Paint and coatings companies finally may be afforded some liability relief from the dark cloud of multi-billion-dollar-per-year asbestos litigation in 2005, because there finally may be "sufficient political tail wind" to move proposed asbestos reform to the Senate floor and then into law, suggested P. Kelly Tompkins, the senior vice president and general counsel of RPM International, Medina, OH.
This Congressional session's champion of asbestos reform may turn out to be Senator Arlen Specter-expected to be named the next chairman of the Senate Judiciary Committee-who has vowed to introduce a bill early this month. If reform fails once again, this year, the ongoing cost of asbestos litigation, estimated at $2.4 billion and more than 30,000 jobs, per year, will continue to mount.
Coating Companies No Strangers in Court
RPM is a leader among many coatings sector companies active in various national trade association task forces and lobby groups which are seeking to fix the "broken" U.S. asbestos tort industry. With cumulative total costs to U.S. industry estimated to have surpassed $70 billion as of 2003, companies targeted with asbestos litigation are being forced to divert substantial resources to legal defense activities. Defendant companies also are finding insurance companies reluctant to back claims although premiums are on the rise.
RPM, which has been fighting asbestos litigation for years, is still in court, but now paying for its current asbestos legal battles out of operating revenues, rather than insurance funds. "We have a lawsuit pending against several third-party insurers seeking additional coverage; we also are testing the claims of exhaustion under some of these policies," said Tompkins.
Another coating company in court is pursuing a claim large enough to bankrupt most defendants. Kelly-Moore Paint Co., San Carlos, CA, sued, lost, and may now re-file an estimated $1.5 billion suit against Dow Chemical Co.'s Union Carbide unit in a Texas court, for reimbursements related to claims from building tape. "We are not in a position to make any comment" on the asbestos issue, said Kelly-Moore president Herb Giffins.
Coatings companies are, like most targets of asbestos litigation, not eager to come under the public spotlight. "Some paint companies currently may not be disclosing asbestos risk in SEC filings because it may not be sufficiently material, or because they have adequate insurance and feel they don't need to disclose it," said Tompkins.
Impacting the Bottom Line
There are three basic tiers of asbestos liability in the now-mature litigation industry. Although coatings companies may never have produced asbestos-containing products, they may have bought companies that did. Or coatings companies may have sold third-party products containing asbestos. Finally, companies may have merely utilized asbestos-containing products on company premises. According to Halliburton's asbestos fact book, "Courts have ruled that if a worker was exposed to a number of asbestos-containing products made by various companies at various work sites, all the companies can be sued, and that any one company that has the ability to pay can be held liable for 100% of the damages.".
Over the course of three decades of litigation, lawyers have moved down through the first two tiers, and now are focusing on the premises tier, analysts say. Regardless of the tier under target, law suits are increasing. Twenty years ago there were only a few hundred asbestos defendants; today there are more than 700,000 claims and more than 8,400 companies have been sued, according to the Rand Institute for Civil Justice, in Santa Monica, CA.
One estimate of the ranks of exposed workers, prior to the phasing out of asbestos in the 1970s, is 25 million, which has led some analysts to suggest that the total number of claims may reach 2.5 million. Without a national solution, costs are projected to exceed $200 billion, cumulatively. Such figures may have inspired Supreme Court Justice David Souter, a few years ago, to refer to asbestos litigation as an "elephantine mass."
A problem with the asbestos litigation industry is that large groups of claimants-sometimes more than a thousand-are lumped together by attorneys, so that the legitimacy of individual claims within the mass suits have been questioned. While some claimants suffer from mesothelioma, a generally fatal cancer of the lining of the chest wall, others show no symptoms prior to filing. Some states permit a claim to be filed if a worker was merely exposed, but is not (yet) suffering from the exposure. According to a 2002 study by Rand, "60% of payments are going to non-malignant claims…there is widespread agreement that a minority of the claimants without cancer are functionally unimpaired, meaning their asbestos exposure has not so far affected their ability to perform activities of daily life."
