Battle over Asbestos Bankruptcy Trusts in Full Force

Balance scales of Law

As we explained in our last post on asbestos trusts, asbestos injury compensation is available through two separate, but related systems: asbestos bankruptcy trusts and asbestos tort litigation. They are a bit like dancers that circle each other but never actually touch … or do they?

Some asbestos defendants would argue they do. In fact, they might even argue that they wouldn’t even be in court if the asbestos trust system didn’t exist.

Current Controversy Over Trust Claims

Lately, asbestos defendants and tort-reform advocates have butted heads with trusts and asbestos claimants over how trusts operate. The controversy concerns how much information should be disclosed about payments to trust claimants.

Over the past couple of years, the disagreement made it to the U.S. House of Representatives and prompted lawmakers in at least three states – Ohio, Arizona and Illinois — to call for legislation that would require asbestos trusts to disclose certain details about trust claims.

Those who favor more disclosure claim that it’s necessary because trusts are susceptible to fraud and abuse. Yet, trusts and claimants argue that the proposed disclosure requirements are unnecessary and burdensome.

But disagreement over potential disclosure requirements doesn’t necessarily mean that claimants are satisfied with asbestos bankruptcy trusts.

During our series of blogs on bankruptcy trust issues, our readers have voiced complaints about delayed claims processing and payment of approved claims. They don’t necessarily see the trust system as any easier to navigate or more favorable than the litigation system.

So why has disclosure of trust claim details become such a big deal? The outcry over trusts likely has more to do with a shift in the kinds of defendants who are being sued over asbestos injuries than any alleged secrecy by asbestos trusts.

Complaints from Both Sides

Asbestos bankruptcy trusts are arguably the hottest topic in asbestos law since the U.S. Government Accountability Office’s 2011 report on trust assets. The report revealed that asbestos bankruptcy trusts have at least $36 billion in assets. That’s a substantial amount of money that remains available to pay for asbestos claims.

Or is it?

Remember, we’re talking about the longest running mass tort in U.S. history.

Between 2007 and 2011, asbestos trusts paid more than $13.5 billion in claims. Considering the fund is supposed to pay for new asbestos cases are expected for decades to come, $36 billion suddenly sounds like a tight budget.

Companies with asbestos liabilities that reorganize under section 524(g) of Chapter 11 of the Bankruptcy Code can avoid future lawsuits because they set a fixed amount aside to pay future asbestos claims. To make those funds last, they limit how much they pay out every year.

If a trust reaches its annual limit before paying an approved claim, the claim rolls over to the next year. But because the number of approved claims constantly grows while the total amount of compensation available remains the same, it could take even longer to receive payment for an approved claim.

Does this sound like a loosely managed system where most claims are reviewed and paid with little oversight? Probably not. So what are asbestos litigation defendants and tort reform advocates really worried about?

Defendants’ Real Concern

Supporters of more trust disclosure are concerned about what they perceive as a disproportionate amount of liability being carried by a so-called new generation of “peripheral” asbestos defendants.

These are companies that never manufactured asbestos but at some point sold asbestos-containing components (e.g., automakers who sold cars with asbestos-lined brakes).

These companies don’t think it’s fair to get hit with verdicts that are potentially worth hundreds of millions of dollars while trusts often resolve mesothelioma claims for less than $50,000.

They’re also upset because many of the first asbestos defendants to file for bankruptcy have since emerged bankruptcy as healthy companies. And some of the newer trusts established over the past decade have enough assets to pay claimants more than what their underlying companies paid before bankruptcy.

In the “peripheral” defendants view, the exit of bankrupt companies from the tort litigation system has increased their own liability. Some believe that as more companies file for bankruptcy reorganization, plaintiffs may be more inclined to sue remaining wrongdoers (e.g., the peripheral defendants) in court in order to get adequate compensation for their injuries.

That’s why the peripheral defendants want more access to how asbestos trusts use their funds. With that information they may attempt to argue for ways to shift some of the liability back to companies that would otherwise reorganize and establish trusts.

Because trust assets may grow to $60 billion as new trusts are developed, peripheral defendants’ will likely continue to demand more trust claim disclosure. The issue of distribution of liability between the trust and tort litigation systems may also impact bankruptcy estimations. (Companies hoping to reorganize may be called on to sink more money into their trusts.)

Whether peripheral defendants succeed in shifting more of the task of compensating asbestos injuries to the trust system, this is clear: Achieving timely, adequate payment for current and future payment must be the priority.

Whether the defendant is a manufacturer or a peripheral wrongdoer, the duty to properly warn about asbestos dangers still exists. And those who fail in the duty must be held accountable.


Karen Marshall has more than 17 years of legal experience and is an attorney with The Peterson Firm. She has been contributing to The Mesothelioma Center since 2011 and writes about asbestos-related legal issues and blogs for Asbestos.com.

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