How to get the economy moving again is the dominant concern of most Americans. Tax cuts are a good place to start. Restraining Medicare expenditures is another necessary step. So is liability reform.
As President George W. Bush noted in his State of the Union speech, “No one has ever been healed by a frivolous lawsuit.” The administration is pressing to fix medical malpractice litigation, but the change must be more far-reaching.
A well-functioning liability system is critical for a healthy economy. People who’ve been harmed deserve recompense; people who’ve been negligent should be held accountable for their mistakes.
In contrast, a malfunctioning liability system impedes economic progress. If meritless lawsuits succeed, and huge judgments are imposed on the innocent, we all pay. Product costs and insurance premiums are higher; some goods and services are no longer offered. Some companies simply disappear.
So it is with asbestos.
Asbestos is a good insulator, resistant to fire. Consequently, it was widely used in products and buildings across America. Unfortunately, breathing asbestos can result in a variety of harms, including mesothelioma, a deadly cancer.
For this companies deserve to be held liable. Where they are responsible for the asbestos. And people have been hurt.
Unfortunately, neither condition is any longer a requirement for big judgments. Whereas long ago asbestos litigation was expected to be shrinking — in 2001 use of asbestos was barely three percent of the peak 1973 levels — asbestos cases have spiraled out of control.
A new study by Stephen Carrol and Deborah Hensler of the Rand Corporation reports that the number of suits burgeoned from 21,000 in 1982 to 600,000 today. The total might eventually exceed three million.
The number of defendants has jumped from 300 — the primary asbestos producers and users — to 8,400, which has drawn in banks, insurers, and others. More will eventually end up in the dock.
Two decades ago analysts were predicting that the litigation, which had cost about $1 billion at that point, might cost another $38 billion. The total has already passed $54 billion and is likely to run as much as $210 billion more.
Bankruptcies are spreading, hitting 67 companies so far. Jesse David of NERA Economic Consulting figures that as many as 60,000 jobs may have been lost as a result. These victims are typically blue-collar workers with limited employment options.
The problem is not high cost per se. If liability is proved against responsible parties, they should pay, even if it ruins them financially.
But the Rand study has pointed out another anomaly. First, claims for mesothelioma and other cancers have stayed generally constant over the last decade. Claims for non-malignancies have jumped two and a half times.
In many of these cases plaintiffs show no evidence of injury. Common is pleural plaques, a fibrosis of the lung lining that usually causes no physical impairment. There’s also asbestosis, another lung fibrosis.
Observes Forbes magazine: “asbestos defendants are very likely now paying compensation for every occupational disease known to man. Incipient or marginal asbestosis, as picked up on an X-ray, bears at least a superficial resemblance to more than 130 other lung inflammations, including scores caused by various airborne particles.”
But the potential of a huge payday impels the trial bar to find clients, irrespective of the validity of their claims. Even some plaintiffs now recognize how they are being used. Early last year more than 2,500 litigants sued their former lawyers, charging that the latter viewed “their clients as mere inventory that could generate enormous legal fees with relatively little effort.” The attorneys collected thousands “while the lawyers amassed tens of millions of dollars in fees. Instead of serving their clients’ interests, these lawyers viewed their clients as serving them.”
Not only are some people who don’t warrant compensation receiving it. But they are sopping up resources that would otherwise be available for those people who really have been injured by asbestos.
Indeed, from 1991 to 2000, nine of ten claims were for non-malignancies. Two-thirds of the dollars paid went to those cases. The point is not that none of them have any merit, but that many of them do not; certainly these plaintiffs are less deserving of recompense than are people suffering from mesothelioma and cancer. For instance, a half dozen West Virginia plaintiffs received $5.8 million because they feared getting sick.
Observes defense lawyer Robert Riley: “Asbestos litigation has exploded not because there’s substantially larger numbers of sick and dying people. It’s because the courts are inundated by people who are not, by any common sense definition of the word, sick.”
Another problem is that the search for deep corporate pockets hits companies with no real responsibility for any harm caused by asbestos. Most of the producers and building goods makers have been hit long ago; many are now out of business.
So today suits are pouring in against nontraditional industries — beverage and food, glass, iron and steel, metal goods, paper, and even textiles. At least one company in almost every major industry has been sued over asbestos claims. These defendants now account for six of every ten dollars spent in asbestos litigation.
Attorney Steve Kazan, who represents genuinely sick clients and has created a group of 100 similarly minded lawyers, complained in one court filing that the increase in lawsuits does not mean “that more people are really getting sick as a result of their asbestos exposure. Rather, we are seeing large numbers of cases from ‘new’ industries where it seems clear that if there is any asbestos exposure at all it is very likely limited in intensity as well as scope, with relatively few workers having real exposure.”
Reform will not be easy, because the trial bar steadfastly resists any limit on liability. But the GOP recapture of the Senate increases the likelihood of congressional action; Senate Judiciary Committee Chairman Orrin Hatch is committed to moving legislation and might be able to make common cause with sympathetic Democrats, including past chairman Patrick Leahy of Vermont.
States are also moving. For instance, Pennsylvania has limited the liability of companies that buy a firm that ends up embroiled in asbestos litigation: Damages can’t exceed the inflation-adjusted price paid for the company. Mississippi approved more general tort reform, sparking a rash in lawsuit filings before the deadline but limiting the potential for future abuse.
Judges also can play a role. In a recent study for the Washington Legal Foundation, former Attorney General Griffin Bell suggests a number of strategies for judges to assert control over asbestos litigation, including insisting on proof of injury, ensuring the reliability of medical evidence, and limiting punitive damages. In fact, in December New York State Judge Helen Freedman limited asbestos trials in New York City where litigants exhibit no injury.
The asbestos legal tsunami has taken decades to develop, so it will take time to control. But the cost of abusive litigation is too high not to begin the reform process, however lengthy it proves to be. The health of both the legal system and the economy demand no less.
— Doug Bandow is a senior fellow at the Cato Institute and a former special assistant to President Ronald Reagan.