The Importance of the Garlock Estimation Decision

The Garlock estimation decision has received extensive coverage in the national press for the Court’s description of “the effort by some plaintiffs and their lawyers to withhold evidence of exposure to other asbestos products and to delay filing claims against bankrupt defendants’ asbestos trusts until after obtaining recoveries from Garlock (and other viable defendants).”[i]

What has not been as widely discussed is the ruling’s importance in removing what some had perceived as an impediment to seeking bankruptcy protection.  Reorganization requires creating a trust that will fairly compensate all current and future asbestos claimants for the company’s true legal liability.  Estimating the size of that trust is a key contested issue in an asbestos bankruptcy.  The Garlock decision demonstrates that a company which can convincingly demonstrate a good liability defense is not saddled with an unfairly high valuation projected from its past settlement history. 

The So-Called “Standard Method” of Estimation Rejected; Merits-Based Method Accepted

Garlock’s asbestos creditors claimed that using past settlements was the “standard method” for estimation.  Yet the Court held that “estimates of Garlock’s aggregate liability that are based on its historic settlement values are not reliable because those values are infected with the impropriety of some law firms and inflated by the cost of defense.”[ii]  Rather than past settlements, the Court looked to evidence that could determine Garlock’s true legal liability, such as the ability of Garlock’s products to cause mesothelioma and the contribution the claimants’ exposures to other products. 

Instead of the settlement-based estimation of more than $1.2 billion proposed by Garlock’s asbestos creditors, the Court found that Garlock’s liability for past and future mesothelioma claims was “relatively de minimis.[iii] 

Important Precedent for Resolving Asbestos Liability

Of course, relying on evidence of a company’s true liability works only when a debtor can marshal a strong liability defense.  That was not always the case in many past bankruptcies.  To the contrary, early asbestos bankruptcies usually involved companies responsible for friable asbestos insulation and pipe covering, products that indisputably caused disease.  For those companies, past settlements had been driven by the need to compromise true liability for exposures to potentially hazardous products.  It is, thus, perhaps understandable why parties in those cases were content to estimate their liability using projections from past settlement history even though settlements are usually not admissible in a liability determination when liability is contested.  

Today, many companies that find themselves embroiled in asbestos litigation are being sued for products more similar to those made by Garlock than to those whose trust liability was assessed using past settlements.  Should these companies seek bankruptcy protection, the Garlock decision provides important precedent on which to found a merits-based estimation of true legal liability.

To read more about the significance of the Garlock estimation ruling and the evidence the Court considered, follow these links:

The Garlock Estimation Decision

Exposure Evidence Available from Bankruptcy Proceedings

The Challenge of Understanding Potential Claimant’s Exposures

[i] Garlock Estimation Decision, p. 30.

[ii] Garlock Estimation Decision, p. 4.

[iii] Garlock Estimation Decision, p. 2.