Asbestos Personal Injury Compensation - PowerPoint Presentation

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Asbestos Personal Injury Compensation

The Intersection of Bankruptcy Trusts and the Tort SystemSlide2

Historical Asbestos PI Patterns

Liability is not spread evenly across potentially responsible defendants

Lead defendants carry a large portion of the total liability across cases

Secondary or “tertiary” defendants may have little immediate asbestos liability exposureSome defendants are unable to satisfy all of their liabilitiesLiquidation (Chapter 7 bankruptcy or otherwise)Reorganization (Chapter 11)Other defendants pick up bankrupt liability sharesJoint liabilityUndisclosed exposures to bankrupt companies’ products

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Bankruptcy Trusts

Chapter 11

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o explicit provision for future claims in the Bankruptcy Code initiallyIf unable to bind future victims, may not be able to reorganizeManville and other early asbestos bankruptcy cases addressed through trust-injunction approach using Section 105(a)Approach expressly codified at Section 524(g) of the Bankruptcy Code in 1994Section 524(g)Set up a trust to pay current and future asbestos claimsAll claims against the debtor and other responsible parties channeled to the trust going forwardReorganized debtor emerges free from asbestos liability

Current and future victims look to trust for compensationRoughly 40 active trusts controlling $30+ billion today

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How Bankruptcy Trusts Process Claims

Plaintiff submits a claim

Fill out trust-specific or multi-trust form provided by trust administrator

Identify work history, exposures, asserted injury, etc.Expedited vs. individual reviewGAO Report states that roughly 97-98% pursue expedited reviewTrusts that break out according to expedited/individual review have far higher rates of individual reviewRates may be substantially higher for malignancy claims than nonmalignancy

claimsTrust administrator reviews claimMay require more information, etc.

If approved, may still have back-and-forth over value, depending on the trust

Claim payment

All active trusts pay only a percentage of settled value (the payment percentage)

Some also place other limits on payments (MAPs, etc.)

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The Intersection of Bankruptcy Trusts

and the Tort System

Most trusts treat all claim forms and other communications as confidential settlement discussions subject to applicable state and federal privileges

Most will not respond to informal inquiries; typically require a valid subpoenaUpon receiving the subpoena, the trust will advise the claimant immediatelyOn their own initiative or at the request of the claimant, trusts will take “all necessary and appropriate steps to preserve said privileges”Trust documents do not, however, relieve claimants from complying with their own discovery obligations under applicable state law

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The Intersection of Bankruptcy Trusts

and the Tort System

Many trusts expressly note

that “failure to identify [the trust defendant’s] products in the claimant’s underlying tort action, or to other bankruptcy trusts, does not preclude the claimant from recovering from the [trust], provided the claimant otherwise satisfies the medical and exposure requirements of the Asbestos TDP” [Kaiser Aluminum & Chemical Corporation Asbestos Personal Injury Trust TDP, § 5.7(b)(3)]Audits and quality controls appear to vary dramatically across trustsTDP’s vary on audits; most require TAC approvalSome have outside organizations conduct audits; others do not

Some track claims across multiple data points; others do not appear to track other than in very broad categoriesNo universal audit system

No evidence of actual oversight by bankruptcy courts here

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The Intersection of Bankruptcy Trusts

and the Tort System

Trust

Trust CommunicationTDP’s appear to preclude sharing discovery of fraud or abuse with other trustsMay occur where same administrator manages multiple trusts, but appears haphazardTrustTort CommunicationState law/procedure governs discovery

May require plaintiffs and/or trusts to discloseCMO’s in some key jurisdictions address, but questions about enforceability of these requirements

May defeat by delaying trust submissions; disagreement among plaintiffs’ lawyers concerning doing so

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How are Bankruptcy Trusts Doing?

Three basic

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bjectives of Section 524(g) [In re Plant Insulation Co., 469 B.R. 843, 859 (Bankr. N.D. Cal. 2012)]:

Equal treatment of current and future asbestos claimantsPreservation of going-concern value of debtors (for benefit of all creditors, current and future)Prompt payment of meritorious asbestos claims

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Bankruptcy Trusts

Appears successful with respect to last two goals:

Many defendant-debtors emerged from bankruptcy and appear to be doing well

Most trusts pay claims quickly relative to tort systemEqual treatment of current and future asbestos claimantsPayment percentages have declined precipitously since 2010 (median around 14% today)Roughly ½ reduced since January 2010Per claim payment reductions of up to 93.33%Recent announcements suggest further reductions are likelyFour decades to go, with most expected over the next decade

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Bankruptcy Trusts

Why the rapid decline?

Estimates were flawed/understated actual harm caused by asbestos use?

Increasing awareness/willingness to sue?Foreign claims?Intrinsic difficulty in distinguishing claims with intrinsic merit from others?Fraud?All of the above and other reasons?

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The “Fraud” Question

What do we mean by “fraud”?

Fraudulent misrepresentation?

Concealment of material information?Negligent misrepresentation (reckless indifference to the truth)?Innocent misrepresentation?How do we know?Is there sufficient information to identify at the claim level?Is there sufficient aggregate data to distinguish innocent mistakes from recurrent, one-sided “mistakes” that suggest intent or reckless indifference to the truth?

