conversations with… · hurting you and innocent victims in asbestos liability cases, 24...

Conversations With…The Honorable Dick ThornburghWilliam GallagherVictor SchwartzRobert Vagley

Dick ThornburghKirkpatrick & LockhartLLP

William GallagherCrown Cork & Seal

Victor SchwartzShook, Hardy & BaconL.L.P.

Robert VagleyAmerican InsuranceAssociation

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The Issue: Asbestos LitigationIn the past two decades, asbestos litigation hasspawned over 600,000 claims for damagesfiled in American courts against over 6,000defendants. To date, these defendants havepaid out over $20 billion in damages. Nearlyseventy companies have gone bankrupt underthe crushing weight of asbestos lawsuits,twelve in just the last year. The overwhelmingnumber of claims has inspired courts to castaside basic notions of due process and centuriesof tort law tradition in an effort to clear theirdockets of asbestos cases.

There is broad agreement that asbestos litigationin America has plunged the legal system andfree enterprise into crisis, but no solutions seemforthcoming. The U.S. Supreme Court has beenrepeatedly asked to address the issues, but hasresponded each time that it is Congress’responsibility to act. Congress, though intentlyexamining the problem at the time this pub-lication went to press, has not yet respondedwith reform.

In this inaugural edition of WLF’s CONVERSATIONS WITH publication series, formerUnited States Attorney General DickThornburgh leads a discussion on the criticalissues and controversies arising out of the con-stantly shifting landscape of asbestos litigation.The conversation addresses ongoing efforts inthe courts, Congress, and state legislatures tobring sanity to the asbestos litigation crisis; itsroot causes; and its impact on companies ofall sizes.

The Honorable Dick Thornburgh:Victor, why don’t we get started with a fewgeneral questions for you. Even thoughmedical evidence demonstrates thatasbestos-related illnesses are on the decline,asbestos litigation is on the rise, with dam-age awards higher than ever and lawsuitsbeing filed against companies that nevermanufactured asbestos. Why haven’t thenumber of cases ebbed along with thereduction in illnesses?

Victor Schwartz: The number of asbestoscases has risen because some courts havenot acted as good gatekeepers against base-less litigation. They have lowered barrierson the admissibility of scientific evidence,declined to allow careful depositions ofplaintiffs, consolidated cases that are notalike (for example, people who are sick aregrouped with plaintiffs who are unim-paired), and have not required careful proofthat a specific defendant has been at fault.With the signal going out to plaintiffs’lawyers that normal barriers of litigationhave been lowered, an onslaught of caseshas been the natural and expected result.1

Governor Thornburgh: What makesasbestos litigation different from othermass tort litigation, such as tobacco?

Mr. Schwartz: Asbestos litigation for peoplewho are really hurt is different from tobaccolitigation because at the time of exposurethe plaintiffs knew absolutely nothing aboutthe risks involved with asbestos. In tobacco,plaintiffs are generally aware of risks associat-ed with smoking. Second, so-called “victims”in asbestos cases were working in their jobs –engaging in constructive and meaningfulactivities. Juries see smoking, drinking, and

“Now that almost alloriginal asbestosmanufacturers havegone bankrupt, theplaintiffs’ bar isexpanding its targetlist of companies toinclude virtually anycompany that had aconnection withasbestos, no matter how tenuous.”

Robert Vagley

©2003 Washington Legal Foundation2

1. See Victor E. Schwartz & LeahLorber, A Letter to the Nation’s TrialJudges: How the Focus on Efficiency IsHurting You and Innocent Victims inAsbestos Liability Cases, 24 AM. J. TRIALADVOC. 247 (2000).

T H E I S S U E : A S B E S T O S L I T I G A T I O N

eating fast food as activities associated withpleasure. Asbestos victims garner much moresympathy with juries than smokers.

Governor Thornburgh: Bob Vagley, let’shave you weigh in on that question. What areyour thoughts from an insurer’s perspective?

Robert Vagley: Asbestos differs in both sizeand scope from other mass tort problems. Mostmass torts tend to stabilize over time, but withasbestos, the reverse has been true. Each year,more and more asbestos claims are being filed –and the litigation web is ensnaring increasingnumbers of peripheral defendants. The moststriking thing about these new claims is that thevast majority are being filed on behalf ofplaintiffs who do not exhibit any signs of illnessor injury. This combination of factors has ledto an unprecedented and accelerating numberof defendant company bankruptcies.

