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The Actuary The magazine of the Institute & Faculty of Actuaries

US asbestos is the future looking brighter?

Asbestos-related claims have had
a huge impact on the insur-
ance industry. Over the past
decade, the number of claims filings has outstripped previous projections, and global estimates of the total cost of US asbestos claims have been revised upwards. More than 60 US companies involved in the manufacture of asbestos and asbestos-containing products have been bankrupted, and ever-larger numbers of firms have been caught in the net of asbestos litigation. However, there have been some favourable developments recently.

US tort reform
A few years ago, up to 90% of the US asbestos claims filings were non-malignant claims, with many involving individuals with no manifest injury. Claims were centred on a small number of states considered as ‘plaintiff-friendly’ jurisdictions. For example, 85% of asbestos claims filed during 200103 related to just a handful of states, including Mississippi, Texas, and Ohio. In Jefferson County, Texas, there were more claims filed than there were people living in the county!
In the last few years, some states have started to take action against this rising tide of asbestos claims and in particular, the non-malignant claims that have been made by claimants who have neither lived in, nor been exposed to, asbestos in that state. These tort reforms have focused on several areas (see map across):
– Medical criteria In many states, ‘acceptable’ medical evidence proving the existence of a medical impairment is now required in order to bring a claim. One has to wonder how claims were previously assessed without this information.
– Venue reform So-called ‘litigation tourists’ have historically filed claims in forums with which they have had little or no connection. In certain states there is now a requirement to prove residence or exposure within the state where the claim is brought.
– Inactive dockets In some states, claims from unimpaired individuals are now being retained in ‘inactive dockets’ until the claimant actually develops an asbestos-related disease that impairs their health.
– Class actions A class action is a lawsuit prosecuted by representatives on behalf of a group of people who essentially all have the same claim against the defendant. Only the representatives are named in the initial stages of the case with the other class members generally not being named until later in the litigation. Such a class action must be certified by the court, and federal courts have historically certified fewer cases than their state court counterparts. Defendants have celebrated the enactment by the federal government of the Class Action Fairness Act of 2005, as this law makes it easier for state court purported class actions to be removed to the federal court.
Moreover, courts have been increasingly reluctant to certify class actions involving bodily injury cases. This is because it is recognised that these claimants should be considered according to their individual circumstances. It therefore seems likely that there will be a decline in class actions. Developments over the past couple of years have made it increasingly difficult for plaintiff attorneys to ‘extort’ a settlement through sheer volume of cases. Generally, increased judicial scrutiny of asbestos claims should further contribute to a reduction in the number of multi-plaintiff cases.
In line with Mississippi, California, and New York, Texas now allows defendants to bring evidence against other potentially responsible parties such as bankrupt companies, government agencies, employers, and the plaintiffs themselves in order for the jury to apportion blame.
With several other states considering the introduction of inactive dockets, California and Delaware are now considered to be the current ‘hotbeds’ for asbestos litigation, as plaintiffs search for new states in which to file claims.
There is also evidence of the US courts and certain judges taking a harder line against some asbestos claimants than previously, most notably in the well-publicised case of Judge Jack in Texas. In June 2005, Judge Jack found that 60% of silica plaintiffs had previously been asbestos plaintiffs. This was despite the chance of having both asbestosis and silicosis being compared by Judge Jack as akin to a ‘golfer’s hole in one’. It was suggested that certain doctors had signed off the medical screenings for cases that they had never seen. Many claims, including all pending silica claims in Ohio, were thrown out on the basis that they had been fraudulently diagnosed with silicosis and both lawyers and physicians were criticised as ‘manufacturing’ the claims for ‘monetary purposes’.
On the back of Judge Jack’s findings, US Congress began an investigation into several doctors, screeners, and lawyers. Some defendant lawyers began to encourage their clients to perform internal audits of all pending claims, including asbestos claims, since the doctors and lawyers in many existing asbestos cases are the same as those under investigation. They also began to encourage their clients not to pay out on any claims supported by evidence from one of a list of about 15 specified doctors. It is difficult to know whether this issue is limited to these specific doctors or if it goes far deeper. What is clear is that asbestos claims will be subject to greater scrutiny going forward.
So what is the effect of these tort reforms and legal developments likely to be in the future? Developments such as the introduction of medical criteria, and general increased scrutiny of claims, should lead to the dismissal of many claims and the clearing of non-malignant inventories. Inactive dockets should also remove a large number of claims from the courts and enable resources to be directed to the more legitimate malignant claims. Furthermore, the prevention of mass consolidations of claims should allow companies to defend claims based on their specific circumstances, rather than being forced to settle unimpaired and potentially invalid claims which have been ‘bundled’ together with malignant claims.
Recent development in claims filings
But have these developments in the tort system had any impact on the numbers of claims filings to date? One potential means of assessing any effect is to look at the claims filings for the Manville Trust. Johns Manville supplied a large proportion of the asbestos sold in the US, in addition to supplying fibres to other US distributors. In 1982, the company went bankrupt from the substantial numbers of asbestos claims against it and, in 1988, the Manville Trust was established through which all subsequent asbestos claims against Johns Manville would be settled. Given the significance of Johns Manville to the asbestos industry, claims activity against the Manville Trust is often taken as a proxy for the US asbestos claims environment as a whole.
Figure 1 shows the surge in claims filings against the Manville Trust over the period 200003 which also corresponds to the period with the highest frequency of asbestos-related bankruptcies in the US. The graph also shows the drop-off in claims filings in the last two years. Although some of the reduction in claims filings against the Manville Trust will be attributable to changes in the trust’s own claims acceptance criteria, the remainder is likely to be the result of changes in the asbestos claims environment for the US as a whole.
Figure 2 shows that the massive reduction in claims filings as a whole is almost completely dominated by the fall in the numbers of non-malignant claims. This is not surprising as asbestos causes very serious diseases such as mesothelioma that almost always result in fatality, but also cause other minor impairments where it can be difficult to see whether the claimant is injured at all. It will be interesting to see whether the reduction in non-malignant claim numbers seen over the last couple of years will result in an increased proportion of US asbestos claims deriving from malignant claims in future years. This would bring the US experience closer into line with other countries such as the UK.
As a result of these trends in claims filings, actuarial methodologies for projecting future claims liabilities have changed. Projection techniques have become more sophisticated as more information has become available and allowances have been made for tort reform and the impact this could have on both the frequency and severity of claims.

