Asbestos Bankruptcy Trusts and Tort Compensation

1. Asbestos Bankruptcy Trusts and Tort Compensation Lloyd DixonJune, 2013 Email : dixon@rand.org Phone: 310.393.0411 x7480

2. 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?

3. Plaintiffs Can Recover from Trusts and Through the Tort Process Plaintiff Tort claims Trust claims Settlements Trial Claim evaluation D verdict P verdict Payment No payment Verdict molding Payment

4. The Are Multiple Linkages Between the Two Systems Plaintiff Tort claims Trust claims Information linkage Settlements Trial Claim evaluation D verdict P verdict Payment No payment Setoff linkage Verdict molding Trust payment limitation linkage Payment Indirect claim linkage

5. 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

6. 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

7. 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

8. 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

9. Potential Effects of Trusts Depend Importantly on the Liability Regime Source: Asbestos Bankruptcy Trusts and Tort Compensation, RAND Corporation, MG-1104, 2011.

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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 bankruptcywith Claims filed post bankruptcy

16. 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

18. The Number of Trusts Grew Substantially Between 2003 and 2007 Trusts held $18 billion in assets at the end of 2011 Source: Dixon, McGovern, and Coombe, Asbestos Bankruptcy Trusts, RAND, 2010;GAO, Asbestos Injury Compensation, 2011; Scarcella, 2012.

19. Trust Payments Are Likely a Significant Proportion of Overall Compensation Source: Carroll et al., Asbestos Litigation, RAND, 2005; Dixon, McGovern, and Coombe, Asbestos Bankruptcy Trusts, RAND, 2010;GAO, Asbestos Injury Compensation, 2011.

20. Assigning Fault to Bankrupt Firms or Trusts

21. Filing and Discovery Requirements for Trust Claim Forms

22. Setoffs for Pre-Verdict Trust Payments

23. 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

24. 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

25. 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