Economic cancer

While beleaguered victims of asbestos cancer continue their bitter fight for justice here in the UK, recent reports seem to suggest that an epidemic of lawsuits on the other side of the Atlantic are wreaking economic devastation. Commentators struggle to do justice to the scale of asbestos litigation – Fortune magazine memorably dubbed it: “The $200 billion miscarriage of justice” this year – and it has been reported that new research will reveal that asbestos claims now span 85 per cent of the US economy.
Over the past 12 months nine defendant companies have gone bankrupt and with the volume of new claims at 50,000 a year (compared with only 20,000 at the beginning of the 1990s), the end is nowhere in sight. Such apparent lunacy makes for odd allies and even some plaintiff lawyers have gone to the other side and joined industry in calls for restraint.
Californian attorney Steven Kazan of Kazan McClain Edises Abrams Fernandez Lyons & Farrise is the most outspoken lawyer-critic and he believes that a deluge of unworthy claims has now eclipsed those of the sick and the dying. “Most of the claims aren't in fact legitimate and the number of them dwarfs the good claims and eats up much of the assets available to pay the claims and so there isn't enough for the sick people,” Kazan comments. The Fortune article featured the seemingly healthy James Curry, a former railroad worker and septuagenarian jogger, who recovered $25m (£16.3m) as part of a settlement because he suffered from asbestos-related conditions revealed on an x-ray. Such conditions might need no treatment but they do qualify as “compensable injuries”. Cases like Curry's have turned “the original mass tort into the ultimate mass farce”, the magazine concluded.
Kazan, who filed his first asbestos claim in 1974 and has testified to Congress on such matters, will only take on cancer sufferers as clients. He recalls there was a time when he could promise his ill clients that, while he might not be able to compensate them in their lifetime, he could guarantee that their family would be financially secure. “I can't say that to my clients now and, yes, it's frustrating,” says the lawyer. “If it was just a result of the fact that there are a lot of sick people and not enough money then I could understand, but not when the money is diverted to people who have nothing wrong with them and lawyers who are already rich are made richer.” He reckons that there are “tens, if not hundreds of thousands” of claims with “no functional impairment of their breathing. You might just as well compensate anyone who has freckles because it means as much and represents about the same percentage of the population,” he notes.
It is a view that, as Kazan readily concedes, has hardly endeared him to his colleagues. The doyen of the sizeable asbestos plaintiff bar is Fred Baron, head of Dallas-based Baron & Budd, which handles 12,000 such claims. He quickly dismisses the idea that the worse-off clients are losing out because of a wave of less worthy claims as “absolute garbage”. The former president of the Association of Trial Lawyers says that clients walk into his office and he can assure those suffering from mesothelioma (the worst kind of disease you can get from asbestos exposure) will recover between $3 and $5m (£2m-£3.3m) and other claimants will receive between $25,000 and $50,000 (£16,300-£32,600). “And I don't think that is unfair,” he adds.
It was leaks from a report by the Rand Institute for Civil Justice that claimed the asbestos claims were now being filed against 85 per cent of corporate America. According to press reports, the report reveals that there are almost as many claims against non-traditional defendants (ie non asbestos-related industries) as against traditional industries. Nearly all the major asbestos manufacturers have now declared bankruptcy and increasingly peripheral defendants have been drawn into the lawyers' sights, including less obvious targets such as Campbell's Soup and a baby food company.
Baron has seen drafts of the new Rand report which was first distributed to leading lights in asbestos litigation back in May. The pioneer of asbestos litigation sent back a 14-page response pointing out where Rand had got it wrong. He views scare stories about the Enron-style economic impact of asbestos legal action as propaganda for the defendant companies and the insurance industry. “I see it as part of their PR campaign and now they have been able to recruit a couple of plaintiff lawyers this time,” he comments. “I would be shocked if anything happened in Congress as a result [of the Rand report] but we have to be careful and vigilant.”
But the Rand research is consistent with other analyses and cannot be so easily dismissed. According to one study last year by the actuarial firm Tillinghast-Towers Perrin, settlements to individuals exposed to asbestos in the US would ultimately reach $200bn (£130bn) and its tentacles were far-reaching – only 39 per cent of the costs would be met by asbestos defendants and the bill would be split between US and non-US insurers. Mike Angelina, a consultant actuary with Tillinghast, dubs asbestos as “the energiser bunny of toxic torts. It just keeps going and going and going and going,” he quips.
Both Rand and Tillinghast believe that what is driving the bunny is not the cancer claims but the non-malignant diseases, more commonly known as the “unimpaired claims''. Steve Carroll of the Rand Institute explains: “We have always had a significant fraction of unimpaired claims but the fraction has been growing – in the mid-1990s they were about half of our claimants. Now people routinely argue they represent between two-thirds and 90 per cent of all claimants.”