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The “Fraud” Question

Fraudulent misrepresentation?

Some fraudulent claims (and intent to defraud) may be established by simple mechanisms (claimant doesn’t exist, etc.)

Some may not be identified due to limited information requestedSome patterns of fraud may only be identified by discovering patterns (Silica MDL)  unlikely hereWhat do we know?Trusts reported no fraud when questioned by GAO; not clear what they understood “fraud” to includeInconsistent with experience in other aggregate settlements and compensation systemsDoubtful that anyone can answer this question empirically

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The “Fraud” Question

Concealment of material information?

Many TDP’s do not require information that might go to merit/credibility

Argument here that is fraud with respect to state tort litigation  required information but circumvented by failure to disclose claim forms/known exposuresCounter here is that can get through discovery and will be subject to sanctions if concealFraud question aside, policy question of whether want a system that allows submission of conflicting factual assertions under penalty of perjury

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Negligent Misrepresentation

Indifferent to truth of representations?

Happy mistakes or innocent and isolated?

Are anecdotal accounts isolated or a reflection of broader patterns?Who made the mistake? The trust, the lawyer, the doctor or the claimant?Nonmalignancy screening claims  some repeat players “manufactured” with little regard for truthDifficulty in identifying  AppearancesTop down; identify patternsSome trusts do not appear to even track data that might allow to identify possible answers to why claims exceed projections within categories

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The Intersection of Bankruptcy Trusts

and the Tort System

At the federal level, the proposed FACT Act would impose aggregate and claim-level disclosure obligations on the individual bankruptcy trusts

At the state level, the focus is on shaping litigants’ (primarily plaintiffs’) discovery obligationsCase Management Orders Legislation (Ohio example)

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Federal Legislation

Introduced in 2012 and 2013; current bill is the same as the final version of the 2012 bill

Focus here is on the trusts, not individual plaintiffs

The trusts would be required:To file quarterly reports describing “each demand the trust received from, including the name and exposure history of, a claimant and the basis for any payment from the trust made to such claimant” during the quarterTo disclose claim forms and supporting documentation to defendants in related state tort litigation and charge fees to cover the costs of complying with these requests

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Discovery in the Tort System

Most courts have concluded that trust claim forms are discoverable

Some CMO’s expressly or implicitly provide for production of the forms and supporting materials (West Virginia, NYC)

Courts have most often sided with defendants here when plaintiffs attempt to challenge (MDL, California, NY, and others)Even so, defendants argue that this requirement may be circumvented by delaying submissionsSome lawyers simply wait to file trust claims until after the state litigation wraps up (RAND 2011)If trust claims have not been investigated and prepared, and may never be filed, can the court compel plaintiffs to do so?

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Discovery in the Tort System

Section 22 of the West Virginia CMO, for example, requires statement of “any and all existing claims that may exist against asbestos trusts” no later than 120 days prior to trial. Obligation to supplement if a claim is filed after this date (must be done prior to trial).

The statement must include:

An affidavit of the plaintiff or plaintiffs’ counsel “that the statement is based upon a good faith investigation of all potential claims against asbestos trusts”Production of final executed trust claim forms with any supporting materialIf the defendant satisfies burden of proving non-compliance with this section, the court may strike the case from the trial group or use “whatever other sanctions the court deems appropriate”

Claimants are also required to assist in any defendant’s efforts to obtain discovery from the trusts under applicable rules of procedure, including providing consent for the release of information requested by this discovery

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Discovery in the Tort System

The NYC CMO likewise provides express direction concerning the timing of trust submissions (Section XV(E)(2)(l):

No later than 10 days after designation in a FIFO Trial Cluster

For extremis cases, must be filed no later than 90 days before trialMarch 12th recommendation by the new Special Master suggests that exchange of trust claim forms should conform to this same timetable. Cases that are not in compliance with this requirement will not be transferred to a trial judge and deemed trial ready.

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Setoffs in the Tort System

Some courts expressly allow for setoff of trust payments

Under the West Virginia CMO, for example:

Defendants are entitled to setoffs for trust payments under Section 22(E)The claimant may be required to disclose “the total amount received or reasonably expected to be received from the bankruptcy proceedings, or any settling defendant”For payments not yet received, the claimant “shall assign to all defendants against whom the judgment is rendered his or her rights to all unpaid bankruptcy claims, whether filed with trust or not, and the claimant shall cooperate with and assist the defendants in obtaining damages due and owing to claimant from each asbestos trust….”

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State Legislation

Ohio Asbestos Claims Transparency Act, H.B. 380, passed in 2012:

Not as much a public transparency law as a discovery management law. Focus is on state tort plaintiffs rather than the trusts.

Plaintiffs must provide defendants with a sworn statement “identifying all existing asbestos trust claims” made by the plaintiff and “all claims material pertaining to each identified asbestos trust claim” within 30 days of the commencement of discovery or submission of the trust claimDefendants are authorized to request a stay of the state tort action for the purpose of requiring the plaintiff to submit additional claims to bankruptcy trustsTrust forms and supporting documentation are “presumed to be authentic, relevant to, and discoverable” and may be introduced to prove alternative causation/allocation of fault to bankrupt entities

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