By Ben Berkowitz
BOSTON, May 11 (Reuters) - As anyone in the United States with a TV or Internet connection probably knows, lawyers want you if you’ve been exposed to asbestos, and they’re paying to get you.
At one point earlier this year, 15 of the 100 most expensive keyword search phrases for click-through ads on Google contained the word “mesothelioma,” the deadly cancer caused by asbestos exposure. The single most expensive phrase, online marketing firm SpyFu reported, was “Florida mesothelioma lawyers,” at $177.74 per click.
The hard sell reflects a troubling truth: Half a century after the first wave of lawsuits were filed for illnesses linked to exposure to asbestos and 40 years after new regulation sharply curtailed use of the insulating and fire-resistant mineral, the asbestos-litigation business is booming.
Some of the country’s biggest and best-known law firms -- many of them handling asbestos cases almost exclusively -- say the number of lawsuits filed annually, after falling off from a peak, has picked up in recent years. More important, they say, is that payouts for plaintiffs who win their cases have soared.
“It’s easy to see why they’re buying time on CNN and the like. All you need to get is a couple of claims in to make that commercial buy worth the money,” says Marc Mayerson, a litigator with the Orrick law firm in Washington and a professor of insurance law at George Washington University, who has represented defendants in asbestos-related cases since the 1980s.
No central registry keeps track of asbestos lawsuits filed yearly or their outcomes. A tabulation of jury verdicts and settlements, based on an average of all asbestos-related lawsuits reported in Westlaw Journal Asbestos, a Thomson Reuters publication, found that the average award was $6.3 million in 2009, $17.6 million in 2010 and $10.5 million in 2011 -- amounts much greater than what lawyers say was the norm more than a decade earlier.
Clearly, mesothelioma and other asbestos-related payouts persist at levels companies and their insurers never expected. Insurers have been adding hundreds of millions of dollars to their asbestos-claim reserves. Travelers Cos, in its annual report for 2011, echoed its peers when it cited a “high degree of uncertainty with respect to future exposure from asbestos claims.”
Meanwhile, the dozens of trusts set up by companies forced into bankruptcy by asbestos liabilities are facing such heavy claims that many are paying only a few cents on the dollar. Some have had to suspend settlements. That has created inequality among victims.
Some doctors and lawyers attribute the recent rise in asbestos suits to the unexpected emergence of “asbestos wives and daughters,” women exposed to the mineral by male relatives who worked in asbestos-heavy industries.
David Sugarbaker, a thoracic surgeon at Brigham & Women’s Hospital in Boston who is highly regarded among mesothelioma patient groups, says he’s been seeing more women among new patients every year, but “nobody has been able to quite pin it down.”
No hard data show that the incidence of mesothelioma among women has risen significantly. Indeed, the incidence of the disease overall remained largely flat at about 1 person per 100,000 from 1980 to 2008, while the rate for women held steady at roughly one-sixth that of men, according to the National Cancer Institute.
No matter who is doing the suing, lawyers say plaintiffs are increasingly targeting a new set of deep-pocketed “tertiary defendants” -- companies that used asbestos products manufactured by others or were otherwise indirectly linked to asbestos. Such companies can now “find themselves in the midst of a lawsuit where the jury verdicts in the plaintiff-favorable jurisdictions are probably averaging $15 million to $25 million each,” Orrick’s Mayerson says.
Nearly everyone involved in asbestos litigation agrees on one dismaying fact: Most plaintiffs today are sick.
About a decade ago, “unimpaired” plaintiffs -- people who had some asbestos exposure but weren’t sick and had no evidence they were getting sick -- accounted for “literally hundreds of thousands of claims,” says Mike Angelides, managing partner of the Simmons Law Firm, which by its own estimate accounts for 20 percent of all asbestos-related lawsuits filed in the U.S. every year.
Matt Bergman, a Seattle attorney who specializes in asbestos litigation, says the number of lawsuits probably peaked in 2005, when he estimates 16,000 cases were filed, most from people without any illness.
