The Bankruptcy

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The Bankruptcy Powered By Docstoc
					                                                     Manville:
                     The Bankruptcy
Richard A. Epstein        of Product
     THE ARCANE SUBJECT       of bankruptcy has      bankruptcy judge, and to stay all lawsuits-not
       little appeal even to lawyers. In normal      just those in asbestos cases-brought against
       times the subject falls into that select      Manville anywhere in the country.* The news-
group of specialties that must be done, but pref-    papers have been quick to point up the signifi-
erably by someone else. It is therefore a matter     cance of the maneuver. They have noted that as
of note when a business bankruptcy, to be sure       Manville goes, so may go many of the other
that of a company whose current operations           major manufacturers of asbestos products who
are profitable, is the lead story for several days   are Manville's codefendants. (It is an open and
not only in the Wall Street Journal but in ordi-     vital question whether these suits against other
nary newspapers all across the land. Yet just        suppliers will be stayed as well by the bank-
this has happened now that Manville Corp.--          ruptcy court.) They have also noted that Man-
known for years under the name Johns-Man-            ville has conducted a well-orchestrated cam-
ville-has sought refuge in a New York bank-          paign to create some federally organized (and
ruptcy court from an unending onslaught of           in part federally supported) compensation
lawsuits stemming from the use of asbestos.          fund that would, to the consternation of con-
                                                     tingent fee lawyers everywhere, replace the
                                                     huge volume of litigation that now clogs the
How Did It Happen?                                   courts. And there has been a chorus of sugges-
                                                     tions for quick fixes of a legal and business
Manville, long the largest supplier of asbestos,     problem whose complexity is not fully com-
is currently defending itself against about          prehended by those taken by surprise at the
16,500 asbestos claims, with 500 new ones being       dramatic turn of events. A New York Times
brought every month. The company's cost per          editorial of August 27, for instance, tells us in
claim has steadily increased, at a rate far in       five paragraphs "How to End the Asbestos
excess of inflation, to more than $40,000 per        Nightmare."
claim. The discounted cost of all expected                 The Manville bankruptcy petition marks
claims present and future is by conservative          the latest turn in a complex journey. For our
estimates something over $2 billion. The net
worth of the company, the asbestos claims to         *The matter is complicated by a recent Supreme Court
one side, is just over $1 billion.                   ruling that the 1978 Bankruptcy Reform Act was un-
     The effect of the petition, at least for the    constitutional. The Court gave Congress until October
                                                     4 to remedy the defects it found. (One option is 10 give
moment, is to place the operation of the com-        bankruptcy judges the same life tenure and salary
pany's business under the supervision of a           protection as regular district court judges.) If the
Richard A. Epstein is James Parker Hall professor    lawmakers fail to act by then, the effect on this and
of law at the University of Chicago.                 other bankruptcy cases is anyone's guess.

14 AEI JOURNAL ON GOVERNMENT AND SOCIETY
Liability Law
 purposes that journey began on September 10, ma litigation (DES, Agent Orange, and so on)
 1973, when the U.S. Court of Appeals for the is the passage of time. It has been conclusively
 Fifth Circuit handed down its opinion in Borel established that there is a period of at least
 V. Fibreboard Paper Products Corporation, al-     twenty, and often thirty or forty, years between
 lowing asbestos workers to pursue tort actions the initial inhalation of asbestos and the mani-
 against the suppliers of asbestos products. In festation of asbestos-related diseases. The ex-
 order to understand the current muddle and posures to asbestos that were so frequent in
 the limited possibilities for resolving it sensi- the 1930s and 1940s have therefore become the
 bly, we must go back to Borel and to its con- subject of litigation only in very recent times,
 fused legal and medical antecedents. No short when the legal environment and medical under-
 tour will do, for the history is as complex as standing are vastly different from what they
 the current situation.                            were back then. It is to the radical shifts in
       One of the obvious questions about the legal doctrine and medical knowledge that we
 current asbestos litigation is, why did nobody must turn.
 see it coming? Surely even the complexities of
 corporate structure could not have dulled all in-
 stincts to take prudent steps to minimize a loss Legal Doctrine: Product Liability
 of this magnitude. But clearly the only visible and Workers' Compensation
 responses by the companies came after the law-
 suits were filed, not before, so that Manville The suits brought against Manville are of two
                                                   sorts. First and most important, there are ac-
                                                   tions against Manville as the supplier of asbes-
    The central element, I believe, with           tos to other businesses whose employees han-
    asbestos as with other modern cumulative       dled the product, say when installing insula-
                                                   tion. Second, there are suits against Manville
    trauma litigation (DES, Agent Orange, and      as the employer of individual workers. The
    so on) is the passage of time.                 first type of action is for a common law tort.
                                                    The second is for workers' compensation. To a
                                                   layman, the difference between tort and work-
 and the other asbestos companies could not ers' compensation might appear small, but it
 have had any inkling of the risks they were is critical to understanding how these two in-
 courting. The question is how that could have stitutions for accident compensation mesh
 been so.                                           with each other. In the tort action against
       The central element, I believe, with as- Manville as supplier, the plaintiff is entitled to
 bestos as with other modern cumulative trau- recover full damages (pain and suffering, medi-