The existing situation is patently unfair. Plaintiffswho are really sick – those with mesothelioma,for example – may find it impossible to obtainany compensation at all, or find their tortrecoveries delayed and greatly diminished(ultimately, many victims receive only pennieson the dollar compared to their initial awards).Meanwhile, unimpaired claimants may recoveramounts ranging from several thousand to severalmillion dollars (this huge range in itself is indica-tive of the random nature of asbestos justice).On the defendant side, asbestos liability has ledto nearly 70 bankruptcy filings, costing jobs,health benefits, and retirement security for tens ofthousands of workers. Many of these companieswould not have been forced into bankruptcyhad it not been for the overwhelming numberof unimpaired claims.

The only winners in the existing litigation systemare lawyers who represent unimpaired plaintiffs.They have successfully created a real “growthindustry” by actively recruiting unimpairedplaintiffs, and they will fight to maintain theirprofit center, even if it comes at the directexpense of individuals dying of mesothelioma.V.J. Dowling, a well-known insurance industryanalyst, summed up the situation we are now

experiencing: “While prior analysis had beenbased upon a ‘medical model’ (based on expo-sure to asbestos), the reality is that the lawyer-driven asbestos litigation field is better viewedby an ‘economic model’ [where the deepestpockets pay].”

Governor Thornburgh: How has asbestoslitigation especially impacted the insuranceindustry?

Mr. Vagley: Asbestos is the most significantand difficult mass tort issue facing the proper-ty/casualty insurance industry and our policy-holders. Actuarial experts estimate that paymentsto individuals exposed to asbestos in the U.S.,along with related expenses, ultimately couldtotal $200 billion or more. These costs will beshared among policyholders, U.S. insurers/reinsurers, and foreign insurers/reinsurersand ultimately will be reflected in the cost ofcommercial insurance. This is a problem we arefacing with our policyholders, and we are workingwith our policyholders toward constructivesolutions.

Current loss estimates are nearly two-thirdshigher than those developed only a few yearsago. This is reflective of the recent claim surge,particularly among claimants who show no signsof asbestos-related disease but nonetheless areseeking large awards. Where successful, suchawards often come at the expense of those whoalready are desperately ill. Moreover, now thatalmost all original asbestos manufacturers havegone bankrupt, the plaintiffs’ bar is expandingits target list of companies to include virtuallyany company that had a connection withasbestos, no matter how tenuous. Even compa-nies that once owned a subsidiary which priorto the time they owned it may have used, sold,or distributed products containing asbestos, arenow being targeted. This represents a tremen-dous portion of the U.S. economy. To date,approximately 8,400 companies have been sued.

Governor Thornburgh: Bill Gallagher, yourcompany seems quite unfortunately to be theultimate example of the “peripheral” asbestosliability defendant. How did Crown Cork &

“The impact of asbestoslitigation on the financialsecurity of the affectedemployees and retireesis devastating. Themoney is coming out ofthe pockets of tens ofthousands of Crownemployees and retireeswho have built ourcompany to what weare today.”

William Gallagher

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Seal get embroiled in this litigation?

William Gallagher: Crown Cork & Seal isone of the world’s leading manufacturers ofpackaging products for consumer goods. Ourcompany was founded in 1892 by the inventorof the bottle cap, a ‘crown cork’ as it was thencalled. As you may recall, bottle caps used tobe lined with cork. Today, the company isheadquartered in Philadelphia and employsapproximately 30,000 men and women workingin 200 manufacturing plants. We still manufacturebottle caps. But today we also make soft-drinkcans, food cans, toothpaste caps, lipstick cases,and many other packaging products that youwould find in your home.

Although Americans will find Crown Cork &Seal’s packaging products in their homes andworkplaces, no one will ever find a Crown Cork& Seal asbestos product there or anywhereelse. Crown has never manufactured, sold, orinstalled a single asbestos-containing product inthe company’s 110-year history. Unfortunatelyand very unfairly, Crown has been named in anincreasing number of asbestos related lawsuitsin recent years because of a stock interestCrown obtained back in 1963 in a small family-owned business named Mundet Cork Companythat was also a manufacturer of cork-lined bottlecaps. Up until that time, Mundet also had aside business as a manufacturer of thermalinsulation products. But by the time of Crown’sstock purchase, Mundet had already shut downits insulation manufacturing operations.

Within 93 days of Crown’s obtaining its stockinterest in Mundet, what was left of the Mundetinsulation division – idle machinery, left-overinventory, customer lists and all other assets ofthe business – was sold by Mundet to an insula-tion company. Not long after, Mundet and itsbottle-cap operations were merged into Crown.As a result of this merger with Mundet almost40 years ago, Crown has been named in over300,000 asbestos claims and has paid almostapproximately $400 million in asbestos-relatedpayments.

Governor Thornburgh: How has being

named a defendant in hundreds of casesimpacted the company financially?

