Manville Legal Department Presentation to the Board on Asbestos Litigation (1982)

The Legal Department's presentation to Manville's Board of Directors at its meeting in Denver on August 4, 1982, a 46-page set of summaries, tables and charts marked "Privileged and Confidential" and stamped "Privileged Do Not Copy" on nearly every page. It told the board that 10,977 asbestos health cases brought by 15,542 plaintiffs were open as of June 30, 1982, that new cases were arriving at an average of 425 a month in the first half of 1982, and that 53 of 92 cases tried had ended in verdicts for the plaintiffs. The Litigation Analysis Group's projection, dated the same day, put the cost of pending and future cases through 2001 at $1,858,000,000 for 47,600 plaintiffs, or $1,258.8 million after $600 million of insurance.

What it shows

The presentation runs in four sections. The first summarizes Abrams v. Johns-Manville, the shareholders' class action filed in May 1979, which alleged that J-M "knowingly misrepresented in 10-K forms and annual reports during 1974-1977 that it had substantial defenses" to the asbestos suits; the class had just been certified and trial was expected within about twelve months. The second covers the injury cases. Average new cases per month had grown from 13 in 1976 to 397 in 1981 and 425 in the first half of 1982. Current average disposition costs, before defense costs, were $75,000 for mesothelioma, $45,000 for lung cancer and $25,000 for asbestosis, and the average across all diseases had grown about 64% from 1981 to 1982 (from $17,770 to $29,210). The first punitive damage award against J-M came in 1981, and five more in the first half of 1982 averaged $844,000; the summary adds that "As a general rule punitive damages are not insurable." It also reports that the New Jersey Supreme Court had "eliminated" the state of the art defense, and lists four new suits by school districts and public bodies seeking the removal of asbestos from schools and public buildings.

The third section, on insurance, lists coverage J-M "believes it has" from 1934 through 1980 "in excess of $600 million," all of it in litigation in five cases in Boston, Montreal, Toronto and San Francisco, including J-M's suit against its broker, Marsh & McLennan, which sought "700 Million Punitive." The Legal Department hoped a settlement with the Home Insurance Company would bring in about $65 million before the end of the year.

The projections

The fourth section reports the work of the Litigation Analysis Group (LAG), chaired by Richard B. Von Wald with lawyers from Davis Polk & Wardwell and other firms and Manville's own legal staff. A chronology traces it to a Von Wald memo of March 1981 on the need to project future cases, and to the epidemiologists (Dr. Alexander Walker's firm in Boston and a University of Washington group) and the propensity-to-sue consultants (Lexecon and Professors Sarat and Kritzer) who reported to the group in July 1982. Charts forecast mesothelioma suits rising to about 309 a year around 1990 and lung cancer and asbestosis suits falling off. A comparative table set J-M's projection of 3,120 asbestos cancer deaths a year beside seven published estimates ranging from 4,000 to 68,000, and the text calls its significance that "the Company's projection of asbestos related cancer deaths and disabilities is significantly below any of the other studies." The LAG projection assumed no punitive damages, no rise in costs over time, no further increase in the propensity to sue, and full insurance recovery.

The section then turns to the company's disclosures. A table quotes the litigation statements in J-M's annual reports from "No Statement" in 1977, through the 1978 statement that "any ultimate liability will not have a material adverse effect," to the 1980 and 1981 statement that the liability could not be "estimated with any degree of reliability." The Legal Department wrote: "One of the central questions we must face of course is are we now in a position that "such amounts can be reasonably estimated"." Its illustrations of possible accounting treatments showed a write-off of $145 million for 1983, or of approximately $325 to $350 million if the insurance had to be discounted to present value. Three weeks later the company filed under Chapter 11.

About this copy

Several pages are charts in poor copies; the bar chart "Cases vs. Plaintiffs" is almost illegible.