                                                               REGULATION, SEPTEMBER/OCTOBER 1982   15
MANVILLE AND PRODUCT LIABILITY


 cal expenses, and lost earnings), but only if he    suits. In large part this has been done by ex-
prevails by satisfying the complex require-          panding the law of product liability against
ments developed over the years in these tort         suppliers. In a lesser measure it has come
actions. Roughly speaking, these requirements        through the very recent expansion of the doc-
 today include showing that Manville had indeed      trines of "dual capacity" (whereby it is said
supplied the asbestos that caused the damage        that an employer covered by compensation has
 (no easy point when there are many suppliers       assumed a separate and distinct role for which
 in the market) and that the product in ques-       it is liable in tort) and "willful misconduct,"
 tion was defective (in this context allegedly      both of which prevent an employer from avail-
because Manville failed to conduct the proper        ing itself of the "exclusive remedy" provision
 tests or to give the proper warning). In addi-     against its own employees.
 tion, the worker's own conduct may also pre-             In the ordinary course of business we
vent recovery, as (sometimes) when the worker        should expect firms dealing with asbestos to
knew about the risk involved, or may diminish        take into account their expected liabilities un-
the amount of the recovery, as when the worker       der both the compensation and tort systems in
aggravated the injury by smoking or other mis-      making their decisions about how to produce,
conduct.                                            use, and price their products-or whether to
      In contrast to the tort suit, workers' com-   produce them at all. If the legal environment
 pensation (here for occupational diseases)         of the 1970s and 1980s had been foreseen when
 with but minor qualification pays the worker        these asbestos products were sold and used in
once it is shown that the injury or disease in      the 1930s, 1940s, and 1950s, we would have to-
question was work-related. At one stroke it re-     day no bankruptcy problem: large suppliers
moves the obstacles-proof of product defect         would be paying for (a reduced number of)
or negligence by the employer, and defenses         claims out of reserves especially accumulated
based upon the worker's misconduct-that             for the purpose.
may block a tort recovery. In exchange for the            These claims, however, were unantici-
broader grounds for recovery, workers' com-         pated. To understand why, it is only necessary
pensation offers recipients a lower level of        to look at the type of tort suits brought for
benefits (which, however, today includes every-     various diseases in the 1940s, a pattern that
where complete medical expenses ), and pre-         persisted into the 1960s. Here I have been able
cludes, at least in the classical formulation of    to discover three cases that bear some rela-
the "exclusive remedy" provision, all tort ac-      tionship to the general problem. Of these only
tions that an injured employee might otherwise      one--Rove v. Gatke Corp., decided by the
have against the employer.                          Court of Appeals for the Seventh Circuit in
      The doctrinal differences between the two      1942--involves asbestos as such. The defendant
areas are matched by their institutional differ-    in Rowe was not a product supplier, but an
ences. Workers' compensation cases are typi-        employer who had elected, as was then possi-
cally decided before commissions, not juries,       ble, to opt out of the compensation system by
and contingent fees may be sharply regulated,       subjecting itself to stringent forms of tort lia-
as in California where the commission sets          bility. The action, moreover, was successful
them at 10 percent of the amount the worker         because in it the plaintiff was able to show that
recovers. It has long been a specialized area of    the defendant had not adequately ventilated
legal practice, and one that is terra incognita     its plant, having used only "crude devices" for
to the ordinary personal injury lawyer, who         that purpose even though "standardized equip-
feels far more at home with contingent fees         ment" was available, and had not supplied the
that range from a third to half of recovery and     plaintiff with any kind of working respirator-
with the ordinary jury trial available in both      all in violation of the applicable factory safety
state and federal court. Because the net re-        statutes. As a result of these practices, the dust
covery available within the compensation sys-       was so thick that the plaintiff "at the end of a
tem is by any measure far lower than that avail-    day's work appeared almost beyond recogni-
able in tort, plaintiffs have successfully sought   tion, covered with shreds that hung on him like
in recent years to bypass the compensation          whiskers, so that he looked like a 'polar bear.'"
system by converting asbestos cases into tort       The decision in favor of the plaintiff is unques-

