difficult claims management situation arising from the absence of verifiable public data on asbestos claim payments.
Second, I heard from professionals at Navigant regarding a database of asbestos claims it is licensing to users, and its ongoing efforts to expand the scope of the database. Navigant is the name of a consulting firm that today is home for scores of professionals with massive asbestos experience. Navigant's data and professionals have roots in extensive work for insurers and insureds on asbestos claims as the claim morphed in the late 1970s and early 1980s. I'm happy to give its database a bit of a plug here because I know from personal experience that Navigant's professionals do lots of great work on asbestos claims. Indeed, back in the 1980s, I worked with several of their professionals (then at Peterson & Co.) on the dinosaur known as "asbestos-in-buildings" claims. (That species of asbestos claims long ago became extinct in the tort system due to lack of merit, but - incredibly - those claims still live on in the alternative universe of asbestos trusts. Why that is so is a story for another day. )
Marketing material for the Navigant database is available here. The gist is that the database includes a variety of useful data, with two subsets that are especially valuable. One subset consists of all mesothelioma lawsuits filed in the United States beginning in 2005. The data can be organized by state and in time sequence. These are powerful tools to evaluate the scope of recent mesothelioma claims, which today are the claims driving the majority of the costs for asbestos defendants and/or insurers. The database also identifies the entities named as defendants in each case, and to the extent available from the complaint, the nature of the plaintiff's trade and alleged dates of asbestos exposure. This information also is highly useful for assessing the relative role of a particular defendant as compared to others, and for assessing insurance issues tied to exposure date allegations.
Navigant's Brad Drew and others are responsible for the database, and tell me they are working on trying to expand the database through cooperative efforts among defendants and others. Hopefully they succeed in the far less than simple task of herding together decision-makers and information from the key players among the thousands of asbestos defendants. (Once upon a time back in the late 1980s and early 1990s, the plaintiffs were at a disadvantage because the relatively limited set of defendants and insurers actually worked pretty well together to share claims data and war stories. That stopped being true as more and more of the original original defendants fell into bankruptcy and the number of defendants exponentially expanded as plaintiff's lawyers and experts started selling the notion that even the tiniest "exposure" constitutes a "cause" of disease.)
The Navigant database also includes hundreds of thousands of old asbestos claims assembled over the many years that Navigant has been processing claims for insurers and defendants. This data also can be very valuable for estimating claims, perceiving trends and proving up facts regarding the "elephantine mass' of asbestos claims. Old claims also may be used to find fraudulent multiple claims by one person.
It's great that Navigant is making this data available. That said, it seems incongruous that there is no free, national database of objective data regarding asbestos litigation.
Friday, April 10, 2009
Wednesday, April 8, 2009
Response to Wonk 411 Comment Seeking to Justify Part of the GIT Result
Wonk 411 posted a comment regarding my April 7 post on GIT. You can read the full comment under the post.
In essence, Wonk 411 trys to justify the GIT result by suggesting that silica exposures are different than asbestos exposures because some silica exposures may be ongoing. Wonk is right that silica exposures may be ongoing. That is, however, a distinction without a difference for at least two reasons. First, Wonk assumes that asbestos exposures are over, but in fact they are ongoing for many products. Second, the theory for enjoining claims is to protect a company against a judgment that might hurt its finances. But that risk of an adverse judgment also arises from new silica exposures as it does from old silica exposures. The risk of adverse judgments also arises if a company issues misleading SEC filings or engages in fraud, but certainly no one would suggest that a bankruptcy court would or should immunize it from being sued. The same risk also arises from suits by state Attorney Generals, which is why they filed an amicus brief discussed in today's post. So, I appreciate Wonk taking the time to comment, but I'd say the comment is wrong. See below as to ongoing asbestos exposures, a subject I know way too well from having litigated asbestos-in-buildings cases for 9 years for GAF and then WR Grace.
In fact, asbestos exposures are or may still be occurring today. How and why is that? Because many asbestos-containing products are still in place, and some of the products may give off fibers if disturbed under certain conditions. Thus, the buidling materials sold by various bankrupt companies remain in place in buildings. For example, W.R. Grace's asbestos-containing Monokote fireproofing is still installed on the beams of many buildings for fire protection. Innumerable feet of wallboard still are joined by joint compounds containing asbestos. Millions of feet of asbestos-containing pipe-covering are still installed in pipe chases and boiler rooms around the nation. Millions of pieces of Congoluem's allegedly dangerous floor tiles also are still in place in hospitals and schools. Want proof? Look at the claims in asbestos bankruptcies that are filed by Dan Speights' law firm as counsel for building owners with asbestos-products still in place. They want lots money to repair or replace the materials even though claimants long ago stopped bringing the claim in the tort system because they could not reliably win the claims. You also clould read Judge Fitzgerald's opinion denigrating the viability of Zonolite insulation claims. You can see the opinion here. The opinion (correctly) concluded as follows:
"Claimants were required to show a disputed material fact to establish that ZAI poses an unreasonable risk of harm. Claimants failed to provide any epidemiological evidence or any risk assessment. They have shown no material fact in dispute. Claimants cited to the OSHA standard as an applicable regulatory yardstick, but failed to account for the lifetime exposure differences between the workplace and a home attic insulated with ZAI. In addition, the evidence established that the risk of exposure from ZAI in the home is less than that of dying in a bicycle accident, by drowning, or from food poisoning.