Mr. Gallagher: As I mentioned, the mergerof Mundet into Crown has spawned severalhundred thousand claims against Crown, costingthe company several hundred million dollars.Because of the bankruptcies of most of themajor asbestos manufacturers, Crown’s annualpayments for asbestos claims have increased fifty-fold over the last several years, from an averageof $2 million per year over the 20-year periodfrom 1977 through 1997 to the current annualamount of $100 million. Crown’s initial invest-ment of $7 million in Mundet nearly 40 yearsago has now cost our company approximately$400 million. The asbestos litigation crisis hasalso led to the downgrade of our company’sdebt resulting in a loss of liquidity and higherinterest rates, exacerbating the financial pressureon our company.

Governor Thornburgh: What about theimpact on the company’s employees, manage-ment, and shareholders?

Mr. Gallagher: Our employees and retirees,from executives to hourly employees, areinvested in Crown’s stock – whether in their401k’s, pensions, employee stock-purchase planor stock option plans. We have watched ourstock drop dramatically, because of asbestoslitigation, from over $50 per share to $5 pershare. So the impact on the financial securityof the affected employees and retirees isdevastating. On top of this, because of theburden of asbestos claims, Crown has reducedcapital expenditures for job-creating factoryexpansions and also reduced medical benefitsfor employees and retirees. Think of the ironyof this. We are a company that never made,sold or installed a single asbestos product, butwe are caught in an unfair and devastating legalsituation that forces us to pay medical compen-sation to claimants who never worked for ourcompany and were never hurt by our products –and this money is coming out of the pockets oftens of thousands of Crown employees andretirees who have built our company to what

“In some situations, notonly are unimpairedplaintiffs paid morethan they should be,but persons who areseriously injured arepaid less than theyshould be.”

Victor Schwartz



we are today. And as far as our shareholders areconcerned, it might be convenient to think thatthey are rich people who will survive with less.Well, our largest shareholders are institutionalshareholders – the pension funds and IRAs ofordinary Americans all across America. They,too, were all unfairly injured when our stockprice, and the stock prices of similarly affectedcompanies, plummeted. The money to payasbestos claims comes out of their pockets, too.

Governor Thornburgh: Victor, how shouldAmerica’s courts deal with peripheral defendantsin asbestos litigation? Are there examples inother litigation contexts where courts have had todeal with the targeting of peripheral defendants?

Mr. Schwartz: As Bob Vagley had mentioned,the first round of asbestos defendants were atthe core of causing injury; they made productscontaining asbestos. As these companies havegone into bankruptcy, plaintiffs’ lawyers havesued defendants that are on the outer edge orperiphery. For example, let me suggest that someof the defendants maintain factories whereasbestos exposure occurred. Here is an illus-tration of the difference between a companythat manufactures a product and a company thathas the product in a factory. Suppose a companymanufactures a new, high-intensity radio but usesradium in its core. An individual worker whohears that radio at his workplace is exposed toradium and is harmed. Obviously, the manufac-turer of the radio knows about the potential risksof the product. A company that buys the radioand operates it in a plant for the enjoyment ofworkers is far less culpable or may not be culpableat all. This illustration shows the differencebetween a core and a peripheral defendant.Courts should deal with peripheral defendants ina responsible way. They should require proofthat the defendants knew or should have knownabout a particular risk and then acted to concealthat risk from the injured worker. Courts shouldnot assume that peripheral defendants have guiltthat is the same as those who manufacturedproducts. There has not been any other majorlitigation where peripheral defendants have beenassaulted with claims, but the precedents estab-lished in asbestos lawsuits could augur problems

for potential peripheral defendants in the future.

Governor Thornburgh: Let’s stay with youfor the moment, Victor, on the role of the judi-ciary in all of this. As in many other mass tortcontexts, judges overseeing asbestos litigation,in pursuit of what they feel is a fair and effi-cient management of massive caseloads, havewidely used consolidation techniques to bringthousands of cases together. How have suchconsolidations led to the current crisis the legalsystem now faces?

Mr. Schwartz: As your question suggests, caseconsolidation can help with good and solid litiga-tion management. Consolidation of cases maybe appropriate when the diseases are similar, thetype of exposures is similar, the period ofexposures is similar, and there is a reasonableidentity of other issues. The problem withasbestos litigation is that in some jurisdictions,some judges have allowed consolidation of claimsby persons who are sick with claims by personswho are unimpaired. Plaintiffs’ lawyers haveseized upon this opportunity to extract settle-ments for plaintiffs who are unimpaired farbeyond what is reasonable. Our understandingis that in some situations, not only are unimpairedplaintiffs paid more than they should be, butpersons who are seriously injured are paid lessthan they should be. Plaintiffs who are really sickare used as a lever to extract higher settlementsfor those who are unimpaired.