16 AEI JOURNAL ON GOVERNMENT     AND SOCIETY
                                                                          MANVILLE AND PRODUCT LIABILITY

tionably sound. But for our purposes the rele-       death. Though the label in question did warn
vant observation is that the case does not even      about the dangers of use without adequate
begin to point to any tort liability for an asbes-   ventilation, the court rightly allowed recovery
tos supplier. The statutory provisions involved      on the ground that "the word `Safety' was so
applied only to employers, and the inadequate        prominently featured as to exclude from her
provision of ventilation and absence of respira-     mind that `provident fear' which has been
tors were by definition the types of errors that     characterized as `the mother of safety.' " Yet
no supplier could commit. In addition, the fla-      here too there were no apparent risks for as-
grant nature of the employer's misconduct only       bestos suppliers. The court relied in part on
 afforded an additional defense--that of the         the defendant's affirmative misrepresentation
intervening misconduct of a third party-that         of a known safety hazard. And since the death
further would have insulated the supplier from       arose in the consumer and not the work-place
any tort suit.                                       context, the court did not confront the issue of
      The other two cases tell a similar story.      intervening control by a responsible employer
Both involved deaths from overexposure to            covered by the compensation laws and capable
carbon tetrachloride ("carbon tet"), then used       of preventing injuries. It is not surprising
as a cleaning solvent. In the first, McClaren v.     therefore that the court in Borel did not rely on
G. S. Robins & Co. (1942), the Missouri Su-          these cases as signposts on the general road
preme Court denied a worker's claim against          toward supplier liability in asbestos cases, for
the seller (who it appears was not a manufac-        if anything their specific features point in quite
turer) for injuries that took place when he was      the opposite direction.
working with the solvent in a confined location           Indeed it is quickly apparent that the
at a temperature apparently as high as 110           medical and public health discussions of as-
degrees. The court noted that some of the car-       bestos that took place before the Borel decision
bon tet supplied was labeled "Volatile Solvent,      follow the same general pattern. Asbestosis
Use with Adequate Ventilation, Avoid Pro-            was regarded preeminently as an occupational
longed Breathing"-a warning that was cus-            disease, and it was thought that the control of
tomary in the industry and approved by the           the level of exposure within the work place,
surgeon general of the United States, presum-        often by direct regulation, was the proper ap-
ably pursuant to his statutory powers. The           proach to the problem. This attitude finds ex-
decision could be challenged on the ground           pression in the studies of asbestosis by Dr. A. J.
that the court treated the standard of care for      Lanza in the 1930s, and it is essentially followed
the warning as being set conclusively by aver-       by Dr. Irving J. Selikoff who, in his 1968 testi-
age practice, a rule that had in fact been re-       mony to Congress on the pending occupational
jected in many cases before then. But the            safety and health administration bill, at no
decision itself rested in part on compliance         point even contemplated tort actions against
with the surgeon general's warning require-          third party suppliers.
ments, and in any event it came out for the de-
fendant. Even if it had come out the other way,
it still would not have augured ill for the asbes-     In short, at the time that Manville and
tos manufacturers because of the known and             other corporations sold asbestos, right up
close relationship between carbon tet and in-          to the 1960s, they were subject to no dis-
halation poisoning.
      This leaves only the second case also in-        cernible risk of tort liability either as
volving carbon tet, Maize v. Atlantic Refining         supplier or employer.
(1945) . Here the Pennsylvania Supreme Court
held the defendant liable for the death of a
housewife who inhaled the fumes from its                   The same holds true of the second (but less
product, "Atlantic Safety-Kleen," while clean-       important) prong in the expansion of tort lia-
ing her rugs. The product itself contained           bility, for the dual capacity and willful miscon-
amounts of carbon tet which, when vaporized          duct doctrines were not used in connection
in normal use, were several thousand times the       with asbestos diseases until the late 1970s. In
concentrations known to be sufficient to cause       short, at the time that Manville and other cor-
                                                                 REGULATION, 5EPTEMBERJOCTOBER 1982   17
MANVILLE AND PRODUCT LIABILITY