Growing Victim Group
Twenty years ago, there were only some 300 claimants. By 2002, there were 600,000 claimants, according to Rand. Since asbestos-caused cancer can take half a life-time to manifest, the bulk of claims may still arise over the next 25 to 50 years. According to the U.S. Centers for Disease Control, asbestos deaths in the U.S. increased from less than 100 in 1968 to nearly 1,500 by 2000. Other estimates suggest that today, close to 10,000 people die of asbestos every year.
Because of the location of mining and manufacturing operations, the deaths have clustered in a few states. California, Pennsylvania, New Jersey, Texas, Florida, Washington and Virginia together reported close to half of all asbestos-related deaths during the 1990s, the CDC reported. As a result, company lobby focus on state legislation has been stronger in some states than others.
Tompkins also pointed to and applauded the new asbestos legislation recently enacted in RPM's home state of Ohio as the first asbestos reform at the state level, which passed and went into effect a couple of months ago.
"The reform establishes medical criteria, which ensures that people who file lawsuits have to meet objective standards to have their claim processed by the court system," Tompkins said.
Reform Plan Subject to Congressional Priorities
U.S. companies facing asbestos litigation have banded together under several national associations to come up with a fair and workable solution. The National Paint and Coatings Association (NPCA), the National Manufacturers Association and others have been prime movers in the effort which helped to produce the Fairness in Asbestos Injury Resolution Act in 2003. A 2004 version of the bill died before Congress took necessary action, but hopes are that the 2005 Congress will move on the reform proposal more quickly.
Pennsylvania Senator Arlen Specter in December was quoted as saying he hopes to reintroduce an asbestos reform bill on Jan. 4, 2005. He also indicated that he has conferred with Senate Republican Leader Bill Frist, who determines the Senate floor schedule, in an effort to get the bill there by the end of the same month.
Asbestos reform proposals have been going on for decades. But the key components of the current solution include a precedential industry-funded trust fund for victim compensation, a federal oversight and mediation of claims, and medical criteria to determine claim legitimacy. The money, of course, has always been a stick point, with the plan now calling for defendant companies and insurance companies to provide roughly even shares, with several proposed formulas. In the 2003 version of the current proposal, the value of the trust was set at $114 billion, but that figure has since risen to over $150 billion. Insurance industry representatives have suggested that insurers may be willing to pay more into the fund during the earlier years, for a faster cap on their liability.
Industry contributions to the fund would be painful, but are expected to be far more manageable than open-ended lawsuits over decades to come. "We found that over the past decade there has been a rapid increase in both the number of asbestos claims and the cost of litigation," reported Stephen Carroll, a Rand senior economist. "This surge challenges the notion that the litigation is manageable and raises new questions about whether there will be enough money to pay all the claims that are likely to be filed."
Since plaintiffs have only received an estimated 43 cents out of every dollar spent on asbestos litigation costs, according to Rand, the trust fund would permit deserving claimants to receive compensation more rapidly and more efficiently. Victims of asbestos cancer or their surviving families should receive over $1 million each, Senate Judiciary Committee's ranking Democrat, Patrick J. Leahy (Vermont), has been quoted suggesting. The trust would also reduce the cost of so-called "transaction costs" of company defense, much of which winds up in the pockets of lawyers, who may charge from 13% to 40% of a settlement, company sources complain.
Among unresolved issues in the reform proposal are the size of the trust fund and when to cut off ongoing and filed litigation in the courts and to begin to mandate that these claims go before the government-administered system. "We want a fixed cutoff of new filings more or less immediately, since if there is a statutory lax cutoff date, or even ambiguity, plaintiff lawyers will rush to file thousands of alleged claims in favorable state courts in advance," said Tom Graves, NPCA general counsel.
Another problem issue is when funding for the trust would be revisited-assuming it will be needed, prompting a fresh round of contributions from defendant companies and insurers. And finally, there is contention over the definition of the medical criteria that would permit a claimant's case to move through the system.
All sources agree that the Congress and the administration now seem to be more receptive to enacting asbestos reform than has been the case for several years. The question is whether Congress has the will to consider three major reform issues of medical malpractice, omnibus tort reform, and asbestos reform in only one session, sources say. And the answer depends, they say, on the strength of the trial lawyers lobby, on the response of organized labor, and on the support of the Democrat side of the Senate.