The various Daubert objections have been addressed in this opinion and will be incorporated into an order.
Without any scientifically reliable evidence indicating that ZAI poses an unreasonable risk of harm, this court must grant Grace’s motion for summary judgment in part and deny claimants' motion for summary judgment in part, limited to the threshold issue of unreasonable risk of harm as it pertains to all proofs of claim. While the determination made herein may prove to be fatal to the property damage claims, several different theories of liability were proposed in the individual proofs of claim and may still need to be addressed..... "
In essence, Wonk 411 trys to justify the GIT result by suggesting that silica exposures are different than asbestos exposures because some silica exposures may be ongoing. Wonk is right that silica exposures may be ongoing. That is, however, a distinction without a difference for at least two reasons. First, Wonk assumes that asbestos exposures are over, but in fact they are ongoing for many products. Second, the theory for enjoining claims is to protect a company against a judgment that might hurt its finances. But that risk of an adverse judgment also arises from new silica exposures as it does from old silica exposures. The risk of adverse judgments also arises if a company issues misleading SEC filings or engages in fraud, but certainly no one would suggest that a bankruptcy court would or should immunize it from being sued. The same risk also arises from suits by state Attorney Generals, which is why they filed an amicus brief discussed in today's post. So, I appreciate Wonk taking the time to comment, but I'd say the comment is wrong. See below as to ongoing asbestos exposures, a subject I know way too well from having litigated asbestos-in-buildings cases for 9 years for GAF and then WR Grace.
In fact, asbestos exposures are or may still be occurring today. How and why is that? Because many asbestos-containing products are still in place, and some of the products may give off fibers if disturbed under certain conditions. Thus, the buidling materials sold by various bankrupt companies remain in place in buildings. For example, W.R. Grace's asbestos-containing Monokote fireproofing is still installed on the beams of many buildings for fire protection. Innumerable feet of wallboard still are joined by joint compounds containing asbestos. Millions of feet of asbestos-containing pipe-covering are still installed in pipe chases and boiler rooms around the nation. Millions of pieces of Congoluem's allegedly dangerous floor tiles also are still in place in hospitals and schools. Want proof? Look at the claims in asbestos bankruptcies that are filed by Dan Speights' law firm as counsel for building owners with asbestos-products still in place. They want lots money to repair or replace the materials even though claimants long ago stopped bringing the claim in the tort system because they could not reliably win the claims. You also clould read Judge Fitzgerald's opinion denigrating the viability of Zonolite insulation claims. You can see the opinion here. The opinion (correctly) concluded as follows:
"Claimants were required to show a disputed material fact to establish that ZAI poses an unreasonable risk of harm. Claimants failed to provide any epidemiological evidence or any risk assessment. They have shown no material fact in dispute. Claimants cited to the OSHA standard as an applicable regulatory yardstick, but failed to account for the lifetime exposure differences between the workplace and a home attic insulated with ZAI. In addition, the evidence established that the risk of exposure from ZAI in the home is less than that of dying in a bicycle accident, by drowning, or from food poisoning.
The various Daubert objections have been addressed in this opinion and will be incorporated into an order.
Without any scientifically reliable evidence indicating that ZAI poses an unreasonable risk of harm, this court must grant Grace’s motion for summary judgment in part and deny claimants' motion for summary judgment in part, limited to the threshold issue of unreasonable risk of harm as it pertains to all proofs of claim. While the determination made herein may prove to be fatal to the property damage claims, several different theories of liability were proposed in the individual proofs of claim and may still need to be addressed..... "
19 States File Amicus Brief to Oppose Broad Preemptive Orders Issued By Asbestos Bankruptcy Courts - GIT Case
This post follows up on the amicus brief mentioned in yesterday’s post regarding the GIT asbestos chapter 11 case that is set for oral argument on May 20 in the Third Circuit.
19 state AGs filed an amicus brief in the GIT case to urge the 3rd Circuit to block the efforts of the debtor and the asbestos and silica plaintiff's bar to use bankruptcy court preemption powers to give asbestos and silica claimants exclusive access to GIT's insurance policies. The AG's brief explains that the 19 states are concerned because their states may be claimants in environmental cases seeking damages from GIT. In their view, bankruptcy court orders should not preclude states from seeking monies from GIT insurance policies that otherwise should be available to pay damages. the states might win. In other words, the tiny number of silica claims described in yesterday’s post, plus asbestos claims, should not be be used to ordinary preempt state law and should not leave the asbestos and silica personal injury claimants with exclusive access to insurance policy proceeds generated from GIT insurance policies.
The amicus brief explains in detail why that result is bad policy, and join with the insurers in attacking the broad preemption powers that the bankruptcy court purported to exercise under bankruptcy code section 1123. According to the amici, the conclusion of the lower courts is "extremely dangerous" because it allows bankruptcy court to become a "haven for wrongdoers."