porations sold asbestos, right up to the 1960s,        in both England and America "energetic steps
they were subject to no discernible risk of tort       have been taken to control the dust hazard in
liability either as supplier or employer. And the      asbestos plants, so that it is probable that fur-
liabilities faced by Manville and other suppliers      ther cases of disabling asbestosis will be rare,"
to their own workers under the occupational            and further that "asbestos plants are being
disease statutes were well understood, and in          cleaned up and the dust is being controlled."
no event could they have driven the company to
bankruptcy. On the legal front all was quiet.
                                                         In 1936 Lanza wrote that in both England
                                                         and America "energetic steps have been
Medical Issues
                                                         taken to control the dust hazard in
An evaluation of the relevant medical evidence           asbestos plants, so that it is probable that
is somewhat more difficult. As of now asbestos           further cases of disabling asbestosis will
 has been conclusively linked with three sepa-           be rare"... .
 rate disorders: asbestosis, mesothelioma (an
 invariably fatal condition that affects the meso-
 thelial cells that line the chest cavity), and lung    This, he added, "together with the smaller
 cancer. The relationship between asbestos and         number of persons employed, implies that
asbestosis was the first to be clarified: it was        there will probably never be the wealth of
 regarded as probable shortly after 1900, and           clinical material that has been available in sili-
was established by the 1930s. The relationship          cosis." Nor was this conclusion an isolated and
between asbestos and lung cancer was not de-           irresponsible piece of optimism. The 117-page
 termined until a later time, being regarded as        Dreessen study concludes as follows:
probable only after 1940 and established only
 (depending on whose view is accepted) some-               It would seem that if the dust concentra-
                                                           tion in asbestos factories could be kept
where between 1955 and 1960. Mesothelioma                  below 5 million particles (per cubic foot)
was the most difficult condition to establish.             (the engineering section of this report has
In the early years, it may have been confused              shown how this may be accomplished),.
with asbestosis, and in any event the connec-              new cases of asbestosis probably would
tion between it and asbestos was first regarded            not appear.
as probable only in the late 1950s and estab-
                                                       Likewise the overall conclusion of the 1946
lished in the mid-1960s. (Margaret R. Beck-
                                                       Fleischer-Drinker study was that "[s]ince each
lake's 1976 article on this subject provides a
comprehensive account; for this and other cita-        of the 3 cases of asbestosis had worked at as-
tions, see page 46 below.)
                                                       bestos pipe covering in shipyards for more
     If the only question relevant to the legal        than 20 years, it may be concluded that such
                                                       pipe covering is not a dangerous occupation."
inquiry was the association between asbestos
and disease-any disease--then the affirmative                 That such represented the prevailing scien-
connection was clearly recognized by the time          tific wisdom of the time is, moreover, rein-
of the 1938 Dreessen study on the asbestos tex-        forced by looking again at the subsequent
tile industry and the 1946 Fleischer-Drinker           classical work on the relationship of asbestos
study of insulation workers in naval vessels           to disease by Dr. I. J. Selikoff and his col-
during World War II. Yet the apparent simpli-          leagues. In three studies published in 1964-65,
city of this conclusion should not be allowed          they repeatedly stated that proper analysis of
to conceal the essential point that the early          the problem requires a breakdown of asbestos
studies thought that the permissible levels of         workers by particular types and that any in-
exposure to asbestos products were far greater         f erences to be drawn from textile workers, the
than those which are today generally regarded          *Direct comparisons are somewhat difficult to
to be safe, by a factor of perhaps 50 to 100.*         make because the earlier standards referred to
                                                       particles of dust while the more recent ones refer
     Indeed, some of the early studies contain         to particles of asbestos. The 100 figure assumes
a kind of grisly, misplaced optimism that seems        that virtually all the particles are asbestos; the 50
almost bizarre today. In 1936 Lanza wrote that         figure assumes that about half are.

18   AEI JOURNAL ON GOVERNMENT AND SOCIETY
                                                                           MANVILLE AND PRODUCT LIABILITY

