REVIEW & OUTLOOK
The Job-Eating Asbestos Blob
And you thought Enron was bad.
Seeing legislators pull their hair over Enron is a pleasant diversion, but if Washington is really interested in the jobs and livelihood of American citizens, it might be better off paying attention to the runaway blob known as asbestos litigation.
Don't stop reading now because your company never manufactured asbestos products. The blob is metastasizing way beyond the parts of the economy that spawned it. Last week 3M, maker of Scotch tape, was clobbered when a Wall Street analyst sent up a red flag about its asbestos exposure. The company had recently been hit with a $90 million jury verdict on behalf of four plaintiffs who complained a 3M respirator (labeled for nontoxic use) did not fully protect them against asbestos-related illness.
You only have to go back a couple of weeks more to find Halliburton, the oil-field specialist that formerly boasted Dick Cheney as CEO, taking a big markdown on its shares after a jury awarded $150 million to four plaintiffs in an asbestos lawsuit. Halliburton has 250,000 more claimants waiting in the wings. Halliburton chief Dave Lesar says more than half the Dow 30 industrial companies have asbestos exposure, though some are reluctant to disclose it. Dow Chemical was hit with 900 lawsuits in December alone. If something isn't done soon, Reuters quoted a fund manager saying recently, "half the industrial companies in America could face bankruptcy."
Even media giant Viacom is on the rack over its connection (through CBS) to Westinghouse. Jack Welch at GE, when asked about his company's liability, was known to dismiss it with a wisecrack. His successor, Jeffrey Immelt, who expects to be around for a decade or two, can't afford such a relaxed attitude. Already accounting mavens are sniping at GE for not quantifying its asbestos exposure.
What's going on? In 1999, the blob broke free of the legal system's attempts to confine it. The Supreme Court reluctantly shot down a global settlement involving dozens of asbestos companies and hundreds of trial lawyers. Justice David Souter pleaded with Congress to shed its lethargy and resolve an "elephantine mass" of claims that "defies customary judicial administration."
Congress didn't, and the legal army that's been living off asbestos litigation for 30 years has gone into overdrive to wring the last dollars from the original asbestos industry. Nine companies have been driven into bankruptcy in the past 12 months, including U.S. Gypsum, Owens-Corning and the former GAF. Now the legal piranha are moving in on downstream targets, such as asbestos customers and makers of protective gear. Not even the election of a noted tort reformer to the White House has restrained the frenzy.
You have to step back and appreciate how heavily invested a big chunk of the legal profession is in asbestos litigation. The blob has created hundreds of millionaires like Peter Angelos, owner of the Baltimore Orioles. It provided seed money for the tobacco wars. It keeps the Democrats, especially those in the Senate, surfeited in campaign contributions.
By now, some of the richest law firms in the country have been built on asbestos and have trained a second and even a third generation of asbestos lawyers, who in turn have started their own firms to mine this vein. Attorneys spend millions on TV advertising, mailings and union-hall campaigns to prospect for potential clients, meaning anyone with a plausible claim to have spent time at a site where asbestos was present.
Virtually any industrial company old enough to have been in business when asbestos was ubiquitous has something to worry about. Defendants find themselves dragged into court in obscure corners of Mississippi or Texas, where juries are used to "teaching a lesson" to out-of-state companies.
A few years ago, most first-time defendants got the lesson quickly and signed mass settlements in return for lawyers agreeing not to pile on the claims. That used to sound almost good--until defendants who thought they had "contained" the problem found themselves deluged with a bankrupting wave of new claims anyway. In fact, one reason 3M bore the brunt of the recent $90 million verdict was because the other defendants were already in Chapter 11.
Two years ago a bill was bruited in Congress that would have brought some order to the process. It would have created a company-funded, government-run procedure to compensate anyone who's sick or becomes sick from asbestos exposure. The lawyers nuked it, however, because they increasingly depend on collecting money for clients who claim exposure but aren't sick.
The lawyers won partly because most of corporate America stayed on the sidelines. This was shortsighted, to say the least. Now that the blob is headed in their direction maybe the rest of American business, and especially the Bush Administration, will notice and start to contain the economic damage.
