Legislation & Litigation

Bankruptcy Plan Calls for UGL to Set Aside $11.75 Million for Asbestos Trust Fund

Written By:
Nov 09, 2012
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Written By: Karen Marshall,
November 9, 2012

Pennsylvania-based United Gilsonite Laboratories (UGL), a manufacturer of paint, sealing and coatings, plans to contribute $11.75 million to an asbestos trust fund to cover future litigation costs, according to a bankruptcy agreement reached by the company.

From 1954 to 1975, UGL made joint compound, and working with joint compound releases a lot of dust. The process of mixing, applying, and sanding asbestos-containing joint compound and also cleaning up the debris can actually release millions of asbestos fibers. If those fibers are inhaled, they can lodge in organ linings and lead to asbestos-related diseases.

Although UGL stopped using asbestos in its joint compound over thirty years ago, people who used the product during construction or renovation work may develop mesothelioma or other asbestos-related diseases for many years to come. The same holds true for anyone who was near this type of work or has been exposed to asbestos fibers from worn joint compound.

UGL sought Chapter 11 bankruptcy protection in 2011 to settle future asbestos claims. A judge must approve the agreement before it can more forward. If approved, the move may offer some benefits for both the company and future asbestos claimants.

Potential Benefits from UGL’s Bankruptcy Plan

At the time of its bankruptcy filing, UGL still had over 950 asbestos-related lawsuits pending in at least 14 states. The company and its liability insurers had already paid over $25 million for asbestos claims. Because of the long latency period for asbestos-related diseases, it could face legal liability for asbestos injuries well into the future.

Although UGL wants bankruptcy protection, it’s far from broke. In 2010, it reported sales of $49 million. UGL petitioned the U.S. Bankruptcy Court for the Middle District of Pennsylvania for reorganization in hopes of protecting its assets from mounting asbestos claims. At the time of its filing, UGL had an estimated $10 million to $50 million in assets.

Under the company’s reorganization plan filed in September, UGL would put $2 million into an asbestos trust. Its shareholders would add $1.75 million. UGL would also pledge to pay another $8 million in the future.

The company would also obtain an injunction that would prevent further asbestos lawsuits. All future claims would have to be handled through the bankruptcy trust and settled from the $11.25 million dedicated to the trust. Instead of filing lawsuits against UGL, injured people would file claims to the trust.

According to a UGL spokesperson, this is why filing bankruptcy is “a good thing” in this case. “Once the trust is gone, there’s no more to pull from,” Michele Margotta Neary told the Scranton Times-Tribune.

Potential Benefit for Future Asbestos Claimants

Although an asbestos bankruptcy trust helps a company stop asbestos lawsuits, trusts actually exist to benefit future asbestos claimants. They help avoid situations where asbestos claims outlast the companies liable for them.

Asbestos bankruptcy plans require court approval and trustees to oversee the asbestos trust fund. So although UGL would fund the asbestos trust, it would not run the trust or handle any claims.

The trustees would determine how to distribute the trust funds and process claims for the benefit of future claimants. Representatives of future claimants would also have input into the trust’s distribution procedures.

But making sure the money lasts long enough to fairly compensate future claimants will take careful planning and supervision by the court, trustees and claimant representatives. Assuming this is done properly, an asbestos bankruptcy trust can also be a good thing for future UGL claimants.

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