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The Asbestos Producers

As the evidence has piled up against asbestos, the producers have sold out, diversified, moved into production of asbestos substitutes, sold off some subsidiaries, acquired new ones, and even moved into the asbestos removal business.

At least 16 asbestos manufacturers have been made bankrupt since 1985 because their insurance cover and their own funds were exhausted.

The Manville Corporation

The Manville Corporation, formerly the Johns-Manville Corporation, with 25,000 employees and more than 50 factories and mines in the United States and Canada, filed for reorganisation and protection under the United States Bankruptcy Code in August 1982. It made front page news throughout the US because at the time it was the largest company ever to file under this legislation, and, with assets of more than $2 billion dollars (£1.3 billion), one of the richest companies ever to take such action. At the time it was 181st on Fortune's list of the US top 500 industrial corporations. It filed for bankruptcy because, it said, it was "overwhelmed" by 16,500 lawsuits related to the health effects of asbestos, lawsuits which were at a rate of 6,000 per year. In June 1982 record compensatory damages of $2.3 million and punitive damages of $1.5 million had been awarded to a retired boiler-maker, James Cavett, dying from asbestosis and lung cancer.

A court settlement has set up a company-funded asbestos victims' trust fund worth £2.2 million. The asbestos victims' group, the White Lung Asbestos Information Centre, feels that this fund is woefully inadequate and that the court failed to evaluate hidden assets.

Johns-Manville was described by Ronald Motley, a South Carolina attorney, as "the greatest corporate mass murderer in history." It had a long history of hiding evidence of the ill effects of asbestos from its workers and the public.

T&N

Before 1945 the UK asbestos industry was dominated totally by one firm, Turner and Newall, now known as T&N plc. The group retains its North West base and its headquarters are in Trafford Park, Manchester. Car components make up a large part of its current manufacturing operations. 70% of its £2 billion turnover in 1994 was from the car industry. The T&N group employs over 40,000 people worldwide, nearly 12,000 in the UK, 10,000 in Europe, about 7,000 in the US, and nearly 13,000 in South Africa and Zimbabwe.

In January 1995 the Financial Times reported on T&N's attempts to "grow away" from its asbestos roots, saying it was a strictly qualified success. Later in the year The Guardian reported how profits and acquisition plans were nicely advanced. The Guardian reported how the company was in the middle of a sell-off of non-core businesses and hoped to raise £100 million. There was not, however, an intention to sell T&N's asbestos mines in Zimbabwe. The Financial Times noted that T&N had good growth but, regarding it as a potential investment, commented, "there are other engineering companies promising similar growth with less risk,"

In 1994 profits before tax fell from £70.3 to £10.7 million and after tax and other charges the company had a net loss of £16.5 million.¹ Asbestos-related costs (compensation payments and legal costs) had risen from £22 million in 1993 to £62 million in 1994.¹ The company announced a £140 million provision for future asbestos-related disease, £100 million for US claims, in the accounts for the year ending in 1994. This has resulted in the big drop in profits, but most of it has not been paid yet. Some of the asbestos costs are recoverable in tax: in 1994 the company claimed £13 million as a tax credit, and more tax will be claimed back as asbestos claims are settled.

The trading profit before this money was set aside was over £180 million, £57.6 million higher than the previous year. Dividends were restricted to 6% for 1995 because the asbestos claims meant that the company has to "conserve cash." This meant £3 million was paid out to shareholders compared to £34 million in 1993. During 1994 the price for an ordinary share fluctuated from a low of £1.57 to a high of £2.60. The directors received £1.8 million between them, plus share options.

The group had 433 asbestos-related personal injury cases pending in the UK at the end of December 1994 and many, many more in America.

US claims

T&N plc and two US subsidiaries, Flexitallic Inc which makes brake linings, disc brake pads, and other friction materials, and Ferodo America Inc, which makes spiral wound gaskets, face numerous other personal injury cases and ten property damage cases in the US courts.

Chase Manhattan Bank

The company is the sole defendant in an action brought by Chase Manhattan Bank in relation to the bank's headquarters in New York. Chase Manhattan has claimed $85 million compensatory and $100 million punitive damages. T&N's Directors believe that the ultimate outcome of the actions pending is unlikely to have a material effect on the group's financial position and they have not provided for it.