Angelina believes that someone who can walk three miles a day shouldn't be getting $25m, especially when there is only a finite pool of money arising from a post-bankruptcy scheme. “At the end of the day if you are fighting for a fixed amount of money, the more the unworthy claimants get, the less that goes to those who possibly are worthy – and maybe it's not today's worthy claimants but it's five or ten years from now.” He reckons that new mesothelioma claims will be filed for the next 20-30 years. “There is a cost to society that needs to be recognised.”
It is a million miles away from the experience of the asbestos lawyers in the UK. Adrian Budgen, a partner at Irwin Mitchell, fears that the concerns about the economic impact of the US litigation are co-opted by the insurance industry here in its attempts to limit compensation claims. It has been only a few months since the dramatic overturning of the Court of Appeal decision in the Fairchild case that would have effectively barred claims by workers exposed to asbestos by more than one employer. The contrast could not be greater between UK and US claims, he argues – for a start, the volume of claims is relatively small and the awards are only a fraction of the US claimants. In the UK the average mesothelioma sufferer might expect in the region of £100,000 and pleural disease awards between £5,000 and £10,000.
Unfortunately there is one class of his clients who stand to suffer directly as a result of the tidal wave of claims by “the worried well”, as Budgen calls them. He represents many former employees of Turner & Newall, once the largest asbestos manufacturers in the UK, which was taken over by the US company Federal Mogul which, in turn, filed for Chapter 11 bankruptcy. “Federal Mogul became exposed to all these claims because as the other asbestos manufacturers were falling over like a pack of cards everyone turned to them and they found themselves inundated,” said Frank Macher, its CEO nine months before it filed for Chapter 11. “The last man left standing gets to pay the entire liability.”
There are some 600 UK claims among the 300,000 claims. “It's a totally different ball game now,” comments Budgen. “If the US and UK claims are treated equally then it will take years to resolve. I know people who are dying and who haven't got that long to wait.” He reckons that if his clients end up with a settlement along the lines of Johns-Manville (the largest US asbestos manufacturer and the first to go bankrupt) “people will end up with some pathetic fraction of what their claim is really worth”.
Back in the US, Baron believes that Kazan is a lone voice representing a tiny fraction of claimants – “and everyone disagrees with Steve”. While critics complain of lawyer greed, Baron argues that they are acting in the public interest. For example, there has been much negative publicity about the use of mass x-ray screening co-ordinated by lawyers and frequently sponsored by unions, which is seen as encouraging speculative and unmerited actions. “I would like to hear them try and use the same arguments for mass screening for breast cancer,” Baron says. “This is free medical treatment offered to people exposed to asbestos and the workers aren't being properly examined.”
But Kazan is not such a lone voice. For example, Dallas attorney Peter Kraus also represents only cancer victims and has hit out at his rivals who are “sucking money away from the truly injured”. He believes that the solution is “breathtakingly simple. “Defer those claims until claimants actually suffer an asbestos-related disease or cancer,” he argued in a recent Dallas Morning News editorial. “Congress should recognise that the people who are sick and dying as well as their families desperately need compensation for their legitimate, undeniable suffering. This isn't just the right choice, it is the only choice.”
Kazan is convinced that the explosion of claims is lawyer-driven. “One could call it lawyer greed or one could call it the workings of the free market economy,” he says. “If there is an economic opportunity the system is designed so that somebody is encouraged to take advantage of it. It is legal and the system allows it and the only way to stop it is change the system.”

The costs

Last year the actuarial firm Tillinghast Towers Perrin calculated that settlements to individuals exposed to asbestos in the US and related expenses would ultimately reach $200bn (£130bn). The Rand Institute for Civil Justice is expected to report soon that such actions now span “about 85 per cent of the US economy”.
According to Mike Angelina, a consulting actuary with Tillinghast and co-author of the report: “With filings at an all-time high, asbestos is the energiser bunny of toxic torts, it just keeps going and going and going…”
Of the $200bn, Tillinghast reckoned that 39 per cent of the costs will be met by the asbestos defendants (such as the manufacturers, distributors and premises owners), 31 per cent will be borne by overseas insurers (including London), and 30 per cent will be borne by the US insurance industry.
While most exposures to asbestos occurred prior to the 1970s, claims are on the up – with 50,000 to 60,000 claims filed against some defendants in 2000 compared with averages nearing 20,000 in the early to mid 1990s. A “significant majority” of the new claims do not relate to individuals with mesothelioma or lung cancer, but rather to non-malignant diseases, according to the research. Angelina believes that the propensity to sue for non-malignancies has clearly increased with more than 450,000 claims filed to date and a projected one million claims to be filed before the litigation ends – unless there is some type of federal legislation.