Governor Thornburgh: What traditionalrules of tort law and principles of due processhave been ignored in the judicial process ofaddressing mass asbestos lawsuits? Are theresome specific examples of judges ignoringbasic principles or expediently creating newones to address asbestos cases?

Mr. Schwartz: As I had indicated previously,some judges handling mass asbestos lawsuitsare ignoring traditional tort law principles andrules of procedure. For example, under standardproduct liability law, a plaintiff must show thata defendant knew or should have known of aparticular risk. Beginning in New Jersey, thenin Louisiana and other jurisdictions, this principle

“It is unconscionablethat billions of dollars incompensation are beingfunneled to healthyplaintiffs, whilemesothelioma victimsare unable to recoverthe amounts that aredue to them under thetort system.”

Robert Vagley


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was abandoned. Fortunately, both the legislaturesin New Jersey and Louisiana overruled their“asbestos only” rules of law, but the principlesof absolute liability in asbestos cases have traveledto other jurisdictions. As I have also indicated,some judges have abandoned normal discoveryrules. A defendant is entitled to know whethera person really has been injured and whetherthe defendant was the party responsible for theinjury. Some courts have abandoned thesefundamentals.

Governor Thornburgh: What are the broaderramifications of the precedents that have beenset in asbestos litigation with regard to causation,requirements of proof, speculative damages,and other basic legal principles?

Mr. Schwartz: The broader ramifications ofthe precedents are that if you have a defendantwho is perceived to be “unpopular” or you havea situation where there is “mass” litigation,judges may perceive a need to move forwardtheir goal of expediency, and that goal willcome at the expense of preserving basic principlesof law. The good news is that these “abandon-ments” have only occurred in few jurisdictions.The bad news is that venue rules have allowedplaintiffs’ lawyers to pour cases by the thousandsinto those jurisdictions.

Governor Thornburgh: Beyond courts actingassertively, what can be done on the state orfederal level legislatively to solve the crisis andbe fair to injured plaintiffs? Will standard tortreform solutions solve the problem?

Mr. Schwartz: Individual states and the UnitedStates Congress can enact legislation that wouldseparate the claims of the truly sick from theunimpaired, using objective medical criteria asthe standard. Legislation also could preservethe claims of unimpaired plaintiffs in the eventthey become ill in the future. Legislatures alsoshould limit venue rules so that a plaintiff canonly bring a claim where he or she lives orwhere exposure to asbestos occurred. This willstop voracious forum shopping that is takingplace in asbestos litigation.

Governor Thornburgh: In fact, some coalitions

and business groups, like yours, Bob Vagley, arein active pursuit of a legislative solution at thefederal level. What is AIA’s involvement inpursuing federal reform?

Mr. Vagley: Enactment of federal legislationto solve the asbestos litigation crisis is AIA’snumber one national public policy priority. Itis unconscionable that billions of dollars incompensation are being funneled to healthyplaintiffs, while mesothelioma victims areunable to recover the amounts that are due tothem under the tort system.

AIA and our member companies are activemembers of the Asbestos Alliance, a broadnational coalition comprising the businesscommunity, insurers, and a number of triallawyers who represent critically ill asbestosplaintiffs. In describing the coalition, one triallawyer member said, “Look up ‘strange bed-fellows’ in the dictionary, and you’ll find ourpicture.” Indeed, it is a unique coalition with aunique legislative solution. The case beingmade collectively by these varied, and normallyconflicting interests is extremely compellingand, we believe, will lead to successful enactmentof legislation within the next two years.

Governor Thornburgh: What type of legis-lation has the coalition been advocating?

Mr. Vagley: The legislation is actually prettysimple, and based on the concepts of equityand fairness to asbestos victims – by that Imean both medical and financial victims. Thecore of the bill is establishment of objectivenational medical criteria for asbestos-relatedimpairment. These medical criteria would setthe minimum requirements for an “injury” inasbestos lawsuits. The medical criteria wouldbe derived primarily from the AMA Guides forthe Evaluation of Permanent Impairment,which Congress adopted by reference in theLongshore Act and which already serve a similarfunction under that Act.

In order to make sure that any person whobecomes sick from an asbestos-related diseasewill have their day in court, the bill also would

“Abusive forum shop-ping, which today con-centrates thousands ofclaims in jurisdictionsthat have no connectionwhatever with thoseclaims, must stop.”

Robert Vagley



liberalize statutes of limitations. No longer wouldclaimants be forced to file a lawsuit before theybecome ill in order to prevent the statute of lim-itations from running out on an eventual claim.

