In 1994, Congress amended the bankruptcy code allowing for the creation of giant asbestos bankruptcy trusts for the benefit of asbestos victims. Over the years, bankrupt companies and their insurers have funded these trusts with $36 billion, which according to the Government Accountability Office had paid out over $17.5 billion by 2010, including up to 40 percent in fees to plaintiffs’ lawyers.
Unfortunately, recent court cases and news reports indicate that some of the money paid out by these trusts was for fraudulent or inflated claims.
These problems have also emerged in court cases around the country against still solvent defendants. In one example, the law firm of Peter Angelos claimed a client’s asbestos-related disease was caused by only three companies it sued in a Baltimore court case. However, when the Angelos firm lost that case, it immediately filed claims for the same client with 23 asbestos bankruptcy trusts claiming their client was instead injured by the products of those trust companies. Consequently, a sanctions motion was recently filed against the firm.
Independent experts at GAO and the RAND Institute for Civil Justice have studied the trusts and concluded they are susceptible to abuse. And, at a hearing last year before the House Judiciary Committee witnesses detailed questionable trust claims exposed in the course of litigation in Louisiana, Maryland, New York, Ohio, Oklahoma, Delaware and Virginia.
Joseph Rice, of the South Carolina-based Motley Rice law firm that has handled asbestos cases for 30 years, told the Wall Street Journal that thorough fraud prevention systems would be too costly and would leave less money to pay claims.
Because the trusts are controlled by plaintiffs’ lawyers and have no public accountability, it is impossible to know how much money has been siphoned off by fraud. We do know, though, that every dollar that has NOT gone to bona fide victims means less or possibly no money for future claimants with asbestos-related diseases.
This week, the House of Representatives has a chance to protect future asbestos victims by shining some light on the asbestos trusts.
The Furthering Asbestos Claim Transparency (FACT) Act of 2013 (H.R. 982) would require the various asbestos trusts throughout the country to file quarterly reports with bankruptcy courts detailing who has filed a claim and how much money was paid out. This reporting, which is standard in other kinds of bankruptcy proceedings, will make it easier for trusts to see who has already filed for or received money for an asbestos injury claim, in order to stop duplicative or fraudulent claims.
This reporting will also allow judges and still solvent companies in the court system to know whether a case filed in the courts conflicts with claims already filed with the trusts. An average of $2.5 billion dollars is paid out each year as a result of asbestos court cases and money paid on fraudulent or inflated claims hurts shareholders and costs jobs.
There is nothing in the FACT Act that will interfere with or delay asbestos victims’ ability to file legitimate lawsuits or trust claims. The legislation protects individuals’ privacy by prohibiting the release of confidential medical records, Social Security numbers, and other personal information protected by existing bankruptcy laws. Furthermore, the bill’s reporting requirements would ensure that trusts have sufficient funds to pay legitimate claims by rooting out fraud in the system.
The FACT Act is an opportunity for Congress to ensure that the asbestos bankruptcy trusts it helped create 19 years ago actually benefit asbestos victims and are not depleted by fraudsters and plaintiffs’ lawyers for their own benefit.
A well-known British jurist once called secrecy “the badge of fraud.” It is time for Congress to lift the veil of secrecy over asbestos trusts and ensure that money set aside for asbestos victims goes to asbestos victims.
Rickard is president of the U.S. Chamber Institute for Legal Reform.