Justice Department scrutinizing asbestos trusts for mismanagement

When companies expose workers or customers to asbestos and people develop asbestos-related diseases, those companies can be held legally responsible. Asbestos has been used in various applications due to its heat- and fire-resistance. Unfortunately, it causes the deadly cancer mesothelioma and other serious illnesses.

Because of the massive cover-up involving asbestos manufacturers and suppliers, many companies were held liable for the diseases caused by their asbestos-laden products. As a result, about 100 companies filed for bankruptcy. In most cases, the bankruptcy court required the companies to set up trust funds to compensate then-current and future asbestos victims. Due to the nature of the bankruptcy process, the amount of compensation victims receive from each trust is a small percentage-often pennies on the dollar-of what they would have likely received had the companies not filed bankruptcy. Usually the companies keep operating post-bankruptcy, with the trust owning some of the operating company’s post-bankruptcy stock.

According to the Government Accountability Office, 60 asbestos trusts paid out some 3.3 million claims totaling more than $17 billion between 1988 and 2010.

Over the past several years, various groups with political agendas, including the U.S. Chamber of Commerce and defense attorneys, have mounted a coordinated attack upon the trust compensation system. These business groups and asbestos-defense lawyers allege the claims process is rife with opportunities for fraud. They complain there is insufficient oversight of the claims, allowing people with minimal evidence or less-serious illnesses to obtain payouts. They accuse many trust overseers of having inappropriate ties to plaintiffs’ attorneys. They lament a lack of transparency about whether payment decisions and evidence requirements are consistent between trusts.

“There is incredible irony,” counters one attorney who represents asbestos plaintiffs, “in the fact that an industry that covered up the dangers of a known carcinogen for decades, leading to the ongoing deaths of 15,000 Americans a year, is now claiming that its victims are committing systemic fraud against the trusts – even though no court has ever found evidence of such fraud.”

Nevertheless, the Department of Justice recently increased its scrutiny into the whether the asbestos trusts are being manipulated or depleted by fraudulent claims.

In September, for example, the DOJ contested the creation of a new trust, claiming there were insufficient safeguards against fraud and abuse. It also sent a letter to state attorneys general indicating it will object to the creation of any trust perceived to have inadequate safeguards.

Later, the DOJ objected to the appointment of a particular trust lawyer on conflict of interest grounds. An attorney for the company involved accused the DOJ of making “this bankruptcy case a referendum on the asbestos trust system.”

At least one trust has received an administrative subpoena seeking settlement records to determine whether Medicare has been billed for medical services that trusts have paid for.

Asbestos trusts are intended to pay legitimate claims quickly and efficiently because the victims are ill and may urgently need the rightful compensation they are seeking. While safeguards against fraud are important, an excessive focus on fraud prevention could grind legitimate claims processing to a halt.

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