Misery Loves Another Company

Federal-Mogul, burdened with asbestos claims, tests the limits of bankruptcy law.

History doesn’t bode well for claimants seeking compensation from a trust. The Manville Trust, set up in 1988 to pay current and future asbestos claims against that asbestos-products maker, announced in 2001 that it would pay only 5 percent of the full liquidated value of claims, in order to preserve cash for future claimants, according to RAND. Before, it had paid 10 percent. (Other trusts have encountered similar dwindling asset problems.)

But that’s better than nothing, which is what claimants get if a company goes out of business. “There’s not a soul involved in this issue that doesn’t think this is a tragedy,” says Snyder. “Everyone recognizes the real human sadness of the problem. But we’re struggling to put together an economic solution that is sustainable.”

The sentiment also prevails on Capitol Hill, where bizarre new alliances have formed between plaintiffs’ lawyers and corporate lawyers, who were previously warring parties. Both are keenly interested in finding a solution to the asbestos crisis — corporate attorneys to reduce company liabilities and avoid bankruptcies, plaintiffs’ attorneys to shorten the time it takes cases to get through clogged court systems.

Two proposals are currently circulating in Washington, D.C. One suggests a nationwide version of the combined trust currently proposed by Federal-Mogul and Honeywell. If it is created, future asbestos plaintiffs would be required to make a claim against this megatrust, although the complex logistics promise to keep this plan on the drawing board for the foreseeable future.

It would also need to overcome the ongoing funding problems that have plagued asbestos trusts in the past. The other proposal would establish medical criteria for claimants, requiring that a certain level of medical harm be demonstrated before they could file their claims.

Despite the remaining obstacles, the Federal-Mogul deal and action in Washington represent the most significant movement yet toward a permanent fix to the nation’s asbestos-liability crisis.

The Ballooning Asbestos Crisis

1982 2001
Number of claimants 21,000 600,000
Number of defendants 300 6,000
Total costs to date $1 bill. $54 bill.
Bankruptcies 3 60
Estimated future costs $38 bill. $145 – $210 bill.

Cost estimates do not include the effect of lost wages or productivity.
Source: RAND Corp.

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