As courts began to take a dim view of such suits, lawyers focused on sick plaintiffs. Now, Bergman says, only about 2,000 new cases are filed each year, most of them to do with mesothelioma. “I think the system works best when the people who are bringing the cases are the people suffering the most,” he says.
The Institute for Legal Reform, an arm of the U.S. Chamber of Commerce that has been a vehement critic of asbestos litigation, recognizes the shift. In recent years, “there were more cases with more people that were more severely impaired, and the numbers on those claims went up,” says Lisa Rickard, president of the institute.
Angelides says his firm estimates the number of new cases filed a year at around 1,800, way down from the peak but up from more recent years. “Everybody wishes these claims would go down,” he says, “but it’s not time yet.”
Mesothelioma is a particularly lethal cancer. It arises in the delicate tissue that lines body cavities, most often around the lungs, but also in the abdomen and elsewhere.
Years of research have shown that exposure to asbestos -- defined roughly as two weeks of constant contact, usually in the air in a workplace -- is a primary cause of mesothelioma. (Exposure also causes asbestosis, a chronic, potentially life-shortening lung disease.)
Once exposed, a person has a one-in-20 chance of developing mesothelioma. The average patient is dead within two years of diagnosis, and more than 90 percent are dead within five years, according to the National Cancer Institute.
The reason people who were exposed in the 1960s and 1970s are still being diagnosed is mesothelioma’s long latency period -- the time between exposure and manifestation of disease -- of between 30 and 50 years. Thus people who worked in tainted industrial settings in the 1960s are still getting ill, as are some family members.
Heather Von St. James, a resident of St. Paul, Minnesota, in her early 40s, is an asbestos daughter.
Many nights while growing up, she says, she greeted her father with a hug at the door when he returned home from his job sanding drywall, a fine white dust powdering his jacket. She often put on that jacket before running outside to feed her pet rabbits.
In 2005, just after the birth of her daughter, she was diagnosed with mesothelioma. She immediately remembered those lawyers’ TV ads she had seen late at night. “I called them at 1 o’clock in the morning when I got the diagnosis because I thought, ‘I’ve got nothing to lose,'” she says.
To fight her disease, she had to have a lung removed. That left her chronically weak and easily fatigued, unable to care for her daughter or continue working as a hair stylist and salon owner. She considers herself lucky, compared to other mesothelioma victims, but hesitates to describe herself as “cured.”
The court that heard her lawsuit estimated that the disability caused by her mesothelioma cost her more than $5 million in lost lifetime earnings. “We didn’t get $5 million. It can never replace what I lost,” says St. James, who is bound by confidentiality agreements not to disclose whom she sued or the precise amount she received. Court records indicate that 3M Co was a defendant -- not one closely associated with the decades-long morass of asbestos litigation.
3M did not respond to a request for comment.
LIKE “DEATH AND TAXES”
Asbestos -- actually a family of half a dozen fibrous minerals -- has been valued since Roman times for its heat-resistant properties. For much of the 20th century it pervaded construction sites, ship and rail yards, and many industrial settings. Canada, Russia and South Africa have been major producers, as was the United States.
Concerns about the health risks of asbestos exposure were raised as early as the 1920s. In a September 1958 memo that plaintiffs lawyers are wont to cite, a National Gypsum Co executive wrote: “We know that you will never lose sight of the fact that perhaps the greatest hazard in your plant is with men handling asbestos. Because just as certain as death and taxes is the fact that if you inhale asbestos dust you get asbestosis.”
The first asbestos-related personal-injury claims popped up in federal courts in the 1960s, but asbestos use continued. According to the U.S. Geological Survey, consumption of asbestos in the United States peaked in 1973 at 803,000 metric tons, out of global production of around 4.2 million metric tons.
Within a few years, mounting litigation, as well as scientific evidence linking asbestos to disease, prompted new government and industry regulations on safe handling and use of the mineral. Since 1973, according to the USGS, U.S. consumption has fallen 99.9 percent, though global use is down only around 50 percent.
