Implications of T&N’s Administration Order
On November 28, 2001, the Asbestos Sub-Committee of the All Party Parliamentary Group on Occupational Safety and Health met in the House of Commons. Although the agenda for the meeting included several issues, the subject which was of most interest to the MPs, solicitors, victim support representatives, trade unionists, civil servants and journalists was the administration order obtained by T&N, Ltd., a well-known British asbestos defendant. This order freezes all the claims for asbestos-related diseases being brought against the company. Viewed alongside the fall of insurers Chester Street Insurance Holdings Ltd., formerly Iron Trades Holdings Ltd., earlier in the year, a pattern is beginning to emerge; suspicions were voiced at the meeting that other companies with asbestos-related liabilities might also default on their liabilities. It was agreed that there was an urgent need to obtain more information on the scope of the administration order and its implications. In addition, it is crucial to establish whether the Employers’ Liability insurance market is fundamentally sound.
T&N, Ltd. ceased paying asbestos-related disease claims on October 1, 2001. Federal Mogul (FM), T&N’s parent company, blamed an explosion in US asbestos litigation for the company’s financial problems. Although it had been anticipated, the news that FM was filing for voluntary Chapter 11 reorganization in the US and administration under the UK Insolvency Act of 1986 set off shock waves on both sides of the Atlantic. Affiliates in Canada, Continental Europe, Africa, Latin America and Asia-Pacific appear to be unaffected by the restructuring process. FM’s newly elected Chairman and Executive Officer, Frank Macher, claims that despite the insolvency: "Federal-Mogul will continue to serve its existing customers, fulfill current contracts and secure new business." On October 15, a corporate press release boasted that FM had secured four new contracts valued at $20 million from auto manufacturers and suppliers with Macher reiterating: "Federal-Mogul is continuing business operations without interruption and with the full support of our major customers."
For plaintiffs with asbestos injury claims it is most certainly not business as usual. UK cases against T&N Ltd., a British multinational gobbled up by FM during a $6 billion corporate buying spree in 1998, have been frozen. Solicitor Ian Bailey explained: "The administration order is a legal device by which the companies can continue to trade while ignoring the urgent needs of the many people who suffer the dreadful effects of asbestos exposure." Plaintiffs’ solicitors were informed by letters received in October that as a result of the proceedings, legal actions against T&N and subsidiaries such as Newalls Insulation Company Limited and J.W. Roberts Limited would be stayed. The High Court of Justice, Chancery Division, London approved the appointment of S V Freakley, J J Gleave and G P Squiries of Kroll Buchler Phillips as Joint Administrators. According to Mr. Freakley: "Whilst Federal-Mogul is viable at an operating level, it requires the protection of Administration and Chapter 11 to allow it time to address the financial difficulties caused by asbestos claims in the US." While Freakley et al are hopeful that these matters can be resolved in a few years, experience in the US has proven that the complex negotiations required can result in much longer delays. According to Asbestos Litigation in the U.S: A New Look at an Old Issue published in August, 2001 by the RAND Institute for Civil Justice, the average length of time from petition for bankruptcy to confirmation was six years for eleven major US asbestos defendants; however, three firms took ten years. Johns Manville filed for bankruptcy in 1982. It was approved in 1988, payments commenced but were suspended in 1990 and did not resume until 1995.
There are many claimants in the UK with on-going cases against the T&N Group of companies. The law firm of Irwin Mitchell represents several families pursuing lawsuits for environmental exposure caused by the operations of J. W. Roberts, a wholly-owned subsidiary of T&N, in Armley, Leeds. As a child, Ian Atkinson, who died of mesothelioma in 1999, had attended the local primary school where he played in a schoolyard covered with asbestos dust. His brother Barry is calling for government intervention: "I feel it is an injustice for all the people in Armley, not just my brother. I have known many people from Armley, strong and healthy people, who have died from this dreadful and painful illness and their families have gone through it all with them. It is a betrayal that they should have to fight for anything after all they’ve been through." Solicitor Adrian Budgen is pessimistic: "This is a bitter blow… the claims have been frozen and prospects for settlement are extremely bleak because we do not know when, if ever, we will be able to force asbestos companies to settle them." T&N checks issued for cases settled before October 1 have bounced according to several solicitors. One former employee, seventy-four year old Thomas Harrison, deposited a settlement check for £38,000 which was returned unpaid.