Chief object of the early studies, toother types    all had sufficient knowledge of the hazards of
of workers must be heavily guarded. As Seli-        asbestos products to trigger a duty to test their
koff explained in a paper on insulation workers,    products before sale and to warn possible users
"The different occupations vary widely in im-       of their harmful side effects upon sale. His con-
portant respects; intimacy, intensity and dura- clusion does not do justice to the historical
tion of exposure, in variety and grade of asbes- ambiguities and uncertainties. It is here that
 tos used, in working conditions, in concomitant the legal and the medical currents join in un-
exposure to other dust or inhalants." This same expected, and unfortunate, ways.
paper criticized the 1945 Fleischer-Drinker               Let us begin with the medical question.
 study because 95 percent of the workers stud- When the companies asked for a rehearing of
ied there "had worked for less than 10 years at the earlier decision, Judge Wisdom was quite in-
 the trade, and, as we shall see, evaluation of the sistent that the case against them was ironclad:
risk of insulation workers limited to study of
                                                       The unpalatable facts are that in the twen-
men with relatively short duration of exposure         ties and thirties the hazards of working
may be misleading." Selikoff frequently noted          with asbestos were recognized; that the
the statistical and technical objections to the        United States Public Health Service docu-
earlier studies that sought to link asbestos with      mented the significant risk in asbestos
disease conditions (made, as he reported to            textile factories in 1938; that the Fleischer-
Congress in 1968, by those "sticklers for statis-      Drinker report was published in 1945; that
tical niceties"). Indeed his own detailed studies      in 1961 [sic] Dr. Selikoff and his colleagues
of insulation workers in the New York area             confirmed the deadly relationship between
were designed to overcome the doubts about             insulation work and asbestosis.
the previous research and to establish rigor-             This summary goes far beyond anything in
ously, for the first time, the relationship the evidence. It ignores the fact that the 1938
between asbestos and the various asbestos dis- and 1945 studies both concluded there were ex-
eases in insulation, as opposed to textile work- posure levels that presented no health hazards.
ers. Yet even his studies did not, as he acknowl- And nowhere does it make clear that, as Seli-
edged, determine the dosage levels necessary koff himself pointed out, it is difficult to gen-
to trigger these diseases (in particular there eralize the findings from one type of asbestos
was at most only a vague inkling that a "single case (say, textile workers) to another (say,
sniff" of asbestos could be sufficient to cause insulation workers). The judge did not even
mesothelioma) or establish the correct rela- take note of, let alone discuss or analyze, any
tionship between asbestos diseases and the
smoking habits of individual workers. Today,
however, the evidence on this subject is so            The kindest thing that can be said about
overwhelming that the causal questions can no          the summary of the medical evidence in
longer be seriously debated: the older studies         B_ore_l is that it is one-sided and incomplete,
vastly underestimated risk and overestimated
 dosage levels.                                        written far more like an over-argued brief
                                                       than a judicial opinion.

The Bore! Opinion
                                                       passages such as those quoted above. And when
In light of modern knowledge, the older pat-           in other portions of the opinion Wisdom did
terns of asbestos use are therefore quite in-          comment on the soundness of the earlier work,
defensible, and are recognized as such by all          he was quite happy to condemn the 1945 studies
parties. For purposes of legal liability, after all,   on the basis of Selikoff's criticisms published
it is not the current state of knowledge that is       some twenty years later-as if it were expected
relevant, but the state of knowledge in the early      for manufacturers to be twenty years ahead of
years when the asbestos products were placed           established medical knowledge. Nor does his
on the market. Yet in the Borel decision, Judge        opinion disclose any evidence that the suppliers
John Minor Wisdom, speaking for the court,             possessed any private knowledge that they
concluded that the various asbestos companies                                   (Continues on page 43)

                                                                   REGULATION, SEPTEMBER/OCTOBER 1982   19
                                                                        MANVILLE AND PRODUCT LIABILITY

