The Dimensions of Asbestos Litigation Stephen Carroll May

The Dimensions of Asbestos Litigation Stephen Carroll May 2003 RAND INSTITUTE FOR CIVIL JUSTICE 05/09/03 R

Asbestos Litigation Has Become A Major Policy Concern · Asbestos litigation began to attract policy attention in early 1980 s. · Settlement agreements in late 1980 s 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? 05/09/03 R

Outline · How did we get here? · Where are we today? · Where are we going? 05/09/03 R

Widespread Occupational Exposure · Asbestos is abundant, inexpensive, versatile · Failure to warn of its risks and inadequate protection increased exposure · Estimated 27 million U. S. workers in high-risk industries and occupations exposed, 1940 -1979 · Unknown numbers of workers exposed - In other industries and occupations - Since 1979 05/09/03 R

Many Injuries · More than 225, 000 premature deaths estimated through 2009 · Variety of diseases - Mesothelioma - Other cancers, particularly lung cancer - Asbestosis - Pleural thickening or plaques 05/09/03 R

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. 05/09/03 R

Annual Claims Filings Have Risen Sharply Since 1990 Asbestos claims against five major defendants 90, 000 80, 000 70, 000 60, 000 Number 50, 000 of claims 40, 000 30, 000 20, 000 10, 000 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 05/09/03 R

Nonmalignant Claims Account for the Growth in Claims 30 Mesothelioma Other Cancer Nonmalignant 25 Ratio of the number of claims in each year to the number of claims in 1980 20 15 10 5 0 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 A 4632 -2 0503

Filings Moved from Federal to State Courts Percent of filings in federal courts 05/09/03 R

And from Some States to Others 100 MD Other states 80 TX 60 Percent IL 40 OH NJ MS PA WV 20 NY CA 0 05/09/03 R

Verdicts Are Infrequent but Attract Great 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 05/09/03 R

Five States Account for Most Verdicts 100% 90% Other MD LA CA TX PA 80% 70% 60% 50% 40% 30% 20% 10% 0% Plaintiffs Trials 05/09/03 R

An Increasing Share of Verdicts Are in Texas and Maryland Trials 100% Other LA PA CA MD TX 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% '93 -'95 '96 -'98 ’ 99 -'01 05/09/03 R

Outline · How did we get here? · Where are we today? · Where are we going? 05/09/03 R

Over 730, 000 Claimants Through 2002 · Typical claimant files against several dozen defendants · 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 05/09/03 R

The Number and Range of Defendants Have Also Increased Sharply · 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) 05/09/03 R

Distribution of Defendants by Industry (2 -digit SIC) Percent SIC 05/09/03 R

Distribution of Defendants by 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 05/09/03 R

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 05/09/03 R

Transaction Costs Have Consumed More Than Half of Total Spending 100 Plaintiff Compensation 80 60 Percent Plaintiff Expenses 40 20 Defense Expenses 0 1980 s Litigation 1990 s Litigation And they are likely to go back up in the future 05/09/03 R

Most Dollars Were Paid to Nonmalignant Claimants Distribution of Claims Mesothelioma 4% Estimated Allocation of Compensation Other cancers 9% Mesothelioma 20% Other cancers 20% Nonmalignant 86% Nonmalignant 60% 05/09/03 R

Bankruptcies Are Becoming More Frequent · First bankruptcy in 1978 · 19 in the 1980 s · 17 in the 1990 s · 29 in 2000 s through 2002 05/09/03 R

And Bankruptcy Is Only Part 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 level of investment $10 B $33 B Jobs not created 138, 000 423, 000 · However, other firms’ reactions may offset the overall effects on the economy 05/09/03 R

Outline · How did we get here? · Where are we today? · Where are we going? 05/09/03 R

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 · Whethere will be money left to pay future claimants—and who will pay —remain open questions 05/09/03 R

Future Claimants’ Compensation at Risk Compensation as % of liquidated value Example of Johns-Manville 1988 Trust payments began 100% 1990 Payments suspended (Only exigent cases paid) 1995 Payments resumed 10% 2001 Payment plan revised 5% 2002 Payment plan revised less injured Reductions to 05/09/03 R

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 05/09/03 R

Policy Alternatives · Maintain status quo · Rely on bankruptcy system to deliver compensation and accept limits on payments · Change substantive doctrine - Redefine “injury” to require some functional impairment - Limit liability in some circumstances · Create administrative compensation program 05/09/03 R