The legacy of asbestos
It had net assets of $1.1 billion (U.S.), but Manville Corp., the giant Denver-based construction, mining, and forest products company, which for decades was the Western world’s largest producer of asbestos, filed for bankruptcy court protection in New York in August, 1982. The company faced roughly $1.9 billion in claims for compensation by 17,000 plantiffs who claimed that they were victims of asbestos-related diseases. Manville officials resorted to the controversial bankruptcy filing because they said that the claims threatened the company’s future. But on June 7, after two years of sporadic negotiations, Manville and a committee representing the claimants and commercial creditors reached a tentative agreement for a reorganization plan for the company. If they succeed in agreeing on all the details of the plan, the company can begin reviewing the claims but it will not be in a position to begin paying compensation until late 1985, the earliest it expects to conclude the bankruptcy proceedings.
Manville set a precedent by filing for protection under Chapter 11 of the 1978 U.S. Bankruptcy Code, which protects any company from the claims of creditors and injured parties while it works out a corporate organization plan. As long as the company remains under that protection, the claims cannot go to court. But angry U.S. legal critics
charged that Chapter 11 was never intended to protect a solvent company. Said Representative George Miller (DCalif.): “Companies should not be able to evade responsibility by cloaking themselves in the judicial processes of the United States.”
Initially, the claimants expected that Manville’s legal manoeuvre would provide the company with a fast and fair means of discharging its obligations. But Manville and the committee failed to reach agreement on a reorganization plan which would ensure that all claims —both existing and future—receive consideration. The company finally broke off negotiations last September and in November it unilaterally filed a corporate reorganization plan with the bankruptcy court. The plan called for setting up two companies, one to administer asbestos-related claims and another to conduct Manville businesses with immunity from further asbestos-related liabilities. The litigants immediately rejected the proposal.
Under the June 7 preliminary agreement Manville will begin paying off as much as $250 million of the claims. The company would then set up a trust fund to compensate existing and future claimants. The trust would include $100 million in cash, the proceeds of Manville’s product liability insurance and as much as 80 per cent of the company’s common stock. The trust’s funding would be adequate to compensate asbestos-related personal-injury victims for the rest of the century. Under the plan, if the victims are dissatisfied with the settlement offered they could challenge the awards either through arbitration or in court. Previously, Manville said that it could not reorganize if such challenges were allowed.
The claimants who have filed their suits over the past 10 years allege that Manville-produced asbestos insulation materials caused severe and, in many cases, fatal health problems. The Asbestos Litigation Group, made up of 150 lawyers representing 90 per cent of the claimants, estimates that more than 10
million Canadians and Americans have had significant exposure to asbestos dust. Because some types of lung diseases can take decades to develop, Manville officials expect at least 35,000 more suits by the end of the century. (In Canada an Ontario royal commission investigating asbestos-related diseases recommended in May that the Ontario Workers’ Compensation Board levy the maximum fine of $60,000 [Can.] against the Johns-Manville company in Scarborough, Ont., a subsidiary of Manville Corp. The royal commission had investigated the deaths of 68 former workers at
the asbestos-cement pipe-making plant.)
The claimants, most of whom suffer from lung cancer or asbestosis, a severely debilitating and often fatal lung disease characterized by an acute shortness of breath, have charged that Manville’s president, John McKinney, is deliberately delaying the payments by continuing to take refuge under Chapter 11. Said James Vermeulen, 57, an asbestosis victim who worked for nine years at Manville’s Stockton, Calif., concreteasbestos pipe manufacturing plant: “The prevailing attitude is, ‘How can they do this to us?’ Most of us have no funds and no hope. Whatever we were trying to do stopped when the time bombs exploded in our chests.”
For its part, Manville remains engaged in disputes with several of its insurers over their reluctance to admit liability in cases of asbestos exposure. It recently settled with three of them for a total of $315 million and is resuming discussions with 24 others. The company has also asked the court for a system of fixed benefits for the claimants—instead of trial by jury which the asbestos victims want—and for sharply reduced fees for the litigants’ lawyers. The lawyers, many of whom represent groups of victims, bill their clients on a “contingency basis,” a system that entitles them to a percentage of the total award. Manville maintains that the victims’ lawyers have exaggerated demands for compensation and that they have tried to prolong negotiations to increase their own fees.
The long-term implications of Manville’s Chapter 11 filing are enormous. Other U.S. asbestos manufacturers are carefully studying the company’s strategy to determine how they will respond to anticipated future lawsuits. If Manville, through its reliance on Chapter 11, reduces its financial obligations, then other U.S. industries—including pesticide, drug and chemical product manufacturers—that may face product-liability suits could seek similar court protection. Said Morris Shanber, a bankruptcy law professor at Case Western Reserve University in Cleveland, Ohio: “If things go well for Manville, companies will use the threat of bankruptcy as a bargaining chip.”
Manville officials contend that negotiations with the claimants’ committee are still “fluid” and that all parties have differing views on the manner in which many of the issues should be resolved. Still, for the victims the company’s plea for patience is increasingly unsatisfactory. Said Vermeulen: “How simple it would be if Manville would just admit that a mistake made many years ago has caused needless suffering and death and that we deserve to die in comfort and