In the ensuing decades, asbestos litigation overwhelmed one company after another. By government estimates, about 100 companies have been forced into bankruptcy proceedings because of asbestos liabilities -- including construction-materials and industrial heavyweights such as Johns Manville (now a part of Berkshire Hathaway Inc ), USG Corp and Owens Corning.
The U.S. Bankruptcy Code, amended specifically for the purpose, allows a company to put current and future asbestos liabilities in a trust, fund the trust with certain assets, and walk away to start fresh. Trust administrators determine whether a claim is valid and pay out accordingly. Their decisions can be appealed, but generally, trust claims are more open-and-shut than court litigation.
Each trust values claims differently. The Johns Manville trust values mesothelioma at $350,000, while the Owens Corning trust values it at $215,000, says Steve Kazan, managing principal at Kazan, McClain, Lyons, Greenwood & Harley in Illinois, who litigated his first asbestos case in 1974 and has kept at it since. None of the trusts, lawyers say, come close to paying what the courts do.
The problem for the trusts -- and for claimants -- is that as claims persist, many of the trusts have to pay out cents on the dollar for each valid claim in order to save for future claims.
Take the example of the Johns Manville trust. In the 23 years since it started, the Manville Personal Injury Settlement Trust has received more than 878,000 claims -- 10 times the number initially predicted -- and made payments nearing $4.23 billion. The Manville trust’s most recent filing with the U.S. Bankruptcy Court in Manhattan shows claims rose 57 percent in the first nine months of 2011 from a year earlier, to 27,300. Over that time the trust’s assets fell more than 12 percent, to $925.6 million.
As a result, the trust is now paying out approved claims at a rate of 7.5 cents on the dollar. A person with an approved $100,000 claim would receive $7,500.
The USG trust cut its payout rate to 35 cents on the dollar in April 2010 and lowered it again to 30 cents in November 2010. The NGC Bodily Injury Trust, which handles National Gypsum Co claims, warned last November that claim filings were running much higher than expected and cut payments to 18 cents on the dollar.
Last January, the C.E. Thurston & Sons Asbestos Trust suspended all new settlement offers while it recomputed how much it can afford to pay while retaining enough for the future, the trust said on its website.
Reuters sought comment by phone or email from trustees or lawyers for half a dozen asbestos trusts; none responded.
Unlike the trusts, the insurance industry thought it had largely solved its asbestos problem through big increases to reserves 10 years ago. It misjudged. “All these insurance companies have dedicated asbestos units, and they’re staffed and they’re busy,” says Larry Reback, an insurance broker with Integro in San Francisco.
Last year, when insurers AIG and The Hartford announced additions of $1.3 billion and $290 million, respectively, to their asbestos reserves, the companies blamed tertiary defendants that never anticipated litigation and now are being sued. AIG and Hartford have repeatedly declined to comment on the additions to their reserves.
Major oil companies are on the list, as people who were working decades ago challenge what the companies knew about asbestos safety at the time. Automakers are being hit with asbestos lawsuits, too, largely related to the asbestos lining in many vehicle brakes. Just this month a federal appellate court said lawsuits could proceed against drugmaker Pfizer Inc over asbestos-linked materials a subsidiary made a generation ago. “We strongly dispute” those lawsuits, Pfizer said.
In February, Travelers said it put $175 million into its asbestos-claim reserves in 2011, up 25 percent from 2010, citing more litigation and larger payouts because of those lawsuits. While announcing an increase in its own reserves, MetLife said in August that it saw asbestos-related claims rise 11 percent in the first half of the year after dropping steadily from 2003 through 2010.
In 2009, A.M. Best, the major rater of insurers, raised its estimate of future industry asbestos liabilities to $75 billion from $65 billion. The number may rise again in the next year, mainly because of mesothelioma claims, says Brian O‘Larte, an A.M. Best analyst in New Jersey. All told, by its assessment, the industry is about 4 percent underfunded for the $75 billion in liabilities it faces.
Insurers keep assuming, mistakenly, that liabilities will taper, O‘Larte says. “Every time they do a ground-up study, they say, ‘We got it right this time.'” he says. “We don’t assume that.”