Johns-Manville Form 10-K for 1980: Legal Proceedings (1981)

The cover page and Item 3, Legal Proceedings, of Johns-Manville's annual report to the Securities and Exchange Commission for 1980. It told investors that at March 4, 1981, J-M was a defendant in about 5,800 lawsuits brought by about 10,200 plaintiffs claiming harm from asbestos, and that new cases had averaged 222 a month in 1980 (brought by 387 plaintiffs a month), up from 141 in 1979 and 65 in 1978. In 1980 J-M disposed of 402 claims at an average cost to the company of $23,300 each, against a historical average of about $13,000. The filing said that because of the uncertainties "no reasonable estimate of loss can be made, no liability has been recorded," and that the costs to the company "could be substantial."

What it shows

The filing set out the company's defenses for each kind of plaintiff. For insulation and shipyard workers, the company maintained that "there was no basis for product warnings or hazard controls" until studies linking insulation work with lung disease were made public in 1964, and that shipyard disease "resulted from poor working conditions in the shipyards over which the Company had no control." For its own employees, it relied on workers' compensation as the exclusive remedy, while reporting that the California Supreme Court had recently allowed employees to sue if they proved the employer fraudulently concealed their disease and so aggravated it. For workers at plants that bought its fiber, it maintained that its customers "had the same limited knowledge" of the hazards, and that any duty to warn rested with the plaintiffs' employers; the largest group of these suits came from about 623 former employees of Raybestos-Manhattan. The company also said it believed that since at least the start of 1978 "no significant new potential liabilities have been created," because it had stopped making asbestos insulation in the United States by 1973 and it assumed workplaces were meeting the OSHA limits of 1972 and 1976.

The filing also reported 65 suits by former employees against a former company contract physician who, they alleged, had not told them they had lung disease, eleven purported class actions, the insurance coverage suit J-M filed in San Francisco on March 31, 1980, and the shareholder suit of May 4, 1979, which alleged that the company's published documents had misstated its asbestos liability. The one line in these excerpts saying an outcome "will not have a material adverse effect" refers to antitrust actions, not to the asbestos cases.

Beside what the board was told

Seven months before this filing, J-M's Legal Department had shown the board projections of 15,500 to 18,963 future plaintiffs and total claims costs of $975,250,000 to $1,204,716,000, with its insurance exhausted by 1984 or 1985 (see the July 1980 presentation in this set). The same uncertainty led J-M's auditors to qualify their opinion on the 1979 and 1980 accounts, as the 1980 annual report disclosed.