The amicus brief is well worth reading in its entirety, and is available at the end of the compilation of GIT briefs available here. The following sets out some full text from the amicus brief, at 2-4, in order to provide a taste of intensity of the 19 states that disagree with the broad preemption result sought by the debtor and the asbestos and silica claimants:
“The conclusion of the bankruptcy and the district courts herein - that the opening phrase in Section 1123(a), "Notwithstanding any otherwise applicable nonbankruptcy law to the contrary," does impose such a broad preemptive effect -is deeply flawed in that it reads that language without any historical context, and without any attempt to harmonize that language with the rest of the Bankruptcy Code. And, by reaching that conclusion, the lower courts have created a situation by which an entity can use bankruptcy to escape from all regulatory authority if it can convince a bankruptcy court that doing so would allow it to implement its plan.
Such a result would fly in the face of the oft-repeated axiom that bankruptcy is not meant to be a "haven for wrongdoers." 1 Collier Bankruptcy Man. P 362.04 at 362-23 (4th ed. 1980); 2 Collier on Bankruptcy P 362.04 at 362-36 (15th ed. 1980) as cited by Securities and Exchange Commission v. First Financial Group of Texas, 645 F.2d 429, 439 fn. 16 (5th Cir. 1981) and numerous other circuit courts thereafter. It is certainly the case that many valid laws create operating difficulties for those who do not wish to follow their strictures. The Code, though, does not allow a debtor to flout those requirements during the case. Sections 362(b)(1) and (4), for example, except governmental criminal and civil regulatory actions from the automatic stay; 28 U.S.C. 959(b) requires debtors to obey the laws of the states with respect to the property of the estate during the case; and 28 U.S.C. 1452(a) bars debtors from removing regulatory actions to bankruptcy court from the state courts in which they are pending. Yet, under the interpretation espoused below, those constraints disappear as soon as the debtor proposes a plan under which it asserts that it needs to avoid the restrictions in order to successfully reorganize.
Such a reading of this language would destroy the Amici States’ ability to preserve their regulatory authority in the face of a bankruptcy filing. It could allow a debtor to propose and confirm a plan with terms that provide for anything from ignoring the limits on charitable conversions, to barring enforcement of clean-up obligations for contaminated property that it retains post-petition, to denying state consumer protection agencies the ability to bar the debtor from continuing methods of operations that are unfair and deceptive and violate state law. The Amici States do not believe that any such result could possibly have been contemplated by Congress in adding this language to Section 1123 in 1984 as a "technical amendment." (see discussion below, pp. 15-17). They file this brief to urge this court to reverse the decisions below and find that the appropriate scope of preemption under Section 1123 is far narrower than that stated in the decisions at issue and, properly read, does not bar appellants from raising their substantive arguments. The Amici States are not concerned with the final outcome of that substantive litigation, and take no position on the merits of the insurers’ antiassignment defense; their only concern is with the extremely dangerous consequences of the means by which the lower courts arrived at the conclusion that insurers are barred from even raising those issues. (footnotes omitted)."
19 state AGs filed an amicus brief in the GIT case to urge the 3rd Circuit to block the efforts of the debtor and the asbestos and silica plaintiff's bar to use bankruptcy court preemption powers to give asbestos and silica claimants exclusive access to GIT's insurance policies. The AG's brief explains that the 19 states are concerned because their states may be claimants in environmental cases seeking damages from GIT. In their view, bankruptcy court orders should not preclude states from seeking monies from GIT insurance policies that otherwise should be available to pay damages. the states might win. In other words, the tiny number of silica claims described in yesterday’s post, plus asbestos claims, should not be be used to ordinary preempt state law and should not leave the asbestos and silica personal injury claimants with exclusive access to insurance policy proceeds generated from GIT insurance policies.
The amicus brief explains in detail why that result is bad policy, and join with the insurers in attacking the broad preemption powers that the bankruptcy court purported to exercise under bankruptcy code section 1123. According to the amici, the conclusion of the lower courts is "extremely dangerous" because it allows bankruptcy court to become a "haven for wrongdoers."
The amicus brief is well worth reading in its entirety, and is available at the end of the compilation of GIT briefs available here. The following sets out some full text from the amicus brief, at 2-4, in order to provide a taste of intensity of the 19 states that disagree with the broad preemption result sought by the debtor and the asbestos and silica claimants:
“The conclusion of the bankruptcy and the district courts herein - that the opening phrase in Section 1123(a), "Notwithstanding any otherwise applicable nonbankruptcy law to the contrary," does impose such a broad preemptive effect -is deeply flawed in that it reads that language without any historical context, and without any attempt to harmonize that language with the rest of the Bankruptcy Code. And, by reaching that conclusion, the lower courts have created a situation by which an entity can use bankruptcy to escape from all regulatory authority if it can convince a bankruptcy court that doing so would allow it to implement its plan.
Such a result would fly in the face of the oft-repeated axiom that bankruptcy is not meant to be a "haven for wrongdoers." 1 Collier Bankruptcy Man. P 362.04 at 362-23 (4th ed. 1980); 2 Collier on Bankruptcy P 362.04 at 362-36 (15th ed. 1980) as cited by Securities and Exchange Commission v. First Financial Group of Texas, 645 F.2d 429, 439 fn. 16 (5th Cir. 1981) and numerous other circuit courts thereafter. It is certainly the case that many valid laws create operating difficulties for those who do not wish to follow their strictures. The Code, though, does not allow a debtor to flout those requirements during the case. Sections 362(b)(1) and (4), for example, except governmental criminal and civil regulatory actions from the automatic stay; 28 U.S.C. 959(b) requires debtors to obey the laws of the states with respect to the property of the estate during the case; and 28 U.S.C. 1452(a) bars debtors from removing regulatory actions to bankruptcy court from the state courts in which they are pending. Yet, under the interpretation espoused below, those constraints disappear as soon as the debtor proposes a plan under which it asserts that it needs to avoid the restrictions in order to successfully reorganize.