The FAIR Act
A federal solution to the US asbestos problem was proposed in 2005 by the Fairness in Asbestos Injury (FAIR) Act. This would have bypassed the tort system, establishing a central fund to settle all future asbestos claims. On the plus side, it would have resulted in lower transaction costs, finality for all parties, and guaranteed compensation on a consistent basis for all victims of asbestos exposure.
Concerns raised by opponents included a lack of clarity on what would happen if the fund was ever exhausted and how the funds would be raised in the short term. While the FAIR Act undoubtedly raised the profile of asbestos claims as an issue in the US, the Act remains unapproved and its chances of success now appear slim. Given the positive developments elsewhere in the tort system, it is questionable whether a federal solution will emerge.

The future
The situation does seem to be looking brighter in some respects. There is now a focus on directing payments to those victims of asbestos who are truly deserving and removing the less legitimate claims from the tort system altogether. With an overall reduction in claims filings over the last few years, coupled with an increasing proportion of payments being made to mesothelioma claimants, the news on US asbestos is, for once, not all bad.
Despite the recent positive developments, it would be foolish to think that it will all run smoothly from here. Faced with an increasingly strict legislative environment, US lawyers are likely to seek alternative routes for filing claims. Although overall claims costs may be reduced by the expected fall in non-malignant claims numbers, it remains to be seen whether US lawyers will be able to claw back some of the resultant savings to manufacturers and insurers by arguing for higher payouts on malignant cases. As such, the future remains uncertain and companies exposed to US asbestos liabilities will have to monitor this situation carefully going forward.