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A costly legal quagmire. A pit. An endless saga. A wave flooding the nation’s courts. A public policy problem of massive proportions. A runaway, job-eating blob. An elephantine mass. These are just a few of the phrases that have been used to describe asbestos litigation in the United States. To be sure, these phrases were not used by asbestos litigation defendants, but rather by the Detroit News, Time, The Los Angeles Times, The New York Times, the Financial Times, the Wall Street Journal and the U.S. Supreme Court, respectively, in describing the asbestos litigation crisis that is confronting federal and state courts. The asbestos litigation crisis is multifaceted. First, the overwhelming number of asbestos claims clogs the dockets of state and federal courts, thereby delaying the efficient administration of justice not only for asbestos litigants, but for other litigants as well. Second, the asbestos litigation crisis poses significant financial problems and risks for traditional asbestos defendants, such as asbestos manufacturers and producers. Third, the current nature of asbestos litigation imposes those same financial burdens and risks on newer, nontraditional asbestos defendants. These nontraditional defendants are often companies that never manufactured or distributed an asbestos-containing product but instead simply sold a product that may have contained some asbestos at one time, purchased a company that once sold asbestos-containing products or owned a premises at which asbestos-containing products were once used. Fourth, the asbestos litigation crisis threatens employees, retirees, shareholders, investors and insurance companies. Indeed, as asbestos litigation has mushroomed over the past 30 years, many defendant companies have been forced into bankruptcy, while other defendant companies that have not sought bankruptcy protection have seen their stock values plummet because of Wall Street’s concern about their asbestos liabilities. The decline in stock values has in turn endangered jobs, savings, investments and retirement plans, while simultaneously reducing the money available to compensate legitimate plaintiffs. Stated simply, the main problem associated with asbestos litigation is that the litigation is simply too cost prohibitive for affected businesses and, at the same time, legitimate victims injured by exposure to asbestos either cannot get their day in court or are not being compensated fairly. Recognizing this complex crisis, the U.S. Supreme Court has thrice called on Congress to enact legislation to address the asbestos litigation problem. To date, Congress has not responded to this challenge, but such legislation is expected to be introduced in both the U.S. House of Representatives and Senate now that Congress has reconvened. In the last congressional session, the Senate Judiciary Committee held a hearing on asbestos litigation and several senators, both Democrats and Republicans, recognized the myriad of problems posed by the current system. At that hearing, the committee heard from a variety of witnesses, ranging from plaintiffs’ attorneys to professors, who discussed their views on asbestos litigation and possible solutions to the problems posed by the current crisis. It is widely believed that this congressional hearing laid the legislative groundwork for reform legislation in 2003. This article focuses on the history of asbestos litigation in this country and the costs associated with the litigation. An article that will appear in next week’s New Jersey Law Journal analyzes the key elements of asbestos litigation reform legislation that is expected to be introduced in Congress. BURGEONING ASBESTOS LAWSUITS Asbestos, as a result of its strength, flexibility and fire-retardant capacity, was used extensively throughout many industries and work settings in the United States until the 1980s. Although asbestos use remains legal in the United States, regulations promulgated by the Occupational Safety and Health Administration and the Environmental Protection Agency have effectively eliminated its use. In a USA Today article examining the asbestos litigation epidemic, the extensive use of asbestos in the United States was described as “the worst occupational health disaster in U.S. history.” In that regard, several diseases have been causally linked to asbestos exposure, including mesothelioma, lung cancer, asbestosis (a scarring of the lung) and pleural plaques (changes to the pleural membrane that covers the lung). Mesothelioma, a cancer of the lining of either the lungs or the abdominal cavity that is generally fatal within two years of diagnosis, is the most serious. Asbestosis and pleural plaques may or may not affect an individual’s ability to complete typical daily activities. Several witnesses at the Senate Judiciary Committee hearing on asbestos litigation testified that it has been widely reported that approximately 27.5 million workers have been exposed to asbestos at some point during their working lives and that other studies have estimated that the number of workers