AIA thinks it is critical to eliminate the caseconsolidations that create “bet-the-company”situations for defendants. Such consolidationslead to shotgun settlements with thousands ofpeople who are not sick. We think both plaintiffsand defendants are entitled to an individual trialthat focuses on the facts of their own specificcases. This way, neither side would risk gettinglost in the aggregate.

In addition, AIA believes that abusive forumshopping, which today concentrates thousandsof claims in jurisdictions that have no connectionwhatever with those claims, must stop. Claimsshould be brought in the state where the plaintiffresides or where exposure occurred.

The medical criteria-based proposal wouldpreserve every plaintiff ’s right to sue. No onewould lose his or her right to go to court. Atthe same time, it would preserve defendants’ability to compensate those who have cancerand other serious asbestos-related diseases now,and those who become ill in the future. All ofthis could be achieved without creating a newbureaucracy and without the expenditure offederal or state funds.

Governor Thornburgh: Past efforts inCongress have been quite rancorous and unsuc-cessful, with the opponents of past legislationlabeling it as yet another broad “tort reform”effort. Do you feel the legislative solution thatis being crafted and discussed will be any moresuccessful?

Mr. Vagley: We are certainly mindful thatprevious legislative efforts have not been success-ful. As noted earlier, however, this effort isunique – and we are very optimistic that we willsucceed. There are several reasons for this opti-mism. For example, institutionally, Congress ismuch better at remedial legislation than proac-tive solutions. Asbestos litigation has reachedsuch a state of crisis that Congress cannot

ignore it any longer. From our meetings withboth members and their staff, we know thatthere is broad, bipartisan support for enactmentof meaningful asbestos litigation reform. Also,our proposal targets ongoing asbestos litigationabuse in a balanced and equitable way. Theproposal does not affect the rights of anyinjured person to sue for damages. In addition,adding in the supportive voices of plaintiffs’lawyers (and an increasing number of victims)is crucial. Who better than they can make thecase that those hurt most by the current systemare those most in need of meaningful justice?In short, the time is right, the proposal is right,and the politics are right for Congress to act.

Governor Thornburgh: Do you feel theproper public environment exists to succeed inCongress?

Mr. Vagley: I think most members of thepublic think that asbestos litigation wasresolved long ago; they are surprised to hear it’sstill an issue, let alone a crisis. However, wheninformed about the current state of things,such as the inequity of healthy people beingpaid the same as those who are dying, peoplegrasp very quickly that something has to be done.Americans are fair-minded. They value justice.

Broad-based, grassroots coalitions are activein nearly 20 key states. These coalitions arecomposed of local businesses and a growingnumber of trial lawyers and victims. They arein frequent contact with their senators, andnumerous House members, to tell them howthe current system negatively affects each ofthem, and their state’s economy. The mediaalso has taken an active interest in the asbestosissue. Respected national publications such asthe New York Times, Wall Street Journal, andFortune magazine have published articles and/oreditorials sharply critical of the current litigationmorass. Increasingly, local and regional mediaoutlets are carrying the same messages.

Governor Thornburgh: Victor, what are yourthoughts on congressional creation of a com-pensation fund? How would it work?

“Universal resolution ofthe asbestos crisis isunlikely to be achievedin a piecemeal fashion.Asbestos is a nationalcrisis. “

Victor Schwartz


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2. See RAND Institute for Civil Justice,Asbestos Litigation Costs and Compensation: An Interim Report (2002) (RAND 2002Report).

Mr. Schwartz: This is a question I would leaveto Members of Congress. Similarly, I have noobservations to make on behalf of any clientsof Shook, Hardy & Bacon. As a former tortsprofessor, I would make the following observa-tions about compensation funds. In general,funds have been much more costly than antici-pated by those who created them. An examplewas the Federal Black Lung Fund, whoseexpenses far exceeded its estimated cost. TheFund had to be substantially revised and therewere great political as well as financial costs inpersuading Congress to accept those revisions.Second, any fund that allows victims to escapeinto the tort system is usually doomed to fail-ure. Even if the escape to the tort system isnarrowly defined, somewhat like a run in astocking, it eventually expands the workerclaims to the Fund. The stronger claims escapeto the torts system. This type of fissure haddevastating impacts on early “auto no-faultfunds” which allowed so-called “victims” toescape into the tort system under certain criteria.Third, the concept of a fund is often attractivein the abstract, but when it gets down to thenitty-gritty of who contributes how much, itoften creates turmoil within the business com-munity. Fourth, for thirty years, the federalgovernment has absolutely resisted any contri-bution to any fund of any kind. The govern-ment believes it has resolved its asbestos oblig-ations through FECA, the Federal EmployersCompensation Act (federal worker compensa-tion). It will not pay into a Fund. As a formerlaw professor, I believe that certain issues needto be resolved if that avenue is to prove suc-cessful.

