05/09/03 R The Dimensions of Asbestos Litigation Stephen Carroll May 2003 RAND INSTITUTE FOR CIVIL JUSTICE

05/09/03 R Asbestos Litigation Has Become A Major Policy Concern  Asbestos litigation began to attract policy attention in early 1980s.  Settlement agreements in late 1980s led many to believe litigation was “manageable.”  But rapid increases in the number of claims and costs have reawakened interest.  Growth in litigation appears likely to continue.  Is there a better way of compensating asbestos victims?

05/09/03 R Outline  How did we get here?  Where are we today?  Where are we going?

05/09/03 R Widespread Occupational Exposure  Asbestos is abundant, inexpensive, versatile  Failure to warn of its risks and inadequate protection increased exposure  Estimated 27 million U.S. workers in high-risk industries and occupations exposed,  Unknown numbers of workers exposed  In other industries and occupations  Since 1979

05/09/03 R Many Injuries  More than 225,000 premature deaths estimated through 2009  Variety of diseases  Mesothelioma  Other cancers, particularly lung cancer  Asbestosis  Pleural thickening or plaques

05/09/03 R Controversy over Injury and Impairment  Many say most recent claimants are “unimpaired.”  Others say relevant issue is whether claimants satisfy legal criteria for injury.  Controversy turns on value judgments and medical criteria.  Studies suggest that most claimants without malignancies are not currently functionally impaired.

05/09/03 R Annual Claims Filings Have Risen Sharply Since ,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90, Number of claims Asbestos claims against five major defendants

Nonmalignant Claims Account for the Growth in Claims Mesothelioma Other Cancer Nonmalignant A Ratio of the number of claims in each year to the number of claims in 1980

05/09/03 R Filings Moved from Federal to State Courts Percent of filings in federal courts

05/09/03 R And from Some States to Others Percent Other states NY OH TX MS IL WV MD NJ PA CA

05/09/03 R Verdicts Are Infrequent but Attract Great Attention  Since 1993, out of hundreds of thousands of claims, few have been tried to verdict  527 trial verdicts  1,598 plaintiffs reaching verdict  Plaintiffs won two-thirds of the time  Mesothelioma plaintiffs were most successful  Most claims were tried in groups  In most trials, juries heard a small number of claims

05/09/03 R Five States Account for Most Verdicts 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Plaintiffs Trials Other MD LA CA TX PA

05/09/03 R An Increasing Share of Verdicts Are in Texas and Maryland Trials 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% '93-'95'96-'98’99-'01 Other LA PA MD CA TX

05/09/03 R Outline  How did we get here?  Where are we today?  Where are we going?

05/09/03 R Over 730,000 Claimants Through 2002  Typical claimant files against several dozen defendants  Number of claims filed annually has risen sharply  Average severity of claimed injuries is declining  Little change in frequency of seriously ill claimants  Increasing proportion of claims for less serious injuries

05/09/03 R The Number and Range of Defendants Have Also Increased Sharply  Our list of defendants includes more than 8,400 firms  Increasing number of defendants outside the asbestos and building products industry  Both large and small businesses  At least one company in 75 (of 83) U.S. industries (at the two-digit SIC level), now involved in litigation  By 1998, nontraditional defendants account for more than 60% of asbestos expenditures (confidential study)

05/09/03 R Distribution of Defendants by Industry (2-digit SIC) SIC Percent

05/09/03 R Distribution of Defendants by Industry (2-digit SIC)  8–10 percent of defendants: 3 industries  Construction special trade contractors  Wholesale trade-durable goods  Water transportation  4–5 percent of defendants: 5 industries  Fabricated metal products, except machinery and transportation equipment  Building construction general contractors and operative builders  Chemicals and allied products  Stone, clay, glass, and concrete products  Industrial and commercial machinery and computer equipment  1–3 percent of defendants: 18 industries  Less than 1 percent: 49 industries

05/09/03 R Estimated Total Costs of Resolving Asbestos Claims Through 2002: $70 B  Publicly available data are very limited  We estimate total outlays of $70 B through 2002  At least 5 major companies have each spent more than $1 B on asbestos litigation

05/09/03 R Transaction Costs Have Consumed More Than Half of Total Spending And they are likely to go back up in the future Plaintiff Compensation Plaintiff Expenses Defense Expenses s Litigation 1990s Litigation Percent

05/09/03 R Most Dollars Were Paid to Nonmalignant Claimants 9% Mesothelioma 4% Other cancers 20% Mesothelioma 20% Nonmalignant 60% Distribution of Claims Estimated Allocation of Compensation Other cancers Nonmalignant 86%

05/09/03 R Bankruptcies Are Becoming More Frequent  First bankruptcy in 1978  19 in the 1980s  17 in the 1990s  29 in 2000s through 2002

05/09/03 R And Bankruptcy Is Only Part of the Story  Defendants’ net payments to asbestos claimants weaken their financial position, cost jobs  Upper-bound estimates of effects on defendants: As of 2000Eventually Reduced level of investment$10 B$33 B Jobs not created138,000423,000  However, other firms’ reactions may offset the overall effects on the economy

05/09/03 R Outline  How did we get here?  Where are we today?  Where are we going?

05/09/03 R The Future Course of Litigation Is Uncertain  Analysts’ projections of total claimants and costs vary dramatically  Total claimants: 1 million to 3 million  Total costs: $200 billion to $265 billion  Whether there will be money left to pay future claimants—and who will pay —remain open questions

05/09/03 R Future Claimants’ Compensation at Risk 1988Trust payments began100% 1990Payments suspended(Only exigent cases paid) 1995Payments resumed 10% 2001Payment plan revised5% 2002Payment plan revised Reductions to less injured Compensation as % of liquidated value Example of Johns-Manville

05/09/03 R Widespread Agreement About the Current State of the Litigation...  Recent surge in filings  Majority of recent claimants are not currently functionally impaired  High transaction costs  Large number of bankruptcies  Spread of litigation through economy  Future claimants’ prospects are uncertain

05/09/03 R Policy Alternatives  Maintain status quo  Rely on bankruptcy system to deliver compensation and accept limits on payments  Change substantive doctrine  Redefine “injury” to require some functional impairment  Limit liability in some circumstances  Create administrative compensation program