Legislation & Litigation

How Past Litigation Results and Current Trends Influence Asbestos Trusts

Written By:
Feb 15, 2013
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Written By: Karen Marshall,
February 15, 2013

We’ve already mentioned how U.S. asbestos tort litigation and asbestos bankruptcy trusts are really two different legal arenas. But that doesn’t necessarily mean that what happens in one arena won’t affect what goes on in the other.

This week begins the first of two posts that take a closer look at some ways asbestos personal injury lawsuits and asbestos bankruptcy trusts can influence each other. We’ll start with the influence of litigation trends on asbestos trusts and another look at the Owens Corning bankruptcy.

Using Past Litigation Results to Determine Future Trust Claimant Needs

The most obvious influence from asbestos lawsuits is the need to create a trust in the first place. As we explained in detail last week, section 524(g) of the U.S. Bankruptcy Code allows courts to halt future lawsuits if there will likely be “substantial future demands” and a trust is created to handle those demands.

Creating an asbestos trust ends further personal injury litigation against a company, but past litigation remains important. That’s because past litigation can influence asbestos bankruptcy estimation.

Remember that bankruptcy proceedings also include non-asbestos claims for fixed amounts, like the amount owed on a bank note. But there’s no fixed amount available for an asbestos claim. However, amounts awarded in past litigation can give the court a clue about how much current and future asbestos claimants can expect for their injuries.

Considering Litigation Trends

There are limits to how much weight past litigation has on the estimation process. This is because litigation trends are constantly evolving and courts have discretion to take those trends into account. That’s what happened in the Owens Corning bankruptcy case.

In its estimation ruling, the district court in that case determined that several factors had “skewed” the results of past litigation. Those factors included:

  • Overpayment to “unimpaired” claimants,
  • “Group lawsuits” that bundled the most severe claims with “unimpaired cases,” resulting in higher awards for claims that had little evidence; and
  • Erroneous lung X-ray readings by biased “B-readers” (physicians who are certified to do readings).

These and similar issues would likely be avoided in the future thanks to changes in court rules (e.g., creating separate dockets based on severity of illness, prioritizing the most severe claims, and creating medical criteria for filing claims). As a result, future claimants could expect different award amounts.

So when it came time to estimate how much would be available for asbestos bankruptcy trust claims, the court disregarded testimony from the Asbestos Claimant Committee (ACC) that estimated total asbestos liability at $11.1 billion. That estimate was based on past litigation, but didn’t adequately accounting for recent litigation trends.

Instead, the court was persuaded by expert testimony that adjusted past litigation amounts to reflect more recent changes to the litigation process.  Using that testimony, the court estimated total asbestos liability at $7 billion, which was $4.1 billion less than the ACC expert’s estimate.

Next week, we’ll consider how trends in trust claims may impact asbestos litigation.

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