Department of Justice Looking Closer at Asbestos Trusts
The U.S. Department of Justice has increased its scrutiny of asbestos trust funds in recent months, urging more accountability and transparency.
Those who administer the funds believe they work just fine.
The trust funds are designed mostly to compensate workers who were sickened by negligent companies that sold or manufactured asbestos products.
Currently there are more than 60 trust funds with an estimated $30 billion combined, stemming from companies seeking bankruptcy protection and avoiding future liabilities related to asbestos exposure.
Since the first trust was established in 1988, they have paid out more than $20 billion to millions of claimants, according to the RAND Corporation’s Institute for Civil Justice.
The trust fund money is in addition to an even larger amount being paid by asbestos companies which have remained solvent.
The DOJ believes the trust funds lack adequate safeguards to prevent fraudulent claims and mismanagement, which could prematurely deplete the funds designed for future claims.
The department points to a lack of oversight and a potential for unscrupulous manipulation.
Funds Designed to Avoid Costly Lawsuits
Lawyers for asbestos victims have countered that the process enables those affected to obtain the necessary compensation without enduring difficult lawsuits.
They also say there is no evidence of any widespread fraud.
The majority of cases stem from occupational exposure to asbestos, which can lead to a number of serious diseases such as lung cancer, asbestosis and malignant mesothelioma.
The latency period between first exposure to asbestos and a diagnosis of mesothelioma can take 20 to 50 years, making the longevity of the trust funds important.
“There is incredible irony in the fact that an industry that covered up the dangers of a known carcinogen for decades, leading to ongoing deaths of 15,000 Americans a year, is now claiming that its victims are committing systemic fraud against the trusts — even though no court has ever found evidence of such fraud,” Peter Knudsen, spokesman for American Association for Justice, a leading plaintiff’s lawyers group, said in a statement.
The DOJ, at the urging of business groups that have long complained about the trust fund process, has increased its scrutiny in recent months.
Recent Scrutiny Over Isolated Cases
In September, for the first time, the DOJ filed an official Statement of Interest in the latest bankruptcy proceeding of an asbestos company.
The Statement was filed in the U.S. Bankruptcy Court for the Western District of North Carolina regarding the proceedings for Kaiser Gypsum Company.
The Statement asserts the DOJ will object unless the final plan better ensures transparency and prevents fraud.
“In recent years, alarming evidence has emerged of fraud and mismanagement inside asbestos trusts,” Jesse Panuccio, principal deputy associate attorney general at the DOJ, said in the Statement of Interest. “Asbestos victims should feel certain that they will receive compensation when they are promised, but fraudulent claims and mismanagement call that promise into question.”
The Trusts, which are established by the companies, do have strict requirements in which to operate. They first must be approved by the bankruptcy court, which can take years.
They are managed by trustees who work under the rules and guidelines that are part of the bankruptcy reorganization. Those trustees decide the amount of compensation paid out to claimants.
Often today, that payout from a trust is only a fraction of the claim.
Shortly after the September Statement of Interest, the DOJ challenged the appointment of a trustee for the Duro Dyne company trust, believing the attorney was too conflicted to represent the interests of the future claimants.
The DOJ earlier this year also delivered an administrative subpoena to the DII Industries trust as part of a civil investigation.
It involved determining whether Medicare was being properly reimbursed for the trust payouts being made.
“The Department sends a clear message that we will not tolerate fraudulent conduct that cheats asbestos victims and the United States,” Panuccio said in the original Statement of Interest. “This is just one action the Department will take to increase transparency and accountability of asbestos trusts.”
DOJ Looking for Transparency
The DOJ points to a lack of available information with trusts about the claims made by victims and their attorneys.
It believes exposure evidence submitted to one trust is often not consistent with evidence submitted to another trust.
The DOJ, in its Statement of Interest, cited a case in 2014 involving Garlock Sealing Technologies’ trust in which it found “a substantial pattern of fraud.”
It also pointed out another study in which “claim forms submitted by the same claimants and law firms to different trusts contradicted each other.”
Victims often file claims with numerous trusts because many times they are sickened by multiple companies, making it tough to pinpoint who is to blame.
The issue of oversight isn’t a new one for the trusts, which have been helping victims for 30 years.
According to the DOJ, 19 state attorney generals have cited issues regarding transparency of the trusts.
The federal government allows each state to form its own legislation regarding asbestos trusts, and those laws can vary greatly with trust compensation.
The issue of transparency has been a topic of legislative reform for years.
Different versions of the Furthering Asbestos Claim Transparency Act — which would have required more public disclosure of the payouts made — have been proposed several times.
They all have stalled in the legislative process.