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The Dimensions ofThe Dimensions ofAsbestos LitigationAsbestos Litigation

Stephen Carroll September 2003

RAND INSTITUTE FOR CIVIL JUSTICE

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Dimensions of the LitigationDimensions of the Litigation

Claims

Costs and compensation

Economic effects

Future outlook

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Over 730,000 Claimants Over 730,000 Claimants Through 2002Through 2002

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

Dramatic shifts in filing patterns

Typical claimant files against several dozen defendants

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Annual Claims Filings Have RisenAnnual Claims Filings Have RisenSharply Since 1990Sharply Since 1990

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Numberof

claims

Asbestos claims against five major defendants

Nonmalignant Claims AccountNonmalignant Claims Accountfor the Growth in Claimsfor the Growth in Claims

0

5

10

15

20

25

30

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

MesotheliomaOther CancerNonmalignant

A4632-2 0503

Ratio of the number of claims in

each year to the number of claims in

1980

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Controversy over Injury Controversy over Injury and Impairmentand 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.

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Filings Moved from Federal Filings Moved from Federal to State Courtsto State Courts

0

10

20

30

40

50

Pre-1988 1988–1993 1994–1997 1998–2000

Percent of filings

in federal courts

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And from Some States to OthersAnd from Some States to Others

1970–1987 1988–1993 1994–1997 1998–2000

100

80

60

40

20

0

Percent

Other states

NY

OH

TX

MS

IL

WV

MD

NJ

PA

CA

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Dimensions of the LitigationDimensions of the Litigation

Claims

Costs and compensation

Economic effects

Future outlook

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Estimated Total Costs of ResolvingEstimated Total Costs of Resolving Asbestos Claims Through 2002: Asbestos Claims Through 2002: $70 B$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

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Most Dollars Were Paid toMost Dollars Were Paid toNonmalignant ClaimantsNonmalignant Claimants

9%

Mesothelioma

4%

Other cancers

20%

Mesothelioma

20%

Nonmalignant

60%

Distribution of Claims

Estimated Allocation of

Compensation

Other cancers

Nonmalignant86%

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Transaction Costs Have ConsumedTransaction Costs Have ConsumedMore Than Half of Total SpendingMore 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

1980sLitigation

1990sLitigation

Percent

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Dimensions of the LitigationDimensions of the Litigation

Claims

Costs and compensation

Economic effects

Future outlook

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More Than 8,400 Firms More Than 8,400 Firms Have Been Named as Defendants Have Been Named as Defendants

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)

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Distribution of DefendantsDistribution of Defendantsby Industry (2-digit SIC)by Industry (2-digit SIC)

0

2

4

6

8

10

12

9 13 16 21 24 27 30 33 36 39 42 47 50 53 56 59 62 65 72 76 80 83 87 92 99

SIC

Percent

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Distribution of DefendantsDistribution of Defendantsby Industry (2-digit SIC)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

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Bankruptcies Are Becoming Bankruptcies Are Becoming More FrequentMore Frequent

First bankruptcy in 1978

19 in the 1980s

17 in the 1990s

29 in 2000s through 2002

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And Bankruptcy Is OnlyAnd Bankruptcy Is OnlyPart of the StoryPart 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 levelof investment $10 B $33 B

Jobs not created 138,000 423,000

However, other firms’ reactions may offset the overall effects on the economy

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Dimensions of the LitigationDimensions of the Litigation

Claims

Costs and compensation

Economic effects

Future outlook

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The Future Course of LitigationThe Future Course of Litigation Is Uncertain 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

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Widespread Agreement About the Widespread Agreement About the Current State of the Litigation...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

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Disagreement AboutDisagreement About

Whether reform is needed

If so, what reform would best remedy perceived problems

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Verdicts Are Infrequent but AttractVerdicts Are Infrequent but AttractGreat Attention 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

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A Few Large Awards Accounted forA Few Large Awards Accounted forMost of All Dollars AwardedMost of All Dollars Awarded

0

Distribution of Awards ($)

1K–10K

10K–100K

100K–1M

>1M–10M

10M1K–100K

100K–1M

>1M–10M

10M

Distribution of Dollars

Source: RAND compilation

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Five States Account for Five States Account for Most VerdictsMost Verdicts

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Plaintiffs Trials

OtherMDLACATXPA

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An Increasing Share of VerdictsAn Increasing Share of VerdictsAre in Texas and Maryland TrialsAre in Texas and Maryland Trials

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

'93-'95 '96-'98 ’99-'01

OtherLAPA

MDCA

TX