Governor Thornburgh: What impact willindividual companies’ settlement of theirasbestos problems, and ongoing discussionsbetween other companies and plaintiffs’ lawyersabout settlements, have on the momentum forcongressional reform?

Mr. Schwartz: I do not believe that individualcompany settlements of their asbestos problemsand on ongoing discussions about settlementsshould have any impact on the need for congres-sional reform. Resolution of asbestos cases has

been going on for many years, but the crisis –as clarified by the recent RAND Report 2 – hasnot abated; in fact, it has accelerated. Whilesome companies in limited situations may buypeace (e.g., some companies whose exposure isbased solely on the fact that they acquiredanother company with an asbestos exposure),universal resolution of the asbestos crisis isunlikely to be achieved in a piecemeal fashion.Asbestos is a national crisis. Individual settlementsmay resolve issues for some companies, butthey will not address the national problem of500,000 - 2,500,000 claims arising within thenext ten years (according to RAND).

Governor Thornburgh: Bob, your organiza-tional priorities related to asbestos also includepossible state legislation to address the issue.Certainly some specific jurisdictions have beenmagnets for asbestos plaintiffs’ lawyers. Whatsort of reforms do you feel would be effectiveat the state level?

Mr. Vagley: Asbestos cases have been migrat-ing to five states – Mississippi, New York, WestVirginia, Ohio, and Texas – over the past severalyears. In fact, these jurisdictions accounted foronly 9 percent of cases filed before 1988, butfor 66 percent of all filings between 1998 and2000. Such states certainly are candidates forreform efforts of some kind. We are assessingeach state to determine what fix would be mosteffective, given the political climate and otherrelevant factors.

While each state is unique and we will have totailor any reform program accordingly, there are afew general approaches under consideration,such as adapting parts of the federal litigationreform proposal for implementation at the statelevel, and working to implement changes instate court rules.

Another helpful reform – one that by itselfdoes not go far enough, but could be includedin a larger, overall systemic reform package –was enacted last year in Pennsylvania. The newlaw limits asbestos liability of a corporationassumed by merger to the asbestos-taintedcompany’s value at the time of its acquisition.

“Lost jobs and lostmedical and retirementbenefits are aninevitable consequenceof this growingasbestos problem.”

William Gallagher



I’m sure that Bill Gallagher can speak to thislaw and how it affects his company’s situation.

Governor Thornburgh: Bill, why don’t youtell us about this new law. How well informedwere legislators of the problem?

Mr. Gallagher: Last year, local legislatorsbecame concerned with out-of-control asbestosliability and its effect on Pennsylvania businesseslike Crown. Frustrated by the lack of any actionon the federal level, they took action on theirown. The result was a new corporate law thatfairly limits a Pennsylvania company’s mergersuccessor asbestos liability for the activities of apredecessor to the total value of the predeces-sor’s assets adjusted for inflation. In the case ofCrown, the total asset value of the mergedcompany, Mundet, at the time of the mergerwas $12 million, an amount that becomes $52million when adjusted for inflation. Crown’spayments to asbestos claimants of $400 millionfar exceed this cap.

Governor Thornburgh: I heard that the lawenjoyed the support of national and local laborunions in the Pennsylvania legislature. Tell meabout that.

Mr. Gallagher: We were pleased to have thesupport of national and local labor unions.Unionized and non-unionized workers across thecountry are bearing the economic consequencesof asbestos liability. Lost jobs and lost medicaland retirement benefits are an inevitable conse-quence of this growing asbestos problem. Theunions are beginning to recognize this. Wehope our nationally elected legislators will rec-ognize the need to resolve the asbestos prob-lem on a fair basis on a national level.

Governor Thornburgh: Are there effortsongoing in other states to seek adoption oflaws similar to the ones Pennsylvania has enact-ed? Would more such state legislative actionspecific to asbestos successor liability be goodpublic policy?

Mr. Gallagher: We know that it has beenintroduced in at least two other states. We think

that it would be good public policy for all statesto adopt similar laws soon. It is important tonote that corporate law statutes like the newPennsylvania statute do not undermine thedeterrence goal of product liability law.Companies that manufactured asbestos productswould not be able to structure mergers usingthe corporate law cap on asbestos merger liabilityto escape their responsibility. Remember, priorto any merger, such a company’s net worth is allthat is available to satisfy asbestos liability claims.After a merger, under a corporate merger statutelike that in Pennsylvania, the predecessor’s entiregross asset value becomes available to satisfyasbestos claims. Encouraging such mergersthrough fair corporate merger laws is surelygood public policy. The surviving acquiringcompany is not unfairly and disproportionatelypunished for claims it is not responsible for.Meanwhile the value of 100% of the assets ofthe predecessor company is now made availablejust for asbestos claimants, above and beyond theclaims of any other creditor of the predecessorcompany. And, the larger merged company isprobably better able to finance the asbestos liability.