Such a reading of this language would destroy the Amici States’ ability to preserve their regulatory authority in the face of a bankruptcy filing. It could allow a debtor to propose and confirm a plan with terms that provide for anything from ignoring the limits on charitable conversions, to barring enforcement of clean-up obligations for contaminated property that it retains post-petition, to denying state consumer protection agencies the ability to bar the debtor from continuing methods of operations that are unfair and deceptive and violate state law. The Amici States do not believe that any such result could possibly have been contemplated by Congress in adding this language to Section 1123 in 1984 as a "technical amendment." (see discussion below, pp. 15-17). They file this brief to urge this court to reverse the decisions below and find that the appropriate scope of preemption under Section 1123 is far narrower than that stated in the decisions at issue and, properly read, does not bar appellants from raising their substantive arguments. The Amici States are not concerned with the final outcome of that substantive litigation, and take no position on the merits of the insurers’ antiassignment defense; their only concern is with the extremely dangerous consequences of the means by which the lower courts arrived at the conclusion that insurers are barred from even raising those issues. (footnotes omitted)."
Tuesday, April 7, 2009
More on Manville/Travelers and Another Asbestos Bankruptcy Appeal - The GIT Case in the Third Circuit Set for Oral Argument in May
The Travelers/Manville case pending before the Supreme Court is only one of the asbestos Chapter 11 cases pending in federal appellate courts. This post deals with yet another such case, In Re Global Industrial Technologies, Inc. (GIT), an appeal pending in the Third Circuit; with oral argument scheduled for May 20, 2009. Like Travelers/Manville,the GIT case has generated a telling nonpartisan amicus brief, and focuses attention on fact patterns that illustrate why mass tort bankruptcy injunctions have been allowed to go too far by rulings that block effective challenges to the plan by would-be objectors. The amicus brief and opening appellate briefs from the insurers are collected here.
GIT Issues and Arguments by Hartford
GIT presents multiple significant issues raised by insurers of GIT that seek to overturn the confirmed plan. Hartford raises perhaps the most interesting issues. One is its assertions is, in essence, that asbestos claims were used as an improper excuse for the bankruptcy court to issue an unnecessary and unconstitutional section 105 injunction at the behest of plaintiff's lawyers to create an unneeded "silica trust" to pay allegedly fraudulent silica claims. Hartford argues that the lower courts rubber-stamped the silica trust and injunction as "necessary" after the lower courts held that Hartford and other insurers lacked standing to object to the plan. According to Hartford, the silica trust is in reality "a scheme to use the bankruptcy process to generate .... dubious or fraudulent silica-related claims, to hand Debtors’ insurers the bill for those claims, and to deprive insurers of defenses to coverage arising from that very scheme." Hartford Brief at 1.
To support its argument, Hartford musters various proofs, three of which are compelling both individually and collectively. Hartford's points are summarized immediately below with citations to the brief. Extended quotes from the brief are set out at the bottom of this text.
First, Hartford points out that the plan only enjoins silica claims arising from alleged "exposures" prior to a certain date (the date the chapter 11 petition was filed), and thus the plan leaves GIT liable to pay all silica claims arising from later exposures. Hartford Brief at n. 7. It certainly does seem illogical to argue that it's "necessary" to resolve only some but not all of a set of potential future claims.
Second, Hartford points out that the "silica trust" is not funded by the debtor, and instead is to be funded only by monies paid out from some $ 500 million of GIT insurance policies that contain "asbestos exclusions." The asbestos exclusions render the policies unable to pay asbestos claims. Hartford Brief at 9-10. As Hartford argues, it certainly is illogical to argue in an asbestos bankruptcy that is "necessary" to resolve silica claims to be paid from insurance policies that can not be used to pay asbestos claims.
Third, Hartford contrasts silica claiming facts before the chapter 11 petition was filed to the silica claiming facts after the petition was filed. Prior to the petition, GIT had been sued in less than 200 silica cases, GIT had not paid out any money on silica claims, and its insurers had only paid out $ 312,000 for silica claims. Hartford Brief at 8. In contrast, after the petition was filed, silica claims were soon submitted in droves (over 4,500). As Hartford points out, the sudden spate of claims was a win-win for everyone but the insurers since the spate of claims gave GIT votes needed to approve its plan under section 524(g), and payments by the trust on the claims would over time generate money for claimants and their lawyers, with the claims judged by the trust under a limp "proof" standard. Hartford Brief at 9-14. Thus, everyone would be happy except the insurers called on to pay the silica claims after approval by the trust.
