T&N, Ltd: An Update
For over seven decades T&N, Ltd., formerly Turner & Newall Ltd., was at the heart of an industrial group which owned asbestos mines, operated foreign subsidiaries with asbestos interests, sold asbestos products or franchises overseas and maintained a watching brief on the climate in which the industry operated. Although the company diversified into non-asbestos technologies, recent adverse developments indicate that its intimate involvement with all things asbestos will continue to reverberate for some years yet. Many observers were amazed by the company’s 1998 take-over by the Federal-Mogul (FM) Corporation. Why would a Michigan-based manufacturer of automotive and vehicle components assume the virtually unquantifiable liabilities of the former "asbestos giant?" Three years ago FM was: "pleased with T&N’s innovative efforts to manage this serious problem and intend to build on those efforts for the future." In October, 2000, FM’s expansionist Chairman and Chief Executive, Richard Snell resigned abruptly amidst warnings of poor third-quarter performance. The company’s stock plunged to $3.25 from a high of $72 in July, 1998. It was predicted that loan agreements would not be honoured and that "bankruptcy is no longer a remote risk." With asbestos-related payments of $335 million in 2000, the poisonous asbestos legacy, so blithely acquired, had started to undermine FM’s very existence.
Even after decades of asbestos litigation, new threats still seem to be emerging. During 1999, Owens-Illinois, Inc. (O-I), a key asbestos producer in the US, alleged that T&N had participated "in a scheme to defraud and a conspiracy with other asbestos fiber suppliers to create and protect a demand for asbestos through the suppression and misrepresentation of information concerning health risks to users of finished insulation products containing asbestos." Richard Josephson, one of O-I’s lawyers, said: "Who would have bought raw asbestos from any of them (the alleged cartel) if they knew that the people who were going to be exposed to that product would have been at risk of developing disease?" If O-I were to win one billion dollars in damages, a major deep pocket for asbestos victims could be wiped out in a single stroke. For this reason, plaintiffs’ lawyers W. Mark Lanier and Shepard Hoffman agreed to help T&N. They made no concession to their temporary employer with Hoffman telling the Texas court it should assume T&N "did everything it’s accused of doing." Ultimately their aim was to protect a major settlement source for claimants and not to exonerate the defendants. Their attitude could best be summed up by a quote from William Shakespeare: "A plague o’ both your houses!" According to Lanier, "I think asbestos companies conspired together to defend themselves, and have hidden documents, and distorted literature, and lied in discovery responses. I think through this case, we will probably see an implosion of that, and I think it’ll be to the benefit of injured victims all over the country."
On August 24, 1999, a default judgment of $1.6 billion was entered against T&N; this judgment was vacated by a federal judge on December 20, 1999 at a preliminary injunction hearing. Prior to another hearing in February, 2000, Paul J. Hanley, Jr., one of T&N’s most experienced asbestos defense counsels in the US, was deposed. The picture Hanley paints of the behaviour of both O-I and T&N is disturbing. He describes his working relationship with R. Bruce Shaw, another of T&N’s defense attorneys prior to 1985. According to Hanley, Shaw, who was also regional counsel to O-I, had often been briefed on T&N’s defenses to asbestos claims; "Mr. Shaw and his firm also reviewed and signed discovery responses on behalf of T&N on numerous occasions." After the formation of the Asbestos Claims Facility (ACF) in 1985, Shaw appeared as joint defense counsel for O-I and T&N. In this role Shaw travelled to London in November, 1985, with Hanley to depose T&N witnesses and review company documents on cancer, TLVs and insulation workers. In Hanley’s deposition, he states: "Mr. Shaw asked if we could find a way not to produce certain of the documents in these three categories. When I asked why, he explained that such documents could ‘kill O-I’ because of the position on the state of knowledge taken by O-I in the U.S. litigation. Mr. Shaw and I worked through the documents and withheld some on the basis of privilege, but most were produced the next day." The following year Andrew T. Berry, an ACF lawyer who represented T&N and O-I in numerous insulator cases in New Jersey, went to London with Hanley for depositions and document review. Because of the New Jersey cases, documents on T&N’s knowledge about the hazards of working with finished insulation products were provided. "Mr. Berry expressed concern that the documents concerning T&N’s knowledge of risks to insulators could adversely affect his defense of O-I cases in which O-I and T&N were defendants, and specifically asked whether I objected to his discussing the subject matter with O-I. I told him that I did not object to such discussions." How, in light of these discussions, could O-I not have discovered the alleged conspiracy until 1998? This is something we may never know. In early December, 2000, this case was "resolved;" although one experienced asbestos litigator speculated that a relatively small amount had been paid by T&N to extricate itself from this case, we will never know for sure as the terms of the settlement are confidential.
