Johns-Manville Legal Department Presentation to the Board on Asbestos Litigation (1981)

The charts J-M's lawyers showed the board of directors at its meeting in Saratoga, Wyoming, on July 31, 1981, marked "Privileged and Confidential, Attorney/Client Communication." At June 30, 1981, the company had 7,515 open cases, 6,995 of them asbestos health cases, and new cases were averaging 350 a month brought by 507 plaintiffs. The lawyers projected 32,500 plaintiffs in all and total costs of $1,473,791,000 through 1991, with J-M's share after insurance put at $779,686,000, and they estimated the company's net assets available for claims at $1.1 billion before taxes.

What it shows

The charts track the growth of the asbestos suits. New cases rose from an average of 13 a month in 1976 to 222 in 1980 and 350 in the first half of 1981, and a month-by-month table counts 12,021 plaintiffs since 1976. A trial table lists every verdict from Borel in 1974 onward. A summary of "significant developments" reports 13 trials in 1981 (7 wins, 6 losses) and the "first punitive damages awarded": $500,000 in Moran, $343,001 to 11 plaintiffs in Neal, and $50,000 in Noecker (see Punitive Damages). It notes that no class had yet been certified, and that the first California case by a J-M employee (Speak) was set for trial in September.

Under "litigation strategy" the lawyers set two goals: to influence the "volume and quality of cases filed" and the "average cost of cases." The method was "selective pressure": tracking plaintiffs' attorneys, increasing discovery demands, more knowledge, tools and resources for J-M's trial lawyers, and "vigorously trying cases." The expected result was that plaintiffs' attorneys would "only bring quality cases" and J-M would have "more leverage to settle at reasonable levels." Organization charts show the Asbestos Litigation Group under D. H. Markusson, assistant corporate counsel, with five regional teams, and the insurance claims staff under D. W. Ungemah, associate corporate counsel. A chart of insurance suits lists Commercial Union's case against J-M in Boston (filed January 4, 1979, over 1934 to 1948 primary coverage, "$37 million plus costs of defense"), two Canadian suits, and J-M's own suit against The Home in San Francisco (filed March 31, 1980, "$600 million plus").

The projection

The lawyers compared their earlier forecasts with what had happened. A statistical projection made in July 1980 had predicted 4,798 plaintiffs for 1980; the legal department had predicted 2,500; the actual number was 4,643. The new projection assumed 10,000 plaintiffs as of January 1, 1981, and 22,500 more from 1981 to 1986, for 32,500 in all, against 15,500 in the 1980 projection. Cost per plaintiff was set to rise from $33,350 in 1981 to $55,000 from 1986 on. Annual costs would peak at $302,500,000 in 1985. In the table of J-M's share, insurance covers $697,990,000 and runs out in 1986, after which J-M pays the whole cost. A chart forecasts that new cases would "peak in 1982," because the rate of increase had slowed, 1980 was 35 years after World War II and "near outer edge of latency period," disease among J-M's long-term plant employees was declining, and the number of plaintiffs' lawyers was not growing much.

Coverage for creditors and the reorganization

A balance sheet titled "Estimated Coverage Available for Potential Creditors," as of December 31, 1980, starts from net assets of $620,000,000 and arrives at an "amount available for claims grossed up to pre-tax basis" of $1,100,000,000. Two further charts put legal questions to the board. The first asks whether product liability claims "will follow assets transferred out to other subsidiaries." The answer given is that it depends on whether the assets left behind are worth enough to pay "the probable liabilities on existing debts"; if not, "the Company is 'insolvent' and the transfers are deemed fraudulent." The lawyers note that what counts as an existing debt is uncertain, and that a "very conservative" reading would include debts "not matured but possible because of exposure in the past." The second asks whether a dividend from J-M up to a parent company would be legal, and applies the same test.

Six weeks later the company filed with the Securities and Exchange Commission to create a new parent, Manville Corporation, and move its businesses into separate subsidiaries; the Form S-14 and John A. McKinney's letter to stockholders follow in this binder. The binder's own chronology records that Mr. Von Wald of the legal department gave this presentation, reviewing the litigation, the insurance coverage and "the company's ability to meet those liabilities."

About this copy

The last six pages carry figures from after the July meeting: two versions of a trial table counting 67 cases tried through 1981 (46 verdicts for plaintiffs, 17 of them on appeal, and 21 for the defense), two versions of a table of disposition costs through September 30, 1981, a punitive damages table that adds the Janssens verdict (July 31, 1981) and the Fisher verdict (December 1981), and a breakdown of plaintiffs by occupation through November 30, 1981. That last table counts 6,302 shipyard workers, 2,723 insulation workers, 2,001 asbestos factory workers and 953 J-M asbestos factory employees. These pages appear to be later updates kept with the presentation.