Valuing an Asbestos Liability on Its Merits
An estimation proceeding produces a court’s estimate of a debtor’s aggregate liability for present and future asbestos claims. It values the whole inventory together under section 502(c) of the Bankruptcy Code, not one plaintiff’s exposure.
Courts have estimated that liability in at least two ways. One projects from what the company paid to settle claims before it filed. That measure is only as good as the evidence those settlements were based on. Another asks what the claims are worth on their merits — whether, and how much, the product contributed to the disease. The first had been the traditional approach in asbestos bankruptcies. Garlock took the second.
GARLOCK
Garlock made asbestos gaskets and packing, the vast majority containing chrysotile. Its scientific case was that its products did not cause disease: a low dose of a less potent fiber (if potent at all), released in workplaces where the potential for exposure to more potent amphibole asbestos from friable products made by others was far greater.
The court did not have to decide whether low-dose chrysotile exposure from Garlock’s gaskets could cause mesothelioma. It was sufficient, the court held, that work with Garlock’s gaskets and packing produced “relatively low exposure of a relatively lower potency asbestos to a limited population,” and that the people doing that work were “necessarily exposed to far greater quantities of higher potency asbestos from the products of others.” In re Garlock Sealing Technologies, LLC, 504 B.R. 71, 82 (Bankr. W.D.N.C. 2014).
Garlock’s settlements had been priced in a tort system that changed under it. From 2000 to 2005 the major insulation manufacturers filed for bankruptcy and left the litigation. The court found that the evidence of exposure to their products often “disappeared” with them, and that claimants often did not disclose exposure to the friable products of others. 504 B.R. at 82–83. The court put the point directly: evidence of those other exposures “was essential to” Garlock’s defense and to its negotiating position. 504 B.R. at 83. The nondisclosure distorted the settlement history. The cost of defending the cases drove the settlements up further. A settlement is a price paid to avoid a risk, not an admission or a finding of liability.
So the court set the settlement history aside.
The claims resolution history may be an appropriate measure only if it reliably reflects the debtor’s liability, and here it does not. 504 B.R. at 94.
The court held that the best evidence of Garlock’s aggregate responsibility was “the projection of its legal liability that takes into consideration causation, limited exposure and the contribution of exposures to other products.” 504 B.R. at 73–74. On that projection it determined that $125 million was sufficient to satisfy that liability for the present and future mesothelioma claims against it. The claimants’ representatives had estimated more than $1 billion.
FROM ONE CLAIM TO AN INVENTORY
A tort case and an estimation ask different questions. The tort case asks whether one plaintiff’s exposure caused that plaintiff’s disease. An estimation asks what an entire inventory of claims is worth. Valued on the merits, that turns more on the product than on one claimant’s work history. The questions are what the product released, in what doses, to whom, and under what foreseeable conditions of use.
The claimants bear the burden, and a debtor does not have to prove its product is safe. The question is whether the claimants can meet their burden. Answering that question in the Garlock estimation meant knowing their experts, the studies each opinion rested on, and whether the reasoning carried from the studies to the opinion.
It also meant putting on a case of our own. The scientific evidence came from the discipline that answered each part of the causation question: the epidemiology from an epidemiologist, the pathology from a pathologist, and the exposure from industrial hygienists who had measured it. We presented that evidence.
Since 2017 we have served as special litigation counsel to Bestwall in its bankruptcy.