Asbestos Bankruptcy Trusts and Tort Compensation

Lloyd Dixon

June, 2013

Email : dixon@rand.org

Phone: 310.393.0411 x7480

There Is a Great Deal of Controversy About the Interactions Between the Trusts

and the Tort System

· Are plaintiffs able to recover once in the tort system and again from trusts?

· Is the liability of the remaining solvent defendants adjusted to take account of trust payments?

· Is the information used to recover from the trusts available in the tort case?

RAND3

Plaintiffs Can Recover from Trusts and Through the Tort Process

Plaintiff

Tort claims Trust claims

Settlements Trial

D verdict P verdict

Claim evaluation

Payment No payment

Verdict molding

Payment

RAND4

The Are Multiple Linkages Between the Two Systems

Plaintiff

Tort claims Trust claims

Settlements Trial

D verdict P verdict

Claim evaluation

Payment No payment

Verdict molding

Payment

Setoff linkage

Indirect claim linkage

Information linkage

Trust payment limitation linkage

We Investigated these Linkages in Six States

· States with joint and several liability

- Illinois

- Pennsylvania

- West Virginia

· States with some form of several liability

- California

- New York

- Texas

Findings on Linkages

· Information linkage

- All six states require disclosure of trust claims that have been filed

- But trust claims are frequently not required to be filed before trial

· Setoff linkage

- Four of the states allow setoffs for all pre-verdict trust payments

- California and Pennsylvania do not in some circumstances

Findings on Linkages

· Indirect trust claims

- Allowed in joint-and-several-liability states if defendant satisfies part of a trust’s liability and meets trust payment criteria

- However, defendant often needs plaintiff’s cooperation to develop exposure information

· Trust payment linkage limitation

- Provisions at some trusts prohibit payments to direct claimants it trust’s liability has been satisfied by another party

- Some trusts also require direct claimants to indemnify trusts for future indirect claims

To Investigate Potential Outcomes, We Constructed the Following Thought

Experiment· Pre-reorganization scenario

- All potential defendants are solvent

- Jury returns plaintiff verdict allocating liability in accordance with state law

· Post-reorganization scenario

- Same verdict, same state

- Some of the defendants are reorganized with trusts paying claims in their place

RAND9

Potential Effects of Trusts Depend Importantly on the Liability Regime

Potential Impact of Trusts

Joint and Several Liability

SeveralLiability

Total plaintiff compensation

Decrease No change Increase Payments by defendants that remain solvent

Decrease

No change Increase

Source: Asbestos Bankruptcy Trusts and Tort Compensation, RAND Corporation, MG-1104, 2011.

We Identified Outcomes that Are Not Consistent with Liability Principles

· In states with joint-and-several liability

- Defendants might not be able to take advantage of all the resources available from the trusts

· In states with several liability

- Defendants might in effect pay the shares of bankrupt parties

- Plaintiffs could fully recover fully in the tort case and more from the trusts

Trust Overpayments in Several-Liability States Could Adversely Affect Some Plaintiffs

· Trust payment percentage might need to be lower

· Particularly affected plaintiffs include

- Those exposed only to the products and practices of bankrupt parties

- Those with non-malignant injuries

What Drives the Potential Increase in Plaintiff Compensation in Several-Liability States?

· Potential increase in total plaintiff compensation is not because setoffs for trusts are different than those for other settlements

· What is different when trusts are involved?

- Plaintiff can recover trust payment after tort case has been terminated

- No mechanism to adjust payments by solvent defendants for post-verdict trust payments

- Indirect claims are not available to adjust for pre-verdict trust payments that don’t result in setoffs

Key Determinant of Outcomes Is Availability of Evidence on Exposures to Products and

Practices of Bankrupt Firms

· When evidence on such exposures is developed

- In joint-and-several liability states: payments by solvent defendants will be adjusted to reflect compensation available from the trusts

- In several-liability states: payments by solvent defendants will not change

· When evidence on such exposures in NOT developed

- In joint-and-several liability states: defendants might not be able to take advantages of resources available from the trusts

