Asbestos bankruptcy trusts (United States)
Asbestos bankruptcy trusts are trusts established by firms that have filed for reorganization under Chapter 11 of the United States Bankruptcy Code to pay personal injury claims caused by exposure to asbestos. At least 56 such trusts were established from the mid-1970s to 2011.
As of 2017, at least 100 large companies had filed bankruptcy, at least in part, due to asbestos-related liability. Because of this seeking compensation for asbestos victims often involves both litigation against solvent defendants and filing claims against asbestos bankruptcy trusts. The largest 26 of these trusts paid about 2.4 million claims totaling about $10.9 billion up to 2008.
The finally recovery amount received by plaintiffs depends heavily on whether evidence of exposure to products from bankrupt firms is introduced at trial. If no evidence of exposure from bankrupt firms is presented then increased financial responsibility is likely to be assigned to solvent defendants. Plaintiffs could benefit from this by "double dipping" by receiving compensation for the same injuries and expenses from both solvent parties and bankruptcy trusts.
Researchers from RAND Corporation found that if a company filed for bankruptcy plaintiffs claimed exposure to their products in interrogatories and depositions at dramatically reduced rates. The study involved from 43 companies that went bankrupt from 1998 to 2010 and were identified in mesothelioma litigation, 47 plaintiffs who had worked at the Brooklyn Naval Shipyard (BNS) from 1940 to 1949, and 39 plaintiffs who served in the Navy from 1950 to 1954 and were stationed on the West Coast (often referred to as the WCN plaintiffs). For the BNS cohort product identification dropped from an average of 20 percent in pre-bankruptcy suits to 4 percent in post-bankruptcy suits. The WCN cohort showed a similar drop from 10 percent to roughly 3 percent.
Plaintiffs' lawyers generally are not concerned by such findings. Many plaintiffs' lawyers believe that focusing on solvent defendants is entirely appropriate given that they have a responsibility to maximize the compensation their clients receive. Many plaintiffs' attorneys also argued that defense lawyers had many ways to establish different theories of exposure. Theoretically, this could be done by examining ship logs, work histories, etc. They also note that all exposures are often identified if a case proceeds to verdict. There is usually no such full disclosure in settlements.
Delayed filings and failure to disclose
Plaintiffs attorneys routinely delay filing claims against asbestos bankruptcy trusts in order to facilitate lawsuits against solvent defendants. This is done because such claims would necessarily dilute the liability of solvent defendants. Plaintiffs attorneys also routinely delay production of claim forms until the very last moment possible in order to prevent defendants from gather counter evidence and develop affirmative defenses. In recognition of the prejudice this exposes defendants to courts often extend or reopen discovery when the failure to produce trust claims is exposed. In Edwards production of claim forms was delayed until two weeks before trial. In Warfield production was delayed until the night before the trial. In Stoeckler the defendants discovered that the plaintiff did not disclose trust claims only three days after the start of the trial. 
It is often argued that the undisclosed claims are not material because they were only "deferral claims" filed to toll the statute of limitations against trusts for which no liability has yet been discovered. In Barnes & Crisafi the court determined that no such distinction could be made. Plaintiffs will also often say they don't know about claims filed by other law firms. In Stoeckler, the plaintiff's lawyer denied any knowledge of multiple past trust claims. In response to such arguments judges will often adopt mandatory disclosure obligations for bankruptcy trust claims.
In the Garlock bankruptcy Judge Hodges found numerous instances of plaintiff counsel improperly withholding production of trust claims. Garlock was allowed to conduct discovery regarding fifteen plaintiffs represented by five different law firms; Garlock found failure to produce in each and every case. Plaintiffs produced 32 claims but failed to produce another 284 claims.
Payments by injury type
The relatively high compensation received by claimants with non-malignant injuries has been an ongoing problem. Ten of the 26 known active trusts in 2008 report their payouts broken down by malignant and non-malignant injuries. During 2007 and 2008 combined, 86 percent of the claims these trusts reported were for non-malignant injuries. Non-malignant claims represented 37 percent of reported trust expenditures in these years.
Trustees, trust advisory committees, and future claimants' representatives
Asbestos bankruptcy trust are governed by trustees who in turn are advised by trust advisory committees (TACs) and future claimants' representatives (FCRs). TACs are generally controlled by lawyers from few prominent firms such as Baron & Budd, P.C. and Weitz & Luxenberg. Trusts must obtain the consent of TACs and FCRs before taking any major action.
Medicaid and Medicare fraud investigation
In late 2016, attorneys general from 13 states sent demand letters to bankruptcy trusts for Armstrong World Industries, Babcock & Wilcox, DII, and Owens Corning. The purpose of the demand letters was to determine if the funds are reimbursing states for medical treatment received under Medicaid and Medicare. The federal Medicare Secondary Payer law imposes penalties for paying settlements directly to claimants without repaying the government for medical costs covered under the same programs under the legal doctrine of subrogation. Possible penalties can include double damages. Plaintiff attorneys can be held liable under this law. Many private insurance companies that provide supplemental Medicare coverage have filed similar lawsuits.
The same attorneys general filed suit in federal court in Utah to force discovery in early 2017. Defense counsel responded to the suit by arguing that the plaintiffs lack jurisdiction and that their requests are overbroad.
A judge dropped complaints from several states involved in the suit.
- Dixon, Lloyd; McGovern, Geoffrey (2011). Asbestos Bankruptcy Trusts and Tort Compensation. Santa Monica, California: Rand Institute for Civil Justice. ISBN 9780833058348.
- Dixon, Lloyd; McGovern, Geoffrey. "Bankruptcy's Effect on Product Identification in Asbestos Personal Injury Cases". RAND. Retrieved 27 July 2017.
- Brickman, Lester (July 2014). "Fraud and Abuse in Mesothelioma Litigation". Tulane Law Review. Retrieved 10 May 2017.
- Fisher, Daniel (20 March 2017). "State AGs Probe Asbestos Bankruptcy Trusts To Recover Medicare Payments". Forbes. Retrieved 14 April 2017.
- Warner, Sara. "Asbestos Trusts Strike Back, Calling AGs Medicaid Fraud Probe 'Overreach'". Huffington Post.
- Breslin, John (18 September 2017). "Judge Rules For Asbestos Lawyers And Trusts Facing Investigation From State AGs". Retrieved 25 April 2018.