        Manville and Product Liability                 each manufacturer must bear the burden
          (Continued from page 19)                     of showing that its own conduct was pro-
                                                       portionate to the scope of its duty.
withheld from the public at large. The kindest           This decision completely transformed the
thing that can be said about the summary of         law. Before the case, the sum and substance of
the medical evidence in Borel is that it is one-    the manufacturer's duty was to make sure that
sided and incomplete, written far more like an      its purchasers knew what its product was and
over-argued brief than a judicial opinion.          perhaps to warn of any latent dangers of which
     Legal doctrine, like the medical evidence,     it had knowledge but the user and consumer
had changed greatly in twenty-plus years. It is     did not. Asbestos satisfied the first element,
instructive that Wisdom in no way attempted         since it was properly labeled for sale, so that
to invoke any of the doctrines that prevailed       purchasers and users could tell at a glance what
when the asbestos products were marketed a          it was. On the second element, however, all the
generation ago. Instead he relied heavily upon      relevant information was in the public domain.
the Restatement (Second) of Torts first pub-        The most that could be said against the manu-
lished in 1965, and an unfortunate decision         facturers is that they did not want to undertake
handed down in 1968 by the ninth circuit court      studies about the possible side effects of as-
on a drug company's liability for polio vaccine.    bestos use. Yet one must question the sound-
The principle he extracted was that where           ness of a system that places on each manufac-
products are both dangerous and useful the          turer the duty to test and inspect its asbestos.
supplier is under a duty to warn about their        The question here is what party or institution
hazardous side effects, because "the user or        is in the best position to test for the possible
consumer is entitled to make his own choice         side effects. That question cannot be answered
as to whether the product's utility or benefits     in a single uniform way for all products at all
justify exposing himself to the risk of harm"-      times. Here the key point is that asbestos is a
itself an odd point in the work-place context for   product found in nature and used since ancient
a judge who regards individual autonomy as          times, and one that is mined and supplied by a
something of a fiction in employment relations.     large number of separate companies. Many
In any event, Wisdom delineated what he saw         chemicals and drugs, by contrast, are developed
as the scope of the manufacturer's liability.       under patent or license by a single producer
                                                    who is therefore in a position particularly
   [I] n cases such as the instant cases, the       suited to test for its dangers.
  manufacturer is held to the knowledge and              Moreover, as noted above, the critical ques-
  skill of an expert. This is relevant in deter-    tion of the actual level of worker exposure is
  mining (1) whether the manufacturer               most often controlled by the employer's com-
  knew or should have known the danger,             pany, and not the manufacturer. All the epi-
  and (2) whether the manufacturer was
  negligent in failing to communicate this          demiological studies, whether done by industry,
  superior knowledge to the user or con-            the government, or independent physicians,
  sumer of its product. The manufacturer's          have sought to measure asbestos exposure in
  status as expert means that at a minimum          the work place; all the government efforts to
  he must keep abreast of scientific knowl-         regulate exposure levels have sought to reg-
  edge, discoveries, and advances and is pre-       ulate it there. The Borel decision, therefore,
  sumed to know what is imparted thereby.           not only demands that manufacturers conduct
  But even more importantly, a manufac-             tests on the side effects of a generic product in
  turer has a duty to test and inspect his          common use, but it transfers the inquiry from
  product. The extent of research and ex-           those who could best do it to those who can
  periment must be commensurate with the            do it only with difficulty. To say, moreover, that
  dangers involved. A product must not be
  made available to the public without dis-         one manufacturer cannot rely upon the studies
  closure of those dangers that the applica-        done by others is to invite mindless duplication
  tion of reasonable foresight would reveal.        of studies. Surely it is better to have the work
  Nor may a manufacturer rely unquestion-           done by independent parties whose findings
  ingly on others to sound the hue and cry          and motives are more difficult to call into ques-
  concerning a danger to its product. Rather        tion than those of an interested party.

                                                                 REGULATION, SEPTEMBER/OCTOBER 1982   43
MANVILLE AND PRODUCT LIABILITY

     To impose such a duty on the manufac-          the tort system. To make the point explicit,
turer is bad enough; to announce that duty          consider what would have happened if the cases
after the fact is to compound the dislocation.      had remained solely within the compensation
The retroactive nature of the duty not only ren-    system. The manufacturers, including Manville,
ders the judicial exercise pointless as a matter    would have been required to compensate their
of deterrence, but also imposes on the firm the     own workers for their injuries. Resolving the
impossible task of complying with a liability       issues still would have posed difficulties, as
rule of which it could not have had any knowl-      there would have remained the question of
edge. The standard practices of yesterday have      whether a particular injury was asbestos-re-
become the source of liability today. Rules, like   lated and whether it was aggravated by some
horses, should not be changed in midstream.         preexisting condition or by smoking. There
Therein lies the source of the Manville bank-       would also have been the question of which em-
ruptcy petition.                                    ployer was to compensate those workers who
                                                    had frequently, shifted jobs during their work-
                                                    ing lives, a burden that is reducible to man-
     The retroactive nature of the duty not only    ageable proportions by the rule that says that
     renders the judicial exercise pointless        the last employer to expose the worker to
     as a matter of deterrence, but also imposes    asbestos dust picks up the full loss. To be sure,
                                                    the level of compensation would be lower than
     on the firm the impossible task of comply-     it is today, but workers' compensation awards
     ing with a liability rule of which it could    are not trivial and would in any event be bol-
     not have had any knowledge.                    stered by the workers' own insurance policies.
                                                    Exposure levels can still be handled by direct
                                                    regulation (as is now the case) or perhaps even
      The extent of this shift should not be un-    by agreement between workers and employers,
derstated. Asbestos suppliers, prompted by the      especially in the framework of collective bar-
first Selikoff study, began to use new warnings     gaining.
in 1964, only to have Judge Wisdom brush this             Now that the battle has moved to the prod-
effort aside in Borel as inadequate for the task    uct liability arena, everything has been trans-
at hand. In his view the warnings did not call      formed. Retroactive application of new rules is
explicit attention to the "fatal" nature of the     just one of the problems. There is also a myriad
illnesses involved, while the "admonition that      of issues-defect, negligence, assumption of
a worker should `avoid breathing the dust' is       risk, and so forth-that must be litigated in
black humor." (Again the observation comes
from the same federal judge who thought that
worker autonomy required the warnings.) If            ... the tort system is "haphazard" in that
so, then what are we to make of the warnings          different juries hearing the same evidence
now required by the Occupational Safety and           returned verdicts that ranged from a com-
Health Administration: "Caution -- Contains
Asbestos Fibers-Avoid Creating Dust-                  plete exoneration of Manville to an award
Breathing Asbestos Dust May Cause Serious             of punitive damages against it.
Bodily Harm." And how do we respond to those
who say that warnings here would have had no
greater effect than they have had in the case of    order to determine relative responsibility. As
cigarettes?                                         Manville noted in the open advertisement it
                                                    published on its announcement of bankruptcy,
                                                    the tort system is "haphazard" in that different
The Wrong Forum                                     juries hearing the same evidence returned ver-
                                                    dicts that ranged from a complete exoneration
We are now in a position to see just what went      of Manville to an award of punitive damages
wrong in the asbestos situation. It was the mid-    against it. The company could have added that
stream change of forum for the resolution of        all these verdicts are probably consistent with
these disputes from workers' compensation to        the available evidence. The major source of dif-