Earlier this year, the insolvency of Chester Street Insurance Holdings Ltd., formerly Iron Trades Holdings Ltd., threw into jeopardy compensation for thousands of UK asbestos victims. On May 10, 2001, a Treasury spokesperson announced that a settlement had been reached between the Government and the insurance industry which would ensure that the majority of claims would be paid. Many people believe that the precedent set by Chester Street is not applicable in this case as T&N was self-insured; research reveals however, that throughout seventy-eight years of existence, the company had purchased various insurance policies. The history of T&N’s insurance coverage is complex involving British insurance companies, re-insurers, co-insurers, excess layer insurers, numerous syndicates at Lloyd’s of London, employers' liability policies, workmens’ compensation policies, umbrella policies, product liability policies and the Asbestosis Fund, a private insurance scheme set up to handle all T&N’s asbestosis claims. T&N’s annual report of 1994 stated that "insurance cover to meet the asbestos claims is virtually exhausted."
An examination of an unpublished manuscript by Barrie N. Barker and documents unearthed during the Chase Manhattan case against T&N raises more questions than it answers. When asbestosis became a scheduled disease under the terms of the Workmens’ Compensation Acts, enquiries for insurance coverage were made to the Midland Employers’ Mutual Assurance Ltd., the company which had written insurance policies for T&N since the 1920 merger. The Midland’s premium for asbestosis cover proved to be unacceptable to the T&N Board; at its meeting of June 25, 1931 a decision was taken that the group would carry the risk itself: the Asbestosis Fund was set up. In 1948, when the National Insurance Act came into force, the Board again took the decision to continue the Fund. In 1952 another approach was made to the Midland which had continued to cover the group for other non-asbestosis common law claims. The insurers indicated they would be prepared to cover the excluded asbestosis claims for an annual premium of £1,000. Once again, T&N decided to carry on self-insuring. Soon afterwards, the unit companies agreed to bear the cost of common law asbestosis claims themselves so that the central Asbestosis Fund could be wound up. According to minutes from the Turner and Newall Board Meeting on 10 February 1977:
"When the Employers’ Liability (Compulsory Insurance) Act came into force we found ourselves in some difficulty. The present situation is that our insurers (The Royal Insurance Company Ltd.) provide the certificates required by the Act, but the clause in the policy excluding asbestosis liability still remains. Insurers have now indicated that they are not prepared to continue, and we are now, through Hogg Robinson, seeking another insurer. The Royal were concerned because since 1972 they have been carrying a risk, by reason of having issued the certificates, which is specifically excluded from the policy, and furthermore that it is a continuing risk for claims which may take up to twenty years to arise. They put forward a suggestion that we consider setting up a trust fund so that claims could continue to be paid even if T&N became unable to meet them. This was not regarded by T&N as a practical solution. On the other hand, T&N asked the Royal to quote a premium for full cover within the terms of the Act but they have declined to do so. The obvious solution seemed to be for T&N to continue to settle asbestosis claims, and for insurers to charge a premium for the other risks which reflected their contingent liability to meet asbestosis claims if T&N ever failed to do so, but they have declined to adopt this course."
When Royal indicated that they did not wish to renew the policy, T&N advised Lloyd’s Underwriters that the company would continue to accept the risks from asbestosis claims.
Advice is urgently needed on the implications of this material. Official demands should be made for T&N, the Midland and the Royal to clarify the insurance coverage provided for asbestos-related claims; specifically:
Did the Royal Insurance Company Ltd. (now part of Royal and SunAlliance Insurance Group plc) provide T&N with certificates as stipulated by the Employers’ Liability (Compulsory Insurance) (ECLI) Act even though asbestosis liability was specifically excluded from T&N’s policy? If so, is the Royal liable for current claims?
Did the exclusion of cover for asbestosis claims under T&N’s insurance policies include mesothelioma; if not, could mesothelioma claims against T&N be paid by the insurers, the Policyholder’s Protection Board or the Financial Services Compensation Scheme?
In November, 1996, T&N made a one-off payment of £92 million ($155 million) for an additional £500 million ($725 million) layer of insurance to cover its asbestos liabilities. Under the policy placed with a consortium of European reinsurers, believed to include Zurich Centre Re, Swiss Re and Munich Re, coverage of claims notified post-June 30, 1996 would be accessible when the total value of claims received after June, 1996 exceeded £690 million. According to FM’s Annual Report of 2000, the company "does not expect to reach the trigger point of the insurance or begin to collect on the insurance recoverable for the next several years." Now that the company has ceased paying claims, when, if ever, will these funds be released?