Governor Thornburgh: One final questionfor you, Bill, on state legislation. Pennsylvaniarecently adopted a new law on joint and severalliability. What is the nature of that law andhow might it have an impact on asbestos litigationin the state?

Mr. Gallagher: Put simply, the law limits adefendant’s liability in any particular case to apercentage of the total recovery that correspondsto the defendant’s negligence. Thus, a defendantwho was only 1% responsible for an accident ina particular case can no longer be required to pay100% of the damages. Under the new law, adefendant can be 100% responsible for damagesonly if it is at least 60% responsible for theaccident or injury in question. The law, whichis known as the “Fair Share Act,” will stopplaintiffs from gaining disproportionate recov-eries against “deep pocket” defendants onlyminimally responsible for the plaintiffs’ injuries.The law continues a trend of other states passingsimilar laws to fairly apportion liability to fault.The law will affect asbestos litigation in the

“Courts can put an endto punitive damageawards in asbestoscases. Enough punish-ment has been imposed;the purpose of punitivedamages in asbestoslitigation has beenfulfilled.”

Victor Schwartz


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3. See Peter Schuck, The Worst Should GoFirst: Deferral Registries in AsbestosLitigation, 15 HARV. J.L. & PUB. POL’Y541, 553 (1992); Mark A. Behrens &Monica Parham, Stewardship for the Sick:Preserving Assets For Asbestos VictimsThrough Inactive Docket Programs, 33 Tex.Tech. L. Rev. 1 (2001).

4. See Inactive Asbestos Dockets: Are TheyEasing the Flow of Litigation?, COLUMNS– ASBESTOS RAISING THE BAR INASBESTOS LITIG. 2 (Feb. 2002) (dis-cussing various inactive docket plansand reporting that state judges whooversee asbestos dockets in states withinactive dockets find the plans fair andeffective).

5. See Asbestos Litigation Today – ADiscussion of Recent Trends, COLUMNS –ASBESTOS RAISING THE BAR INASBESTOS LITIG. 5 (Jan. 2002).

6. See Mark A. Behrens & Barry M.Parsons, Responsible Public Policy Demandsan End to the Hemorrhaging Effect ofPunitive Damages in Asbestos Cases, 6TEX. REV. L. & POL. 137 (2001).

same way it will impact all other types oflitigation – it helps ensure that no companypays more than its fair share of a plaintiff ’sinjuries.

Governor Thornburgh: The general consensushere seems to be that state or federal legislativeapproaches are needed to truly address thepervasive problems that exist with asbestos lit-igation, but I think we also would all agree thatthe wheels of legislative change move slowly. Inthe meantime, judges will continue to be the key“policy makers” on this issue. Victor, other thanfidelity to the rule of law, what can the judiciarydo to address the current crisis? Are there exam-ples of courts successfully taking control ofasbestos litigation to the benefit of defendantsand sick plaintiffs?

Mr. Schwartz: Courts can create inactive dock-ets, also known as deferral registries or pleuralregistries. Under these plans, individuals whocannot meet certain objective medical criteriaare placed on an inactive docket with statute oflimitations being tolled, and all discovery stayed.Claimants are moved to the active civil docketwhen they present credible medical evidence ofimpairment.3

Inactive docket plans have several obvious bene-fits. First, sick claimants are able to have theirclaims heard faster; they can move “to the frontof the line” and not be forced to wait until ear-lier-filed unimpaired claims are resolved. Thiscan be especially important if the claimant has afatal disease or is an older person. Second, inactivedocket programs help unimpaired individuals byprotecting their claims from being time-barredshould an asbestos-related disease later develop.This would address a primary engine driving thefiling of many claims by unimpaired claimants.Third, because there is no discovery or pressureto settle inactive claims, inactive dockets conservescarce financial resources that are needed tocompensate sick claimants – resources that arenow spent litigating claims that are premature,because there is not yet any impairment, oractually meritless, because there never will be.Fourth, inactive dockets reduce the specter ofmore employers being driven into bankruptcy,and can help slow the spread of the litigation

to “peripheral” defendants.