In the US, asbestos has humbled many defendant corporations; this trend continued during 2000 with Pittsburgh-Corning, Babcock & Wilcox, Owens Corning, Fibreboard Corporation and Armstrong World Industries Inc. seeking protection under Chapter 11 of the Bankruptcy Code. On January 5, 2001, G-I Holdings Inc., owner of GAF Corp., followed citing a "sharp, unforeseen increase in the number of claims… the dramatic escalation in settlement demands and the inability of the tort system to resolve such claims in a fair and orderly manner." As asbestos claimants have fewer deep pockets to access, those defendants which remain are faced with increasing claims. The size of T&N’s problem is discussed frankly in its most recently published annual report: "In 1996, the Company purchased a £500 million layer of insurance which will take effect should the aggregate amount of claims filed after 30 June 1996, where the exposure date occurred prior to that date, exceed £690 million. The initial reserve for the T&N companies together for (sic) claims filed after that date was approximately equal to the insurance excess of £690m. The Company has reviewed the financial viability and legal obligations of the three re-insurance companies and has concluded, at this time, that there is little risk of the insurers not being able to meet their obligations to pay… While management believes that reserves are appropriate for anticipated losses arising from the Company’s asbestos-related claims, given the nature and complexity of the factors affecting the estimated liability, the actual liability may differ. No absolute assurances can be given that the Company will not be subject to material additional liabilities and significant additional litigation relating to asbestos. In the possible, but unlikely event that such liabilities exceed the reserves recorded by the Company or the additional £500 million insurance coverage, the Company’s results could be materially affected."
Some might sympathize that FM has been brought into a fight not of its own making. In May, 2000 O-I amended its billion dollar complaint to include FM, as T&N’s ultimate parent company. The constant stream of asbestos claims was unsettling for shareholders and stock analysts. It was hoped that $550 million obtained in short-term loans in early January, 2001 would go some way towards reassuring creditors, suppliers, employees and investors. That was before a report by The National Econometric Research Company estimated that FM/T&N is facing $900 million of asbestos claims, excluding the possibility of punitive damages, in the next four years; $350m in 2001, $250m in 2002, $150m in 2003 and 2004. While FM maintains that $800 million of asbestos-only insurance should cover the bulk of the claims, it is pursuing other means to reduce the final bill, such as the introduction of an "asbestos management strategy to focus payments only on the impaired and malignant individuals who have been exposed to our subsidiaries’ products. We believe this will result in a long-term phase down of our asbestos payments. We are also working toward a legislative solution for our continuing situation." Robert Miller, acting Chief Executive between the September resignation of Snell and the January 11 appointment of Frank Macher, provided worrying insights into the company’s new strategy. Miller told a Reuters journalist that claims would undergo increasing scrutiny, more cases would be contested and settlements offered later rather than sooner during the judicial process. The use of the phrase "malignant individuals" and the threat to dispute claims and delay settlement indicate that FM has well and truly become part of the asbestos club. Let’s hope that Frank Macher and Charles McClure, FM’s new President, will find a more equitable way of resolving this problem, one which does not penalize those whose lives have been devastated by exposure to T&N’s asbestos.
February 1, 2001