Lessons from GIT for Manville/Travelers
At least two points may be drawn from the facts regarding the silica trust and the use of the GIT insurance policies for silica claims but not asbestos claims. One point is that the facts of the silica trust situation should be tested against the Travelers/Manville hypothetical question posed by Justice Roberts. He asked whether an asbestos chapter 11 court could issue an injunction to resolve "traffic accident" claims if the insurer maintained that resolving the traffic accidents were "necessary" for it to agree to the resolution of the asbestos claims. Plainly the hypothetical ordinarily should be answered: "no," if bankruptcy power is to have any limits, absent a detailed and explicit record proving actual necessity, with the record having been subject to meaningful testing by an actual adversary. (Such a record does not appear to exist in Travelers/Manville.) Otherwise, the parties agreement that a deal is "necessary" will bind the hands of the bankruptcy court, and will give the debtor and friends control over the use of federal bankruptcy court power. Consider also that the injunction issued in GIT is even less defensible as "necessary" because the injunction was issued over the objection of the insurer, thus meaning that the only "necessity" arose from the debtor and the plaintiff's lawyers agreeing on a deal that cost them nothing.
The facts of GIT also prove that chapter 11 cases can be completed, and deals can and will be reached between debtors and personal injury plaintiff's lawyers, even without agreement from insurers. Thus, the deal disproves Travelers naked assertion that chapter 11 cases will be concluded only if insurer are given relief that extends far beyond claims tightly derivative of claims against the debtor. Note further that GIT was willing to leave itself exposed to some but not all potential future silica claims, thus disproving Travelers' arguments that bankruptcies can end only if there is "finality" on all tort claims.
A future post will address the amicus brief, and the response briefs from the plan proponents.
Set out below are longer quotes from Hartford's brief.
________________
As to Hartford's point regarding the injunction being unnecessary because it only covers some but all future silica claims, Hartford's brief states the following:
"Under the plan, silica claims against A.P. Green based on exposure prior to the petition date will be channeled to the silica trust. JA119, JA892. Claims based on post-petition exposure will ride through the bankruptcy and become the responsibility of the reorganized Debtors. JA65, JA119, JA137." Hartford Brief at n.7.
Hartford's other two points are presented in the following text from pages 1, 7-14, with omissions as indicated by ellipses and stars:
In recent years, plaintiffs’ lawyers have flooded the courts with dubious or
outright fraudulent claims of silica-related injury. As the district judge presiding over the silica multidistrict litigation described such claims: "[T]hese diagnoses were driven by neither health nor justice: they were manufactured for money." In re Silica Prods. Liab. Litig., 398 F. Supp. 2d 563, 635 (S.D. Tex. 2005) (Jack, J.) This case centers on a scheme to use the bankruptcy process to generate similarly dubious or fraudulent silica-related claims, to hand Debtors’ insurers the bill for those claims, and to deprive insurers of defenses to coverage arising from that very scheme. Hartford Brief at 1.
***
Debtor A.P. Green Industries, Inc., a Missouri corporation founded in 1915,
manufactures and sells refractory products—construction materials used in high temperature environments.... Before the mid-1970s, several of the refractory products manufactured and sold by A.P. Green allegedly contained asbestos. Certain plaintiffs sued A.P. Green, claiming injury from exposure to those products. JA820. As of the bankruptcy filing in 2002, A.P. Green had paid approximately $448 million to resolve more than 200,000 asbestos-related claims, and an additional 235,000 asbestos-related claims were pending. JA820-821.
A.P. Green’s experience with silica was another story entirely. As of the
bankruptcy filing, there was exactly one lawsuit pending against A.P. Green,in Texas state court, consisting of claims by 169 individuals for bodily injury caused by silica-containing products. JA106, JA1011. Including those 169 claims, Debtors identified fewer than 200 claims asserted against A.P. Green for silica related injury in the 25 years before the bankruptcy. JA106. In those 25 years, A.P. Green never paid any of its own money on account of silica claims, and its primary insurer had paid only $312,000 to resolve such claims. JA106-107. Hartford Brief at 7-8.
B. Debtors’ Bankruptcy Filings And Plan
In February 2002, GIT and certain of its subsidiaries, including A.P. Green,
filed Chapter 11 bankruptcy cases. JA763-770. Debtors sought bankruptcy
protection not to address silica liability, but to address "adverse business
conditions" and "to deal with the overwhelming number of asbestos liability
lawsuits and claims pending against them." JA117; see also JA780 (Debtors filed for bankruptcy due to "the costs of asbestos litigation," a "deterioration of general business conditions," and an inability "to secure working capital financing").
In order to confirm a plan of reorganization that would resolve that
"overwhelming" asbestos liability, Debtors needed the approval of 75% of the
asbestos claimants, and thus needed to reach a deal with plaintiffs’ lawyers.
See In re Congoleum Corp., 426 F.3d 675, 680 (3d Cir. 2005) (noting that "[t]he realities of securing favorable votes from thousands of claimants to meet the 75% approvalrequirement forces debtors to work closely" with plaintiffs’ lawyers). In the course of negotiating that deal, Debtors determined that they had nearly $500 million in potential insurance coverage that did not cover asbestos claims (generally because of express asbestos exclusions, which became typical provisions in liability policies in the 1980s) but that, in their view, was available to cover silica claims. JA823. Accordingly, Debtors and asbestos plaintiffs’ counsel (many of whom also represented persons asserting silica claims against other companies) agreed upon a plan that included not just an asbestos trust and channeling injunction, but a silica trust and channeling injunction as well. JA2891, JA2893.7 Debtors and plaintiffs’ counsel also negotiated the Trust Distribution Procedures—the terms under which the silica trust would evaluate and pay claims. JA2968-3031. In addition, Debtors agreed with plaintiffs’ counsel that the Trust Advisory Committee and the Future Claims Representative—that is, many of the persons in charge of operating the trust and overseeing the evaluation and payment of silica claims—would be lawyers representing the interests of alleged silica claimants. JA1332-1404. Debtors are making no contribution of their own funds to the silica trust, which will be funded entirely by insurance. JA2894-2895. The trust is to receive $35.5 million in proceeds from several insurance settlements. In addition, A.P. Green will assign to the trust its rights under its insurance policies with asbestos exclusions, including policies issued by Appellants. JA892, JA2894-2895,
JA3037.