Some inactive docket plans have existed formany years; they have proven to be fair andeffective. For example, the Massachusetts inac-tive asbestos docket was created in 1986. Aninactive docket was established in the CircuitCourt for Cook County (Chicago), Illinois in1991. The Circuit Court for Baltimore Cityestablished an inactive docket in 1992.4

At the federal level, Senior United StatesDistrict Judge Charles R. Weiner, who overseesthe federal multidistrict asbestos litigation thathas been consolidated in the Eastern District ofPennsylvania (“the federal MDL Panel”), hasrecently ordered that all cases initiated througha mass screening shall be subject to dismissalwithout prejudice until the claimant can produceevidence of an asbestos-related disease.

In addition to creating inactive dockets, courtscan put an end to punitive damage awards inasbestos cases. Enough punishment has beenimposed; the purpose of punitive damages inasbestos litigation has been fulfilled.5 Somecourts have acted to curb punitive damagesabuse in asbestos cases. For example, the U.S.Court of Appeals for the Third Circuit recentlyapproved a decision by the federal MDL Panel tosever all punitive damages claims from federalasbestos cases before remanding compensatorydamages cases for trial. Judge Marshal A. Levinhas stayed all punitive damage awards inBaltimore City asbestos cases until compen-satory claims are satisfied. NorthamptonCounty (Bethlehem and Easton), PennsylvaniaAdministrative Judge Jack Panella has severedall asbestos-related punitive damages claimsfrom discovery, pre-trial motions and trial in hiscourt. In nearby Philadelphia, a three judgepanel has severed and deferred all pending andfuture punitive damage claims in thePhiladelphia Court of Common Pleas.6

These two steps can do a great deal to curtailthe asbestos litigation crisis.

Governor Thornburgh: How much responsi-bility do asbestos plaintiffs’ lawyers bear for thecurrent crisis? In what ways does the “represen-tation” of massive numbers of claimants, such


7 See ‘Medical Monitoring and AsbestosLitigation’ – A Discussion with RichardScruggs and Victor Schwartz, Vol. 17,No. 3 MEALEY’S LLITIG. REP:.ASBESTOS, MAR. 1, 2002

8See Paul F. Rothstein, What CourtsCan Do in the Face of the Never-EndingAsbestos Crisis, 71 MISS. L.J. 1 (2001).


as in the asbestos context, lead to ethical lapsesby lawyers?

Mr. Schwartz: Many of the plaintiffs’ lawyersin asbestos cases who represent persons withmalignancies have been responsible. For example,Richard Scruggs, a prominent Mississippi lawyer,has indicated that it is inappropriate to providecompensation to plaintiffs who are unimpairedand it is inappropriate for peripheral defendantsto be held responsible for claims.7

Unfortunately, a few plaintiffs’ lawyers havegamed the system. They have used shoddyevidence in regard to whether an individual issick; they also have used x-rays that are notcarefully obtained or evaluated; they have herdedplaintiffs together like cattle without any specif-ic knowledge of the people they represent. Attimes, these lawyers may have helped unimpairedplaintiffs at the expense of those who are verysick.8

Governor Thornburgh: One final question.Bill, what has been most unique for you as alawyer in defending your company against acoordinated mass litigation campaign like theasbestos suits?

Mr. Gallagher: As General Counsel of amanufacturing company, you would think youwould spend most of your time dealing withlegal issues involving co-workers, customersand suppliers. This would include using themoney we make selling our cans and closuresto our customers to fairly resolve product liabilityclaims for the rare defective cans or closures wemay have manufactured. However, I’ve foundmy time taken up helping to defend our companyagainst the greatest mass litigation in the historyof mankind arising from a product our companynever manufactured and related to exposure toanother company’s asbestos products thatoccurred before almost every man and womanworking for our company finished school. It iscertainly not fair, and it was this fundamentalfairness that the Pennsylvania legislatureaddressed with this new law.

B i o g r a p h i e s

The Honorable Dick Thornburgh is a formerAttorney General of the United States, Governor ofPennsylvania, and Under-Secretary-General of theUnited Nations. He is currently Of Counsel to thelaw firm Kirkpatrick & Lockhart LLP, andChairman of Washington Legal Foundation’s LegalPolicy Advisory Board.

Victor E. Schwartz is a partner in the law firm ofShook, Hardy & Bacon L.L.P. in Washington,D.C. He is co-author of the most widely used tortscasebook in the United States, PROSSER, WADEAND SCHWARTZ’S CASES AND MATERIALS ONTORTS (10th ed. 2000), and author ofCOMPARATIVE NEGLIGENCE (4th ed. 2004).

Robert E. Vagley is President of the AmericanInsurance Association (AIA), a position he has heldsince 1986.

William T. Gallagher is Senior Vice President,Secretary, and General Counsel of Crown Cork &Seal.

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