44    AEI JOURNAL ON GOVERNMENT AND SOCIETY
                                                                          MANVILLE AND PRODUCT LIABILITY

ficulty is that the modern doctrines of product      out charge as an inducement to obtain more
liability law are so loosely formulated (chiefly     lucrative business. Again the insurance cover-
consisting of a long list of relevant factors with   age problem, which only promises to get worse
indeterminate "weights") that once any de-           as excess carriers are drawn into the picture,
fendant can be proved to have had any knowl-         shows some of the hidden costs of shifting the
edge of any possible risk, any verdict, including    control of occupational diseases from the com-
one for punitive damages, becomes possible-          pensation system to the tort system.
and nonreversible on appeal.                               Is there, at this late date, any way to take
     The product liability situation suffers from    the problem out of the tort system? One sug-
additional complications not found in workers'       gestion that has been frequently made of late
compensation that arise from the sheer prob-         is to establish some kind of comprehensive pro-
 lem of large numbers. In order to be both safe      gram, modeled loosely on the black lung disease
 and sensible the prudent plaintiff will sue every   fund, to which all asbestos victims would be
manufacturer that ever supplied any employer         required to apply for compensation. The theory
for whom he worked over the years. In the            is that a centralized disposition of the cash
 typical case this could well mean suing between     would help eliminate many of the administra-
ten and twenty defendants, each of which is, on      tive and insurance nightmares that result from
the question of liability, in a somewhat differ-     the proliferation of defendants in the tort set-
ent position from the others. To make matters        ting. The proposal is of course strongly opposed
worse, each of these defendants will demand          by the plaintiffs' lawyers, whose contingent fees
that each of their many insurers take on the         would be reduced, if not eliminated, by the
defense of the suit in question.                     plan.
     But the law today on the obligations of               Yet even on principled grounds there are
insurers to their insureds and to each other in      formidable difficulties involved. First, there is
these cumulative trauma cases can only be de-        the thorny question of how much money should
scribed as chaotic. Thus the standard coverage       be set aside in the fund, and how it should be
provisions (which require the insurer to pay         raised. This question is of great difficulty, given
"all sums which the insured shall become legal-      that many of the claims have not yet matured
ly obligated to pay as damages because of bod-       and their number cannot be precisely esti-
ily injury, disease, or sickness caused by an ac-    mated. One-time assessments would be almost
cident, including a continuous or repeated           impossible to calculate, but a continuing right
exposure to conditions which results during the      to demand fresh assessments from the manu-
policy period in bodily injury") have been con-      facturers would perpetuate their financial un-
strued in three wholly inconsistent ways by the      certainty and dim their enthusiasm for the
three federal circuit courts that have now           plan. Second, if, as I have suggested, the manu-
passed on the question. The upshot is that in        facturers' tort liability is not as clear as has
many cases all the insurers for all the manufac-     been generally assumed, then should the
turers may have some portion of the defense          amount demanded from each firm be reduced
and indemnity obligation in each individual          to reflect the weakness of the claims against it?
case. The resulting confusion and expense is al-     On the other hand, certain courts have allowed
most impossible to imagine. It is tempting to        suits for punitive damages. Should the fund
attack the whole group of insurers and manu-         have to pay even if they affect only some manu-
facturers for having left the terms of coverage      facturers but not others ? And what happens to
incomplete, and thus having invited the entire       the insurers ? The conclusion seems well nigh
problem. But again the truth is that, at the time    irresistible that the insurers' obligations are
these policies were taken out, no one anywhere       transferred from the individual plaintiffs to the
thought that the question of tort liability for      fund. But no one knows what those obligations
cumulative trauma was important enough to            are in the first place, because no one knows the
warrant the needed clarifications. We can re-        extent of insurer obligations for the original
gret that judgment today, but in the 1940s           tort actions. Finally, to add yet another note of
product liability was regarded as such a minor       uncertainty to the entire situation, there is the
source of risk that it was not even separately       lingering question of whether the government
priced, and was indeed often given away with-        should contribute in view of its heavy use of

