Twenty years ago, litigation costs related to asbestos in its joint compound product cost USG Corp. about $12 million a year. Ten years ago, that was still true. This year, however, is a different story. “We’d paid out $114 million this year and, had we not filed for Chapter 11 bankruptcy protection in June, we would have ended up paying out more than $275 million,” says USG’s CFO, Rick Fleming.
Chicago-based USG, a manufacturer of Sheetrock (gypsum) wallboard, is the eighth company driven into bankruptcy by asbestos liability in the past 18 months. All told, some 29 companies have filed for Chapter 11 bankruptcy court protection since the adverse health effects caused by exposure to asbestos came to light in the early 1980s. Although asbestos, a fire-retardant used in a variety of products, has been effectively eliminated in manufacturing, it continues to burn a hole in the pockets of Corporate America.
In fact, many of those pockets belong to companies that never considered themselves liable to asbestos claims. To date, some 300,000 asbestos-related cases are thought to be pending in state and federal courts. And each time a firm trapped by asbestos litigation declares bankruptcy, plaintiff attorneys smoke out peripheral defendants. These include manufacturers, distributors, and installers such as Ford, Goodyear, and General Electric, which have all been named in litigation.
Little wonder that several defendants are seeking federal legislation that would provide litigation reform and tax relief for the mounting costs of asbestos litigation. Other companies are trying to limit claims to those individuals who truly are impaired. Still others are looking to insurers for a safety net. Yet, observers fear that the wave of bankruptcies may be only beginning and that the list of companies ultimately blamed for asbestos exposure may soon encompass much of Corporate America. “You can’t imagine how far the net extends,” says William E. Bailey, former senior vice president and senior claims counsel at Boston-based Commercial Union Insurance Co.
Keeps On Ticking
In the 1990s, asbestos seemed to leave the spotlight, overshadowed by other mass torts, such as pollution-liability and sexual-harassment claims. Now it’s back with a vengeance, and liability suits are projected to cost more than $200 billion in the United States alone, according to a study by Tillinghast-Towers Perrin. The New York-based consulting firm estimates that defendant corporations will pick up 39 percent of the tab, with their insurers paying the remainder.
Asbestos’s reemergence as the tort du jour is somewhat due to the way it affects health. With a latency period of 15 to 40 years, asbestos-related diseases, such as mesothelioma, asbestosis, and lung cancer, often take decades to emerge. And this dormancy helps explain why the number of new asbestos cases is growing by more than 70,000 a year.
More significant, however, is the fact that the U.S. Supreme Court has ruled that asbestos exposure is adequate grounds for a lawsuit. In 1997, the court overturned a district court’s class-action settlement that required asbestos plaintiffs to show specific medical conditions before they could receive a settlement. The result, says Robert Hartwig, chief economist at the New York-based Insurance Information Institute, is that more than 95 percent of the plaintiffs in mass torts alleging asbestos-related illnesses have no demonstrable impairment.