Asbestos May Be Fireproof, but the Settlement is all about Smoke and Mirrors

The asbestos compensation legislation now before the Senate Judiciary Committee is fundamentally about a deal. Asbestos victims who can’t identify the producer of the product which caused their illness, or whose defendant has bankruptcy or other protection, get little or nothing. Other victims, with certain diseases, in certain jurisdictions, with certain defendants, are more fairly compensated [although money can’t buy back health that’s been lost, and even if the dollar amount were fair, plaintiffs pay the cost of the lawsuit and the lawyer’s fees.] In theory, the legislation should take from one set of plaintiffs, give to the others, and increase the pot of money by reducing transaction fees.

BrooklynDodger is not opposed to making a deal of some kind. But what kind of deal?

The bill would establish a payment schedule and a trust. The payment schedule is fundamentally different from that of a bankruptcy trust. In bankruptcy, there’s eventually a fixed amount of money to be divided among the victims, every victim is cheated, some more than others. “Eventually” comes after a long dispute about how many assets there are, and in the case of an asbestos related bankruptcy, how much the insurance companies are going to pay.

The trust fund size and timing of payments into the fund is going to determine what the victims get. That’s a deal over what the defendants can be expected to pay out under the status quo, and how much of that is going to victims rather than transaction costs which include defense lawyers. [Corporations complain about plaintiff’s lawyer’s fees, but defense, which is much more expensive and a no risk deal to the attorney, comes out of the pot too.]

So the question is how many assets can defendants hide with strategic bankruptcies, and how much would insurance companies have to pay.

Which finally brings us to Federal Mogul. A genius at FM bought Turner and Newell, a famous name in asbestos disease. For example, a recent scholarly review, focusing on Clydesdale, noted that “this shipbuilding community on the Clyde—in which Turner and Newell built an asbestos cement factory—became the asbestos disease capital of Europe.”
http://www.ijoeh.com/pfds/1002_Gorman.pdf

Federal Mogul eventually declared bankruptcy, complaining of 1.1 billion in potential asbestos claims arising from this company, which morphed from Tuner Bros. to Turner and Newell to TN.

The transaction below is pretty opaque as to what fraction of this 1.1 billion FM just settled out for 16 cents on the dollar.

VVVVVVVVVVVVVVVVVVVVVVVVVVVVVVV

http://www.detnews.com/2005/autosinsider/0503/26/auto-129396.htm

Saturday, March 26, 2005
Federal-Mogul settles with asbestos group for $29 million
Dow Jones / AP
WASHINGTON -- Federal-Mogul Corp. said it will pay $29 million to resolve more than $183 million in asbestos injury claims.
The settlement will initially be paid by the sureties that issued the bonds -- Safeco Insurance Co. of America, Travelers Casualty and Surety Co. of America, National Fire Insurance Co. of Hartford and Continental Casualty Co. -- and Federal-Mogul will repay that amount over time.
Southfield, Mich.-based Federal-Mogul's separate settlement with the insurers was approved by the bankruptcy court March 16.