After agreeing with plaintiffs’ counsel to structure the plan to include the silica trust, Debtors actively sought out claimants to support the plan. Having virtually no silica claimants of their own, Debtors obtained a list of silica claimants from another company’s bankruptcy and solicited votes for their plan from counsel for those claimants (many of whom were the same firms representing asbestos claimants against Debtors). JA1466-1469. Ultimately, 5,125 votes were cast on behalf of persons with alleged silica claims against Debtors. JA1412. The bulk of these votes were submitted by a handful of law firms via master ballots. JA1417. Indeed, one law firm, the Provost Umphrey Law Firm, accounted for over half the votes. JA1334. Hartford Brief at 7-11.
[Brief describes Judge Jack's Silica MDL opinion finding fraud in silica claiming, and brief describes resulting tort reform legislation] These developments, combined with a review of the supplemental submissions in this case, leave little doubt that most of the claims asserted by the 5,125 silica claimants who voted on the plan are invalid. Over half the claimants who submitted supplemental forms were diagnosed by doctors whose diagnoses were rejected as fraudulent by Judge Jack. JA2074. In addition, over half the claimants had previously filed asbestos-related claims or been diagnosed with an asbestos-related disease, JA2159—making it extremely unlikely that they also had a legitimate silica-related claim. In re Silica Prods. Liab. Litig., 398 F. Supp. 2d at 603; see also JA1431 (Decl. of David Weill) (noting the near impossibility of a Case: 08-3650 Document: 00312869189 Page: 23 Date Filed: 12/04/2008 person’s contracting both an asbestos-related and a silica-related disease in a working lifetime). Fully 82% of the claims bore at least one of these markers of fraud. JA2159. Hartford Brief at 13-14.
GIT Issues and Arguments by Hartford
GIT presents multiple significant issues raised by insurers of GIT that seek to overturn the confirmed plan. Hartford raises perhaps the most interesting issues. One is its assertions is, in essence, that asbestos claims were used as an improper excuse for the bankruptcy court to issue an unnecessary and unconstitutional section 105 injunction at the behest of plaintiff's lawyers to create an unneeded "silica trust" to pay allegedly fraudulent silica claims. Hartford argues that the lower courts rubber-stamped the silica trust and injunction as "necessary" after the lower courts held that Hartford and other insurers lacked standing to object to the plan. According to Hartford, the silica trust is in reality "a scheme to use the bankruptcy process to generate .... dubious or fraudulent silica-related claims, to hand Debtors’ insurers the bill for those claims, and to deprive insurers of defenses to coverage arising from that very scheme." Hartford Brief at 1.
To support its argument, Hartford musters various proofs, three of which are compelling both individually and collectively. Hartford's points are summarized immediately below with citations to the brief. Extended quotes from the brief are set out at the bottom of this text.
First, Hartford points out that the plan only enjoins silica claims arising from alleged "exposures" prior to a certain date (the date the chapter 11 petition was filed), and thus the plan leaves GIT liable to pay all silica claims arising from later exposures. Hartford Brief at n. 7. It certainly does seem illogical to argue that it's "necessary" to resolve only some but not all of a set of potential future claims.
Second, Hartford points out that the "silica trust" is not funded by the debtor, and instead is to be funded only by monies paid out from some $ 500 million of GIT insurance policies that contain "asbestos exclusions." The asbestos exclusions render the policies unable to pay asbestos claims. Hartford Brief at 9-10. As Hartford argues, it certainly is illogical to argue in an asbestos bankruptcy that is "necessary" to resolve silica claims to be paid from insurance policies that can not be used to pay asbestos claims.
Third, Hartford contrasts silica claiming facts before the chapter 11 petition was filed to the silica claiming facts after the petition was filed. Prior to the petition, GIT had been sued in less than 200 silica cases, GIT had not paid out any money on silica claims, and its insurers had only paid out $ 312,000 for silica claims. Hartford Brief at 8. In contrast, after the petition was filed, silica claims were soon submitted in droves (over 4,500). As Hartford points out, the sudden spate of claims was a win-win for everyone but the insurers since the spate of claims gave GIT votes needed to approve its plan under section 524(g), and payments by the trust on the claims would over time generate money for claimants and their lawyers, with the claims judged by the trust under a limp "proof" standard. Hartford Brief at 9-14. Thus, everyone would be happy except the insurers called on to pay the silica claims after approval by the trust.