                                                                  REGULATION, SEPTEMBER/OCTOBER 1982   45
MANVILLE AND PRODUCT LIABILITY

asbestos in naval shipyards during the Second        to turn to the compensation system first. For
World War. All in all, such a comprehensive          small cases this rule would forestall the lawsuit
fund may well be said to be both a necessity         entirely. For large cases, it would mean that the
and an impossibility-which testifies once            stakes would be reduced and, with that, the
again to the difficulties that emerge when           costs of litigation for both parties. To be sure,
judges radically change a system of compensa-        the compensation system would come under
tion in midstream.                                   new pressures that it has thus far escaped, but
                                                     they would be only the pressures that have long
                                                     been understood as appropriate for it, if not
     ... a comprehensive fund may well be said       in all states then in the vast majority that allow
     to be both a necessity and an impossibility     recovery for occupational diseases. Mistakes
     -which testifies once again to the difficul-    could still be made, but the possibility for
     ties that emerge when judges radically          grave dislocations would be reduced.
     change a system of compensation in                   The amount of work that would have to be
                                                     done to make this proposal work in fifty-one
     midstream.                                      jurisdictions (including the District of Colum-
                                                     bia), with federal and state overlaps, is formid-
     Is there some other way that promises to        able beyond belief. And the prospects for suc-
be both more modest and more successful?             cess are at best modest. But the Manville bank-
Here I think that we should look once more at        ruptcy has shown that even today there is not
the workers' compensation system. The basic          an endless supply of water at the trough. We
advantages of dealing with occupational dis-         must somehow undo the confusion wrought by
eases within this framework have already been        unsystematic and unthinking judicial activism.
noted. What is striking about the current situa-     Otherwise-as more and more cases work their
tion is that many claimants have not even tried      way through the legal system, and more and
to collect the compensation benefits to which        more firms take the bankruptcy route-the
they are entitled by law. Why they have not is       only doors left will be closed, and marked "No
not at all clear, but some reasons can be ad-        Exit."                                           a
vanced. First, sharp limitations on contingent
fees may be dulling the incentive for suit. Sec-
ond, plaintiffs often fear that the results of the    Selected References
                                                      Margaret R. Becklake, "Asbestos-Related Disease of
medical examinations in compensation pro-               the Lung and Other Organs: Their Epidemiology
ceedings may be used against them in the tort           and Implications for Clinical Practice," American
action. Third, tort lawyers simply do not know          Review of Respiratory Disease, vol. 114 (1976).
and do not like the compensation system.              W. Dreessen et al., "A Study of Asbestosis in the As-
     One radical way to return to the compensa-         bestos Textile Industry," Public Health Bulletin
tion system is to bar all tort actions against          No. 241, U.S. Treasury Department, 1938.
suppliers. While this might seem radical within       W. Fleischer et al., "A Health Survey of Pipe Cov-
                                                        ering Operations in Constructing Naval Vessels,"
the American system, it represents the uniform          Journal of Industrial Hygiene and Toxicology,
practice in every other industrial country. The         vol. 28 (January 1946).
likelihood that anyone will adopt this approach       A. J. Lanza, "Asbestosis," Journal of the American
in this country is slim for political and perhaps       Medical Association, February 1, 1936.
even constitutional reasons. A larger role for        Trying J. Selikoff, Testimony before a subcommit-
the compensation system might be achieved,              tee of the Committee on Education and Labor,
however, if legislators used a judicious combi-         House of Representatives, March 7, 1968.
nation of the carrot and the stick. The carrot        Irving J. Selikoff et al., "Asbestos Exposure and
                                                        Neoplasia," Journal of the American Medical As-
might consist of relaxing both the restrictions         sociation, vol. 188 (April 6, 1964) ; idem, "Relation
on contingent fees and the eligibility rules of         between Exposure to Asbestos and Mesothelio-
recovery in occupational disease cases. The             ma," New England Journal of Medicine, vol. 272
stick might consist of a simple rule saying that        (March 18, 1965) ; and idem, "The Occurrence of
the plaintiff's tort recovery is reduced by the         Asbestosis among Insulation Workers in the
                                                        United States," Annals of the New York Academy
amount of the compensation benefits paid or             of Sciences, vol. 132 (December 31, 1965).
payable, so that injured workers have a reason

46    AEI JOURNAL ON GOVERNMENT AND SOCIETY

				
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