exposed to asbestos could actually be closer to 100 million. The first lawsuits alleging injuries from asbestos exposure were filed in the 1960s, and the number of claims filed has grown steadily since then. It has been estimated that there are currently between 300,000 and 700,000 claims pending in courts nationwide, and a recent Rand Institute for Civil Justice Study determined that there were 600,000 claims pending at the end of 2000. According to an article in The New York Times, which examined the surge in asbestos lawsuits, over 90,000 new asbestos claims were filed in the last year alone. As reported in the Times, other newspapers and magazines, and scholarly legal articles, analysts have predicted that there could be as many as 3.1 million claims filed by 2030 and that asbestos claims could continue to be filed for the next 50 years. The fact that asbestos litigation is expected to continue for at least the next 30 years is due, at least in part, to the long latency period associated with asbestos-related diseases, whereby individuals who were exposed to asbestos may not manifest signs of asbestos-related disease until decades after the exposure. The initial asbestos lawsuits were typically filed by claimants whose jobs required them to physically manipulate asbestos or asbestos-containing products and who inhaled large quantities of asbestos fiber and dust on a regular basis; but, in many courts, recent claimants have not been required to demonstrate exposure to asbestos-containing products to the same degree or for the same duration as the initial claimants. The number of defendants named in a typical asbestos lawsuit has also changed over time. In the early 1980s, claimants would usually name approximately 20 companies as defendants, but by the mid-1990s, the average claimant named between 60 and 70 companies as defendants. According to a recent Rand Institute for Civil Justice study, approximately 6,000 companies have been named as defendants in asbestos litigation to date, and the litigation has infected nearly all parts of the American economy and nearly every American industry. As noted, the traditional asbestos defendants were companies that manufactured asbestos and products that contained large quantities of asbestos. Today, however, nontraditional defendants who were not directly involved in either the manufacture of asbestos or asbestos-containing products have become target defendants. Some examples of these nontraditional defendants include automakers that manufactured autoparts such as brakes and gaskets; construction and engineering companies that incorporated asbestos-containing elements into the design and construction of buildings constructed decades ago; and small retailers like hardware stores, flooring companies, auto parts dealers and lumberyards, because at one time they may have sold products that allegedly contained at least small amounts of asbestos. Some other examples of the new industries that have become entangled in the web of asbestos litigation include railroads, food production concerns, textile manufacturers, electric utilities and oil companies. Beyond those industries, another new group of defendants that has been brought into the “pit” is comprised of companies that never manufactured or sold any asbestos-containing products but simply purchased a unit or division of a company that did. Therefore, companies that were never directly involved with the mining, manufacture or sale of asbestos are now suddenly front and center in the burgeoning asbestos litigation. The costs of asbestos litigation in the United States are mind-boggling. The recent Rand study estimated that $54 billion has been spent on asbestos litigation through 2000. Of that total, $33 billion was spent on defense costs and claimants’ transaction costs, while claimants have reaped $21 billion. Of the $54 billion exhausted on asbestos litigation through 2000, United States insurers have spent approximately $22 billion, foreign insurers have spent approximately $10 billion and defendants have spent between $20 and $24 billion from their own assets. Because it is anticipated that asbestos litigation will continue at its current pace for at least the next 30 years, it has been predicted by the American Academy of Actuaries that by that point, defendant companies and insurers could see legal expenses associated with the litigation increase to between $200 and $275 billion, which, according to an article authored by former Attorney General Griffin Bell, would be more than the cost predictions for all Superfund cleanup sites combined, Hurricane Andrew, or the Sept. 11 terrorist attacks. THE FINANCIAL VICTIMS As the costs associated with asbestos litigation have continued to surge and to spread to nearly all sectors of the U.S. economy, defendant companies have slashed jobs to save costs and employees have seen their savings and the value of their 401(k) plans rapidly decline as the stock prices of defendant companies have precipitously dropped. Moreover, those defendant companies that have paid defense costs, damage awards and settlements, in