Lessons from GIT for Manville/Travelers
At least two points may be drawn from the facts regarding the silica trust and the use of the GIT insurance policies for silica claims but not asbestos claims. One point is that the facts of the silica trust situation should be tested against the Travelers/Manville hypothetical question posed by Justice Roberts. He asked whether an asbestos chapter 11 court could issue an injunction to resolve "traffic accident" claims if the insurer maintained that resolving the traffic accidents were "necessary" for it to agree to the resolution of the asbestos claims. Plainly the hypothetical ordinarily should be answered: "no," if bankruptcy power is to have any limits, absent a detailed and explicit record proving actual necessity, with the record having been subject to meaningful testing by an actual adversary. (Such a record does not appear to exist in Travelers/Manville.) Otherwise, the parties agreement that a deal is "necessary" will bind the hands of the bankruptcy court, and will give the debtor and friends control over the use of federal bankruptcy court power. Consider also that the injunction issued in GIT is even less defensible as "necessary" because the injunction was issued over the objection of the insurer, thus meaning that the only "necessity" arose from the debtor and the plaintiff's lawyers agreeing on a deal that cost them nothing.
The facts of GIT also prove that chapter 11 cases can be completed, and deals can and will be reached between debtors and personal injury plaintiff's lawyers, even without agreement from insurers. Thus, the deal disproves Travelers naked assertion that chapter 11 cases will be concluded only if insurer are given relief that extends far beyond claims tightly derivative of claims against the debtor. Note further that GIT was willing to leave itself exposed to some but not all potential future silica claims, thus disproving Travelers' arguments that bankruptcies can end only if there is "finality" on all tort claims.
A future post will address the amicus brief, and the response briefs from the plan proponents.
Set out below are longer quotes from Hartford's brief.
________________
As to Hartford's point regarding the injunction being unnecessary because it only covers some but all future silica claims, Hartford's brief states the following:
"Under the plan, silica claims against A.P. Green based on exposure prior to the petition date will be channeled to the silica trust. JA119, JA892. Claims based on post-petition exposure will ride through the bankruptcy and become the responsibility of the reorganized Debtors. JA65, JA119, JA137." Hartford Brief at n.7.
Hartford's other two points are presented in the following text from pages 1, 7-14, with omissions as indicated by ellipses and stars:
In recent years, plaintiffs’ lawyers have flooded the courts with dubious or
outright fraudulent claims of silica-related injury. As the district judge presiding over the silica multidistrict litigation described such claims: "[T]hese diagnoses were driven by neither health nor justice: they were manufactured for money." In re Silica Prods. Liab. Litig., 398 F. Supp. 2d 563, 635 (S.D. Tex. 2005) (Jack, J.) This case centers on a scheme to use the bankruptcy process to generate similarly dubious or fraudulent silica-related claims, to hand Debtors’ insurers the bill for those claims, and to deprive insurers of defenses to coverage arising from that very scheme. Hartford Brief at 1.
***
Debtor A.P. Green Industries, Inc., a Missouri corporation founded in 1915,
manufactures and sells refractory products—construction materials used in high temperature environments.... Before the mid-1970s, several of the refractory products manufactured and sold by A.P. Green allegedly contained asbestos. Certain plaintiffs sued A.P. Green, claiming injury from exposure to those products. JA820. As of the bankruptcy filing in 2002, A.P. Green had paid approximately $448 million to resolve more than 200,000 asbestos-related claims, and an additional 235,000 asbestos-related claims were pending. JA820-821.
A.P. Green’s experience with silica was another story entirely. As of the
bankruptcy filing, there was exactly one lawsuit pending against A.P. Green,in Texas state court, consisting of claims by 169 individuals for bodily injury caused by silica-containing products. JA106, JA1011. Including those 169 claims, Debtors identified fewer than 200 claims asserted against A.P. Green for silica related injury in the 25 years before the bankruptcy. JA106. In those 25 years, A.P. Green never paid any of its own money on account of silica claims, and its primary insurer had paid only $312,000 to resolve such claims. JA106-107. Hartford Brief at 7-8.
B. Debtors’ Bankruptcy Filings And Plan
In February 2002, GIT and certain of its subsidiaries, including A.P. Green,
filed Chapter 11 bankruptcy cases. JA763-770. Debtors sought bankruptcy
protection not to address silica liability, but to address "adverse business
conditions" and "to deal with the overwhelming number of asbestos liability
lawsuits and claims pending against them." JA117; see also JA780 (Debtors filed for bankruptcy due to "the costs of asbestos litigation," a "deterioration of general business conditions," and an inability "to secure working capital financing").
In order to confirm a plan of reorganization that would resolve that
"overwhelming" asbestos liability, Debtors needed the approval of 75% of the
asbestos claimants, and thus needed to reach a deal with plaintiffs’ lawyers.
See In re Congoleum Corp., 426 F.3d 675, 680 (3d Cir. 2005) (noting that "[t]he realities of securing favorable votes from thousands of claimants to meet the 75% approvalrequirement forces debtors to work closely" with plaintiffs’ lawyers). In the course of negotiating that deal, Debtors determined that they had nearly $500 million in potential insurance coverage that did not cover asbestos claims (generally because of express asbestos exclusions, which became typical provisions in liability policies in the 1980s) but that, in their view, was available to cover silica claims. JA823. Accordingly, Debtors and asbestos plaintiffs’ counsel (many of whom also represented persons asserting silica claims against other companies) agreed upon a plan that included not just an asbestos trust and channeling injunction, but a silica trust and channeling injunction as well. JA2891, JA2893.7 Debtors and plaintiffs’ counsel also negotiated the Trust Distribution Procedures—the terms under which the silica trust would evaluate and pay claims. JA2968-3031. In addition, Debtors agreed with plaintiffs’ counsel that the Trust Advisory Committee and the Future Claims Representative—that is, many of the persons in charge of operating the trust and overseeing the evaluation and payment of silica claims—would be lawyers representing the interests of alleged silica claimants. JA1332-1404. Debtors are making no contribution of their own funds to the silica trust, which will be funded entirely by insurance. JA2894-2895. The trust is to receive $35.5 million in proceeds from several insurance settlements. In addition, A.P. Green will assign to the trust its rights under its insurance policies with asbestos exclusions, including policies issued by Appellants. JA892, JA2894-2895,
JA3037.