- In several-liability states: defendants can be required to pay more than their share of the harm and plaintiffs can recover more

We Found Considerable Disagreement Over Who Is Responsible for Developing Exposure

Evidence on Bankrupt Firms’ Products

· Plaintiffs’ attorneys argue that defense attorneys can use discovery tools to uncover exposure information

- Plaintiffs’ attorneys are not responsible for doing the job of defense attorneys

· Defense attorneys respond that plaintiffs’ attorneys can influence the exposures plaintiffs recall

- Without plaintiff co-operation, it is very difficult to develop the information needed to recover from trusts and assign fault to bankrupt firms

We Are Developing Evidence on Which Potential Effects Occur in Practice

· Selecting mesothelioma claims for plaintiffs with similar exposure histories

- Same primary jobsite

- Similar years worked at site

· Comparing exposures identified by plaintiffs in

- Claims filed before the bankruptcy of a firm commonly named at the site pre bankruptcy

with

- Claims filed post bankruptcy

Findings Have Important Policy Implications

· Substantial changes in product identification would suggest that outcomes inconsistent with tort principles would be occurring

· Legislative and court reforms would be warranted to remove incentives for strategic behavior in product identification

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

0

10

20

30

40

50

60

70

80

90

100

Cumulative number of bankruptcies filed

Cumulative number of trusts estab-lished

The Number of Trusts Grew Substantially Between 2003 and 2007

Trusts held $18 billion in assets at the end of 2011Source: Dixon, McGovern, and Coombe, Asbestos Bankruptcy Trusts, RAND, 2010; GAO, Asbestos Injury Compensation, 2011; Scarcella, 2012.

Trust Payments Are Likely a Significant Proportion of Overall Compensation

1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 20100

1

2

3

4

5

6

7

8

9

10

Tort payments ($ billions)

Trust payments ($ billions)

Source: Carroll et al., Asbestos Litigation, RAND, 2005; Dixon, McGovern, and Coombe, Asbestos Bankruptcy Trusts, RAND, 2010; GAO, Asbestos Injury Compensation, 2011.

Assigning Fault to Bankrupt Firms or Trusts

State Can Bankrupt Firms or Trusts Be Placed on the Verdict Sheet?

Joint-and-several liability states

IL No

PA No, except for a few older trusts

WV Remains an open question

Several-liability states

CA Yes

NY Yes

TX Yes

Filing and Discovery Requirements for Trust Claim Forms

State Are Plaintiffs Required to Disclose Trust Claims that Have Been Filed?

Is There a Requirement on When Trust Claims Must Be Filed?

Joint-and-several liability states

IL Yes No

PA Yes No, except in Montgomery County

WV Yes No, but Ps must identify all trust claims 120 days before trial

Several-liability states

CA Yes No

NY Yes Yes, claims must be filed 90 days before trial

TX Yes No

Setoffs for Pre-Verdict Trust Payments

State Are Setoffs Allowed for Pre-Verdict Trust Payments?

What Type of Setoffs Is Allowed?

Joint-and-several liability states

IL Yes Pro-tanto

PA Typically no Pro-tanto

WV Yes Pro-tanto

Several-liability states

CA Not for noneconomic damages

Pro-tanto

NY Yes Max of amt paid and % of fault assigned to settling parties

TX Yes when total recovered would exceed verdict

Pro-tanto

Indirect Claims

· Available in joint-and-several liability states when

- Verdict is fully satisfied

- Indirect claimant satisfied payment criteria required of the direct claimant

· Not available in states with several liability

Trust Payment Limitations

· Many trusts prohibit payment to direct claimants when the trust’s liability has been satisfied by another party

· Many trusts require the direct claimant to indemnify the trust for future indirect claims

Bottom Line

· Identified circumstances under which replacement of once-solvent defendants by trusts can

- Allow plaintiffs to recover fully in tort an then recover more from trusts

- Prevent defendants that remain solvent from receiving benefit of the funds available from trusts

· Also identified circumstances under which plaintiffs recover less

· Highlighted importance development of information on exposure to bankrupts’ products and practices