Avoiding costs

There have been several US initiatives to try to reduce the costs of compensation claims for the asbestos industry and its insurers. They have all aimed to avoid court procedures and settle claims administratively.

1982: The Wellington Facility

The US Centre for Public Resources set up this facility under the chairmanship of Harry Wellington, dean of Yale Law School. It allowed claims to be arbitrated without litigation. 34 major asbestos manufacturers and 16 insurance companies took part, eventually. Some major ones refused to participate. After three years this initiative collapsed under the sheer weight of claims.

1988: The Centre For Claims Resolution

The Centre for Claims Resolution (CCR) was set up in 1988. This organisation has 20 members, including the T&N group. T&N's Annual Report says, "The CCR aims to provide comprehensive, high quality and cost effective claims handling and administration services to its members."

At the end of 1994, the CCR's members were named in approximately 50,000 pending claims and approximately 31,000 claims in the court system which had been settled but not paid.

1993: The Georgine Settlement

This was a class action settlement, filed in Pennsylvania in January 1993. Before the Court agreed the settlement, it ordered a publicity campaign allowing future potential claimants the opportunity to opt out. 267,000 requests to opt-out were received. The opt-out process is being repeated because the first effort was supposed to be faulty.

The Georgine settlement was opposed and then subject to lengthy judicial review. It is currently subject to appeal, the outcome of which is likely to be known at the end of 1995. It is likely to be upheld.

Over the initial ten year period CCR members will not be obliged to compensate more than a defined maximum number of victims. This means CCR members will have annual cash flow limits. Any extra claimants will have their claims deferred to the following year. The terms of the Georgine settlement are perpetual, but members have the option to withdraw after the 10 year period.

US bankruptcies

By the early 1990s, more than half of the 25 largest asbestos manufacturers in the US, including Amatex, Carey-Canada, Celotex, Forty-Eight Insulations, Manville Corporation, National Gypsum, Standard Insulation, Unarco, And UNR Industries had been forced into bankruptcy. By 1990, Manville alone was involved in 149,000 liability suits. Filing for bankruptcy protects a company from its creditors.

Lloyds and the insurance industry

Between 1940 and 1970 many Lloyds syndicates took on vast amounts of excess insurance business for leading asbestos companies. According to Adam Raphael, writer for the Economist and author of Ultimate Risk which examines the Lloyds insurance market collapse, the underwriters were seduced by the steady stream of premium and investment income which such business produced. They ignored the medical evidence of the risks they were running, even though insurance companies had been refusing to sell asbestos workers life insurance as far back as 1918.

The good days are over. Lloyds Names incurred huge losses mostly because of asbestos claims. Many Names have been ruined financially. Some have been made bankrupt. Some have committed suicide.

Insurers are faced with two main types of claim, personal injury claims from those exposed to asbestos at work and property claims. Owners of buildings suing manufacturers for the diminished value of properties riddled with asbestos and for the costs of removing asbestos. A third category, which may become more significant, is that of people living near asbestos manufacturing processes.

Claims have risen from relatively small numbers to 500 a month in 1985, when the London insurers first realised they had a very serious problem. By 1988 there were about 2,000 claims every month, and they continued to rise to around 2,500 per month for the year ending May 1993.

So far about 100,000 claims have been settled and 125,000 left open. The London Market has paid out about £2 billion, with 60-65% paid by Lloyds. Some of it is reinsured and paid by European reinsurers. Claims are being settled at the rate of 15,000 per year. Analysts have been predicting that Lloyds is seriously under-reserved and that Names could face losses of £8.65 billion over the next 10-20 years.

Again according to Adam Raphael, "the best estimate of what lies ahead is a study published by the Yale School of Organisation and Management in 1992. It predicts that there will be 200,000 asbestos-related deaths over the next quarter of a century at a cost to asbestos manufacturers and their insurers of $50 billion. That sum is almost 10 times the combined net asset value of the asbestos producers, and is roughly equal to the assets of their liability insurers. The net worth of the 28 leading American asbestos companies is approximately $6 billion, while the combined book value of their 45 primary and excess insurers is estimated at only $50 billion. The conclusion is inescapable. Large numbers of manufacturers and their insurers, both American and European, are headed for liquidation. For the victims of asbestos, this will mean that hundreds of thousands of them will be denied proper compensation unless governments intervene."

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