Co-authored by Brian Gross

Chances are, if you watch television, you’ve seen them – commercials in which attorneys promise financial compensation for those who have been diagnosed with an asbestos-related disease.  In their efforts to fulfill these promises, plaintiffs’ attorneys can pursue claims not only against solvent companies through the court system, but can also pursue claims against an ever-growing group of asbestos bankruptcy trusts.  These asbestos bankruptcy trusts – more than fifty in all – have billions of dollars with which to compensate asbestos claimants, and are becoming an increasingly important source of compensation for plaintiffs.  Just how important these trusts are as a source of compensation in each individual case, however, remains a mystery.  That is due to the fact that the current asbestos bankruptcy trust rules do not require the trusts to make public the payments they make to claimants.  That, combined with the fact that many courts have failed to require plaintiffs to disclose any information concerning trust claims, has resulted in a lack of transparency between the trusts and the tort system.  This lack of transparency creates an atmosphere for potential fraud, as it may allow a plaintiff to recover more than they would otherwise be entitled to collect from solvent companies in the tort system.  In an effort to combat this alleged “double recovery,” defendant companies in asbestos litigation, as well as their attorneys and insurance carriers, have called upon the federal government to take steps to create more transparency between the trusts and the tort system.

On Friday, September 9, 2011, the House Judiciary Committee’s Subcommittee on the Constitution held a hearing entitled, “How Fraud and Abuse in the Asbestos Compensation System Affect Victims, Jobs, the Economy and the Legal System.”  Led by Subcommittee Chairman Trent Franks, R-AZ, the Subcommittee heard testimony concerning alleged abuses associated with asbestos litigation, including forum shopping, witness coaching, and over-expansive legal theories. The heart of this debate, however, focused on the lack of transparency with respect to asbestos bankruptcy trusts, and how that lack of transparency harms companies which face asbestos claims.  Supporters of reform argue that plaintiffs should be required to disclose all bankruptcy trust filings so that payments by solvent defendants can be adjusted to reflect the compensation received from the trusts, and thus prevent double recovery by plaintiffs.

Under the current state of asbestos litigation, it is usually difficult for a defendant to obtain information concerning claims filed with bankruptcy trusts, which may include details of the claimants’ alleged asbestos exposure.  Defense attorneys argue that this information is vital to the defense of asbestos cases because it may uncover inconsistencies in plaintiffs’ testimony and could reduce the amount that a defendant may be required to pay if a plaintiff obtains a judgment.   This is especially true in several-liability states according to the most recent RAND report.

At this point, it is unclear whether Congress will act to help create the transparency sought by defense attorneys, insurance carriers, and asbestos defendants.  But, many in Congress acknowledge that if they fail to act – and fast – more companies will inevitably join the ranks of those who have filed for bankruptcy, and in turn further damage our economy.  We will continue to monitor this heated debate and post further reports as it plays out.