turn have experienced lower earnings and, therefore, have less cash on hand to finance investment. Reduced investment levels generally correlate with a reduction in the creation of new jobs, and the recent Rand report estimates that approximately 128,000 jobs were not created because of the money that defendant companies were forced to spend on asbestos litigation. Further, Wall Street has been quick to punish the stock prices of otherwise financially secure companies because of its alarm over huge asbestos verdicts and its fear of future asbestos verdicts. For example, the stock of Halliburton dropped as a result of several large jury verdicts, and other companies such as Dow Chemical, Georgia Pacific, 3M and Viacom have also seen their stock prices plummet as a result of Wall Street’s concern over their potential asbestos liability. Many believe that it is the spate of recent corporate bankruptcies that may finally goad Congress into action. In total, 61 companies have declared bankruptcy as a result of overwhelming asbestos liabilities, and there has been a recent acceleration in filings. Since 1998, 35 companies have filed for such bankruptcy protection (in comparison to 26 companies in the prior 20 years). In just the first 10 months of 2002, 15 companies filed for bankruptcy protection because of their significant asbestos liabilities. One need look no further than Enron to see the devastating effect that bankruptcy can have on the American economy, the stock market indices, employees, retirees and shareholders. A recent study that was authored by, among others, the economist Joseph Stiglitz, determined that the direct cost associated with asbestos-related bankruptcies was between $325 and $650 million. That study also found that the bankruptcies associated with asbestos liabilities have led to an estimated loss of 52,000 to 60,000 jobs; that each displaced worker has lost, on average, between $25,000 and $50,000 over the course of his or her working career; and the average worker with a 401(k) plan in a company that declared bankruptcy as a result of asbestos liabilities sustained about $8,300 in pension losses, or about a 25 percent reduction in his or her 401(k) account. VICIOUS CYCLE As traditional asbestos defendants filed for bankruptcy, plaintiffs not surprisingly started targeting solvent defendants elsewhere, and as described previously, asbestos litigation spread rapidly to all sectors of the economy. Naturally, as the newer defendants have begun to sustain costs associated with asbestos litigation, they, too, have been forced into bankruptcy, thereby further reducing the pot of money available to pay victims legitimately injured by asbestos exposure. The shrinking pool of money available for plaintiffs with legitimate claims is one of the most significant challenges facing the current asbestos litigation system. Because indirect, tangential claims of asbestos exposure are now serving as the basis for many lawsuits, many plaintiffs that are currently filing suits are actually healthy and unimpaired. Stated plainly, a large majority (some experts estimate that as many as 90 percent) of plaintiffs are simply not sick. In that regard, the Rand report concluded that a large and increasing number of claims is now being filed by individuals who have not sustained an objective medical injury affecting their ability to engage in their usual daily activities. Nonetheless, such individuals are motivated to file lawsuits because even minimal exposure to asbestos has led to individual and consolidated multimillion dollar verdicts in plaintiff-friendly jurisdictions like Texas and Mississippi. The fact that unimpaired plaintiffs are obtaining large verdicts and settlements might initially seem to be a favorable sign for those individuals that have developed mesothelioma or other serious diseases as a result of asbestos exposure. However, the verdicts and settlements for unimpaired plaintiffs only tends to drive more companies into bankruptcy, place the dwindling number of solvent defendants in the position of “target” defendant, and thereby further reduce the compensation available for all claimants, particularly those with actual asbestos-related illnesses. Naturally, as compensation resources shrink, more and more individuals file premature claims before the money runs out, thereby further burdening the judiciary and reducing the resources available for truly deserving victims. It is a vicious cycle spiraling out of control. DePhillips is a partner at Porzio, Bromberg & Newman (www.pbnlaw.com) of Morristown and is a member of the firm’s product liability and toxic tort group as well as the firm’s governmental affairs practice. He also is a registered lobbyist in the state of New Jersey and undertakes legislative and regulatory lobbying for a wide range of clients at both the state and federal levels. Sharkey is an associate and a member of the firm’s product liability and toxic tort group. If you are interested in submitting an article to law.com, please click here for our submission guidelines.

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