Asbestos defendants and insurers in the US have been seeking ways to side-step asbestos liabilities for more than two decades; thirty companies have filed for Chapter 11 since 1982. Until recently, it was hoped that UK industry could weather the storm. Equitas, the reinsurance vehicle set up in 1996 by the Lloyd’s of London insurance market to handle pre-1993 long-tail liabilities such as asbestos and pollution, increased reserves for asbestos claims by £1.5 billion last year and £1.7 billion this year. The accounts for the year ending March 31, 2001 record the company’s first ever loss: £84 million; asbestos claims paid out during the year were £406 million. An Equitas spokesman remained buoyant saying that £8.1 billion in asbestos reserves are adequate. Many observers, however, have serious concerns about the viability of insurers with asbestos liabilities. Enquiries reveal that Chester Street wasn’t the first UK insurer brought down by asbestos; three years earlier, Builders Accident Insurance Ltd. had become insolvent largely as a result of £40 million of asbestos-related liabilities. Widespread demands for a public enquiry into the operations of defunct insurers have been ignored by the Government. A spokesperson for the Association of Personal Injury Lawyers stated: "Within a matter of months, we have seen the demise of Drake, Chester Street and Independent, with attendant rumours, recriminations and, in the case of Independent, a Serious Fraud Office investigation… We believe it’s time for the Government to hold a public enquiry into these insolvencies to establish how this situation was able to develop and what can be done to prevent it from happening in the future." During future discussions, the feasibility of bringing actions against solvent FM/T&N subsidiaries in the European Union and/or Canada could be considered.
While Federal-Mogul’s website (http://www.federal-mogul.com/reorganization/en/) has reams of information on administrative motions and pleadings submitted to the US Bankruptcy Court, information publicly available on UK developments is virtually non-existent. During the week commencing November 19, several UK solicitors received a Notice of Commencement of Chapter 11 Bankruptcy Cases, the first substantial communication received about the insolvency proceedings. This document listed one hundred and thirty-three UK-based companies including well-known defendants such as Turner Brothers Asbestos Company Limited, Ferodo Limited and The Washington Chemical Company Limited and previously unknown firms such as T&N Shelf Twenty Limited, Dumplington Services Limited and Greet Limited. For additional information, solicitors were advised to contact a call center at: 0800 389 6881 When this number was called on November 23, the following recorded message was heard: "The Federal-Mogul call center is no longer available." Calls made on the same day to each of the three court-appointed administrators and to the public relations spokesperson for Kroll Buchler Phillips all went unanswered. Attempts to obtain copies of the transcript of the October 1 High Court hearing, the administration petition and witness statements were equally unsuccessful. According to a court spokesperson, an audio recording was made but no written transcript exists of the hearing. Although he said that the case file can be obtained by solicitors representing asbestos victims, the experience of one hapless London clerk does not bear him out. During a visit to the court, the clerk requested sight of the documents supporting the petition; he was shown an empty file.
Following the T&N collapse, MP John Battle submitted parliamentary questions on employers’ liability insurance, the concept of corporate self-insurance, the number of UK companies involved in the insolvency proceedings and the availability of the October 1 transcript. Battle has a fund of knowledge about the operations of T&N gathered during the 14 years he has represented Leeds West. Since 1988, he has been involved in a campaign for Armley constituents who, having lived or played near the J. W. Roberts asbestos textile factory, contracted asbestos-related diseases. He was a personal friend of June Hancock, one of two plaintiffs in the first successful environmental exposure case against T&N. Mr Justice Holland, highly critical of T&N’s behaviour in the Margereson and Hancock case, wrote: "the conduct of the defense… (reflects) a wish to contest these claims by any means possible, legitimate or otherwise, so as to wear them (the plaintiffs) down by attrition." Battle is adamant that T&N be held responsible for the damage: "This evasion is a scandal. Making the polluters pay means not only proving responsibility, not only winning the moral and legal arguments, but taking on high level international corporate gamesmanship that continues to write off the lives of asbestos victims. This is a struggle for a just society that must be won." In an Early Day Motion (EDM 423) lodged on November 14, dozens of MPs deplored "the fact that the company can remain trading and protect the interest of its shareholders but can abnegate its responsibilities towards its former employees who are now suffering from chronic and terminal asbestos-related diseases…(the MPs called) on the Government to intervene and open a broader inquiry into the issue of company liability for the compensation claims of people suffering with asbestos-related diseases."
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November 28, 2001
