March 13 (Bloomberg) -- Fraudulent claims for asbestos exposure are shortchanging companies and legitimate victims, former judge and McCarter & English attorney Peggy L. Ableman testified today in support of legislation aimed at curtailing false claims on an estimated $30 billion in assets.
Under the current system, people claiming harm from asbestos can seek damages from trusts set up by bankrupt companies and simultaneously sue non-bankrupt companies, using inconsistent information about how and when they were exposed, Ableman said in a hearing before the U.S. House of Representatives Subcommittee on Regulatory Reform, Commercial and Antitrust Law today.
Companies are “often led to believe -- erroneously -- that their products were far more responsible for the plaintiff’s disease than what may have been the case, because they have no way of knowing the substance of an individual plaintiff’s claims,” Ableman said.
The proposed rules would affect non-bankrupt companies being sued under tort law as well as trusts for bankrupt companies that hold $18 billion in assets today, with up to $12 billion that may be added once current bankruptcies are resolved, according to testimony from Marc Scarcella, an economist with Bates White LLC in Washington.
A wave of asbestos bankruptcies from 2000 to 2004 included companies such as Owens Corning, Fibreboard Corp., Babcock & Wilcox Co., Pfizer Inc.’s non-operating Quigley Co., Armstrong World Industries and United States Gypsum Co. All followed the example of Johns-Manville Corp., which pioneered the concept of an asbestos trust in its 1982 bankruptcy.
By settling on an amount to be set aside for all current and future asbestos claims, companies could reorganize and exit bankruptcy free of lawsuits, leaving a trust and a trustee to manage distributions to alleged victims.
Ableman was a judge on the Delaware Superior Court for more than 29 years and joined McCarter & English in February as special counsel in product liability. She supports legislation called the Furthering Asbestos Claim Transparency Act of 2013, which she said would limit fraud by requiring such trusts to file quarterly reports on their claims in bankruptcy court. Reports would include the name and exposure history of plaintiffs and the basis for any payments that were previously made to them.
“The enemy of any just compensation system is fraud and abuse,” said Spencer Bachus, a Republican from Alabama, in a statement today. “Fraud and abuse take money away from real victims who desperately need help.”
“For too long, asbestos bankruptcy trusts have operated without adequate oversight,” said Lisa Rickard, president of the U.S. Chamber Institute for Legal Reform, in a phone interview before the hearing. “Courts around the country have uncovered examples in which plaintiffs’ lawyers have filed inconsistent or fraudulent claims with multiple trusts.”
“This is not about human error or mistakes being made when people are inputting information,” Rickard said. “Claimants go after trust money and then make different claims in lawsuits,” essentially “double-dipping,” she said. ILR, founded by the U.S. Chamber of Commerce, advocates legal reforms that will reduce what it says is the “excessive” influence of plaintiffs' lawyers over the legal and political system.
Ableman used as an example a case in which a plaintiff, June Montgomery, sued 22 companies claiming her mesothelioma was caused by exposure to their products via her husband’s work clothes, which she laundered. Only on the eve of trial did her lawyers inform the court that Montgomery had pursued claims against 20 trusts for bankrupt companies with a different claim: that she had been exposed through her own work.
Elihu Inselbuch, a lawyer at Caplin & Drysdale in New York, which represents asbestos victims’ rights, said the proposed legislation is an attempt by large corporate defendants to “add a new time-consuming burden” to bankrupt trusts.
The bill would “slow down the trust process such that many victims could die before receiving compensation since victims of mesothelioma typically only live for four to 18 months after their diagnosis,” Inselbuch said. There is no evidence that fraud is widespread, and large corporate defendants not in bankruptcy can already get details about a plaintiff’s past claims under state law, he added.
Plaintiffs may have been exposed to asbestos from multiple places, and have a right to recovery from more than one defendant, Inselbuch said, noting that bankrupt trusts, usually underfunded, currently only pay around 25 percent of what mesothelioma victims are scheduled to be paid.
Manville’s trust, for example, currently only pays $26,250 to mesothelioma claimants, or 7.5 percent of the $350,000 they are scheduled to receive under the agreement that formed the trust.
Mesothelioma, a rare form of cancer in the lungs, is one of many diseases linked to asbestos exposure. Trusts allot amounts to be paid based on what disease an asbestos claimant has. Asbestos, a mineral, was mined and used in products for its fire-resistant capabilities until the 1970s.
Without the kind of transparency proposed under the new legislation, it may be impossible to tell whether fraud is actually occurring, said Todd Brown, a former Jones Day lawyer who teaches bankruptcy and tort law at State University of New York at Buffalo Law School.
No one “has access to sufficient information across trusts to reach the extreme conclusions that are commonly advanced -- that fraud is nonexistent, on the one hand, or rampant, on the other,” Brown said in his prepared testimony.
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