After agreeing with plaintiffs’ counsel to structure the plan to include the silica trust, Debtors actively sought out claimants to support the plan. Having virtually no silica claimants of their own, Debtors obtained a list of silica claimants from another company’s bankruptcy and solicited votes for their plan from counsel for those claimants (many of whom were the same firms representing asbestos claimants against Debtors). JA1466-1469. Ultimately, 5,125 votes were cast on behalf of persons with alleged silica claims against Debtors. JA1412. The bulk of these votes were submitted by a handful of law firms via master ballots. JA1417. Indeed, one law firm, the Provost Umphrey Law Firm, accounted for over half the votes. JA1334. Hartford Brief at 7-11.
[Brief describes Judge Jack's Silica MDL opinion finding fraud in silica claiming, and brief describes resulting tort reform legislation] These developments, combined with a review of the supplemental submissions in this case, leave little doubt that most of the claims asserted by the 5,125 silica claimants who voted on the plan are invalid. Over half the claimants who submitted supplemental forms were diagnosed by doctors whose diagnoses were rejected as fraudulent by Judge Jack. JA2074. In addition, over half the claimants had previously filed asbestos-related claims or been diagnosed with an asbestos-related disease, JA2159—making it extremely unlikely that they also had a legitimate silica-related claim. In re Silica Prods. Liab. Litig., 398 F. Supp. 2d at 603; see also JA1431 (Decl. of David Weill) (noting the near impossibility of a Case: 08-3650 Document: 00312869189 Page: 23 Date Filed: 12/04/2008 person’s contracting both an asbestos-related and a silica-related disease in a working lifetime). Fully 82% of the claims bore at least one of these markers of fraud. JA2159. Hartford Brief at 13-14.
Proceedings are Underway in an Italian Criminal Prosecution of Owners and Managers for Exposing Employees to Asbestso Hazards
A Swiss media article describes significant media and partisan attention focused on the first day of trial in an asbestos-related criminal prosecution of former owners and managers of Eternit businesses that for decades were global manufacturers of asbestos-cement board, among many asbestos products. Hundreds of people are said to have gathered for the first day of the prosecution that involves allegedly knowing or reckless industrial hygiene decisions said to have resulted in premature deaths and injuries to over 2,500 manufacturing plant employees and local residents. The alleged misdeeds of Eternit have been widely chronicled over the years while this prosecution effort was ongoing. Informative articles are available here and here , and an article I wrote back in 2004 provides some context for EU businesses facing asbestso litigation's expansion into Europe.
Prosecutions of this sort raise a wide-range of issues. From the American perspective, perhaps the most striking aspect is that Italian law expressly allows trial that combine criminal and civil claims, thus giving the defendants significant risks that would not exist in a civil trial in the US. Italian law also allows the judge to reduce sentences to some degree if compensation is paid to victims. This trial will not end quickly - Italian criminal trials move slowly and include a variety of procedures not directly comparable to American criminal trials.
What's the likley outcome? My assumption/prediction is that this trial ultimately will result in Eternit entities and the individual defendants offering to plead guilty subject to a proviso limiting their sentences in return for creation of a significant private fund/trust that will pay money to claimants and that will make some payments to Italian government agencies such as INAIL to offset payments that have paid medical expenses for victims. I strongly suspect the deal will not be as cushy for the defendants as was the tobacco deal cut in the United States.
Prosecutions of this sort raise a wide-range of issues. From the American perspective, perhaps the most striking aspect is that Italian law expressly allows trial that combine criminal and civil claims, thus giving the defendants significant risks that would not exist in a civil trial in the US. Italian law also allows the judge to reduce sentences to some degree if compensation is paid to victims. This trial will not end quickly - Italian criminal trials move slowly and include a variety of procedures not directly comparable to American criminal trials.
What's the likley outcome? My assumption/prediction is that this trial ultimately will result in Eternit entities and the individual defendants offering to plead guilty subject to a proviso limiting their sentences in return for creation of a significant private fund/trust that will pay money to claimants and that will make some payments to Italian government agencies such as INAIL to offset payments that have paid medical expenses for victims. I strongly suspect the deal will not be as cushy for the defendants as was the tobacco deal cut in the United States.
Sunday, April 5, 2009
Asbestos & the Media - Korea
One factor behind asbestos litigation is the amount of media attention focused on asbestos. Accordingly, it's telling to see the increasing media attention around the globe. A current example arises as the Korean media focuses attention on products with talc that may or may not contain asbestos fibers. A Korea Times article of April 5 reports on 11 baby powers said to be "contaminated," and describes calls for investigations into whether balloons or gum used talc that contained asbestos fibers.
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