1. 05/09/03 R The Dimensions of Asbestos Litigation Stephen Carroll May 2003 RAND INSTITUTE FOR CIVIL JUSTICE

2. 05/09/03 R Asbestos Litigation Has Become A Major Policy Concern  Asbestos litigation began to attract policy attention in early 1980s.  Settlement agreements in late 1980s led many to believe litigation was “manageable.”  But rapid increases in the number of claims and costs have reawakened interest.  Growth in litigation appears likely to continue.  Is there a better way of compensating asbestos victims?

3. 05/09/03 R Outline  How did we get here?  Where are we today?  Where are we going?

4. 05/09/03 R Widespread Occupational Exposure  Asbestos is abundant, inexpensive, versatile  Failure to warn of its risks and inadequate protection increased exposure  Estimated 27 million U.S. workers in high-risk industries and occupations exposed, 1940-1979  Unknown numbers of workers exposed  In other industries and occupations  Since 1979

5. 05/09/03 R Many Injuries  More than 225,000 premature deaths estimated through 2009  Variety of diseases  Mesothelioma  Other cancers, particularly lung cancer  Asbestosis  Pleural thickening or plaques

6. 05/09/03 R Controversy over Injury and Impairment  Many say most recent claimants are “unimpaired.”  Others say relevant issue is whether claimants satisfy legal criteria for injury.  Controversy turns on value judgments and medical criteria.  Studies suggest that most claimants without malignancies are not currently functionally impaired.

7. 05/09/03 R Annual Claims Filings Have Risen Sharply Since 1990 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 1991199219931994199519961997199819992000 Number of claims Asbestos claims against five major defendants

8. Nonmalignant Claims Account for the Growth in Claims 0 5 10 15 20 25 30 198019821984198619881990199219941996199820002002 Mesothelioma Other Cancer Nonmalignant A4632-2 0503 Ratio of the number of claims in each year to the number of claims in 1980

9. 05/09/03 R Filings Moved from Federal to State Courts Percent of filings in federal courts

10. 05/09/03 R And from Some States to Others 100 80 60 40 20 0 Percent Other states NY OH TX MS IL WV MD NJ PA CA

11. 05/09/03 R Verdicts Are Infrequent but Attract Great Attention  Since 1993, out of hundreds of thousands of claims, few have been tried to verdict  527 trial verdicts  1,598 plaintiffs reaching verdict  Plaintiffs won two-thirds of the time  Mesothelioma plaintiffs were most successful  Most claims were tried in groups  In most trials, juries heard a small number of claims

12. 05/09/03 R Five States Account for Most Verdicts 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Plaintiffs Trials Other MD LA CA TX PA

13. 05/09/03 R An Increasing Share of Verdicts Are in Texas and Maryland Trials 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% '93-'95'96-'98’99-'01 Other LA PA MD CA TX

14. 05/09/03 R Outline  How did we get here?  Where are we today?  Where are we going?

15. 05/09/03 R Over 730,000 Claimants Through 2002  Typical claimant files against several dozen defendants  Number of claims filed annually has risen sharply  Average severity of claimed injuries is declining  Little change in frequency of seriously ill claimants  Increasing proportion of claims for less serious injuries

16. 05/09/03 R The Number and Range of Defendants Have Also Increased Sharply  Our list of defendants includes more than 8,400 firms  Increasing number of defendants outside the asbestos and building products industry  Both large and small businesses  At least one company in 75 (of 83) U.S. industries (at the two-digit SIC level), now involved in litigation  By 1998, nontraditional defendants account for more than 60% of asbestos expenditures (confidential study)

17. 05/09/03 R Distribution of Defendants by Industry (2-digit SIC) SIC Percent

18. 05/09/03 R Distribution of Defendants by Industry (2-digit SIC)  8–10 percent of defendants: 3 industries  Construction special trade contractors  Wholesale trade-durable goods  Water transportation  4–5 percent of defendants: 5 industries  Fabricated metal products, except machinery and transportation equipment  Building construction general contractors and operative builders  Chemicals and allied products  Stone, clay, glass, and concrete products  Industrial and commercial machinery and computer equipment  1–3 percent of defendants: 18 industries  Less than 1 percent: 49 industries

19. 05/09/03 R Estimated Total Costs of Resolving Asbestos Claims Through 2002: $70 B  Publicly available data are very limited  We estimate total outlays of $70 B through 2002  At least 5 major companies have each spent more than $1 B on asbestos litigation

20. 05/09/03 R Transaction Costs Have Consumed More Than Half of Total Spending And they are likely to go back up in the future Plaintiff Compensation Plaintiff Expenses Defense Expenses 0 20 40 60 80 100 1980s Litigation 1990s Litigation Percent

21. 05/09/03 R Most Dollars Were Paid to Nonmalignant Claimants 9% Mesothelioma 4% Other cancers 20% Mesothelioma 20% Nonmalignant 60% Distribution of Claims Estimated Allocation of Compensation Other cancers Nonmalignant 86%

22. 05/09/03 R Bankruptcies Are Becoming More Frequent  First bankruptcy in 1978  19 in the 1980s  17 in the 1990s  29 in 2000s through 2002

23. 05/09/03 R And Bankruptcy Is Only Part of the Story  Defendants’ net payments to asbestos claimants weaken their financial position, cost jobs  Upper-bound estimates of effects on defendants: As of 2000Eventually Reduced level of investment$10 B$33 B Jobs not created138,000423,000  However, other firms’ reactions may offset the overall effects on the economy

24. 05/09/03 R Outline  How did we get here?  Where are we today?  Where are we going?

25. 05/09/03 R The Future Course of Litigation Is Uncertain  Analysts’ projections of total claimants and costs vary dramatically  Total claimants: 1 million to 3 million  Total costs: $200 billion to $265 billion  Whether there will be money left to pay future claimants—and who will pay —remain open questions

26. 05/09/03 R Future Claimants’ Compensation at Risk 1988Trust payments began100% 1990Payments suspended(Only exigent cases paid) 1995Payments resumed 10% 2001Payment plan revised5% 2002Payment plan revised Reductions to less injured Compensation as % of liquidated value Example of Johns-Manville

27. 05/09/03 R Widespread Agreement About the Current State of the Litigation...  Recent surge in filings  Majority of recent claimants are not currently functionally impaired  High transaction costs  Large number of bankruptcies  Spread of litigation through economy  Future claimants’ prospects are uncertain

28. 05/09/03 R Policy Alternatives  Maintain status quo  Rely on bankruptcy system to deliver compensation and accept limits on payments  Change substantive doctrine  Redefine “injury” to require some functional impairment  Limit liability in some circumstances  Create administrative compensation program