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11/15/2024 By Jonathan Terrell

It was my honor to be asked by the program chairs of the DRI Asbestos Medicine Seminar to present a short TED-style talk at their Las Vegas conference last week.  The conference is the premier educational and networking conference for lawyers practicing in the area of corporate defense for asbestos-related disease.  Having attended it for over fifteen years and led panels discussing DEI for the last three years, it is a place and audience where I feel very at home.

But I am not a lawyer, I am an accountant and management consultant. I have, in some form, been around asbestos litigation for my entire 40-year business career, and most intensely over the last 28-years as a senior executive at Zurich Insurance and then as founder and President of KCIC.  So I have my own perspective as a non-lawyer deeply involved with asbestos litigation.

The TED talk outlines six strategies that I have observed as common denominators of defendant companies that survive better in asbestos litigation than those that do not adopt them.  No one really wins, but some do fare better than others.

  1. Data is the key to the kingdom.

Let’s talk about data. I know, I know – I’m an accountant, so of course I’d bring up data! But here’s the truth: in asbestos litigation, data is the foundation. Defendants face potentially thousands of claims, each with unique details, histories and resolution costs. Without clear, organized data, it’s impossible to track the big picture – even how many cases you have, how much they are costing you, and what’s on the horizon. I advocate for every defendant to have a clean, normalized set of data for all claims received, along with their resolutions.  An extraordinary number of defendants do not have this basic information at their fingertips.  

It’s not necessarily their fault. A few claims can rapidly become many claims.  Primary insurance carriers, thankfully, usually take on the defense of these early cases, and the cash flow hit to the defendant may be quite minimal, to begin with.

But the loss runs produced by insurers as reporting to their clients can be difficult for a defendant to decipher, because the reporting needs of the insurer and defendant can differ markedly.  Similarly, defense counsel track data to manage their day-to-day needs for cases on the ground, which may be different to the needs of the defendant.

In my opinion every defendant MUST have their own claims database — or at least a comprehensive spreadsheet — of every claim and resolution going back to when they received their first complaint.  You may need a professional to help you construct a claims database years after the event.  But you gain three enormous advantages:

  • The ability to track settlement values by like claims by jurisdiction, disease, plaintiff firm and time frame.
  • The ability to access excess insurance when primary coverage eventually exhausts.
  • The ability to understand trends to plan for the future and make strategic decisions for your company.
  1. Triage everything to manage your resources.

Let’s move to strategy two: triage. In other words, identify the high-risk cases as early as possible, as soon as they are filed, or as soon as information is added to the case file during discovery which identifies the case as dangerous. Why spend years defending a case only to settle on the metaphorical courthouse steps? With a well-organized data set with the details of all case resolutions to date, you can flag dangerous cases right from the start, for instance, cases involving young plaintiffs, or certain product types. This early triage allows your team to focus resources where they’re most needed and make informed decisions well in advance of trial.

Some flags of potentially dangerous cases are true for every defendant — such as a particularly young plaintiff. But other flags are unique to the defendant, such as a particular product or job site.

A simple triaging system can alert in-house counsel quickly — mining the defendant’s resolution history using multivariable analysis to identify both common or unique markers of potentially high value cases.  It’s a tool that is helpful to NCCs and the entire defense network, but especially for the general counsel’s office strategically overseeing the defense.

  1. Sometimes wasting money is a great outcome.

Here’s a counterintuitive thought: sometimes, wasting money early on is the best outcome. It may be costly but think of it as buying security for the future.

Only a few things — like wine and wisdom — improve with the passage of time.  Insurance assets only get harder to locate over the years. Yes, you may need to go back decades — a quasi-archaeological project that may require outside assistance.  But you may find evidence of potentially hundreds of policies that could mitigate up to 100% of your defense and indemnity costs.

Finding the actual insurance policies themselves is the gold standard.  But if not that standard, then at least secondary evidence of the existence of policies and key terms, such as limits and dates.

Equally important is researching the potential corporate defenses to help get out of the cases early.  Frequently this comes down to evidence that the product was never sold or shipped to a location where the alleged exposure occurred. A deep dive into sales records, product catalogues, shipping manifests, marketing plans etc. is unfortunately required.  So are, most importantly, detailed interviews with employees that oversaw these activities back in the day.  Interviewing retirees will also likely be necessary, which can be a race against the mortality clock.

Expert defense counsel will take the lead on this sort of investigation, at some significant expense. And yes, hopefully it will prove a waste of time and money, but it is still best to start while time is — to some extent — on your side.

Remember that Chinese Proverb: “The best time to plan the tree was 20 years ago. The second-best time is right now.”  While the ideal moment may have passed, it is never too late to start working towards the goal of a well-researched defense.

  1. Align incentives for the best long-term results.

Fourth strategy: aligning incentives. Companies increasingly rely on fixed fee arrangements, where law firms are paid a set amount to manage the defense. But here’s the obvious issue: settling cases is far cheaper than going to trial. Firms may therefore prioritize settlements, which can drive up filings and settlement costs over time. My recommendation? Structure your agreements to balance incentives – reward cost control but also maintain a strong trial strategy. This ensures that your defense team is ready to go to trial when needed, which ultimately keeps filings and costs in check.

Every defendant has its own circumstances that dictate its trial strategy, but a defendant that is not prepared to go to trial may see its filings increase and settlements trend upwards over the years.  It is not uncommon for fixed-fee arrangements to cover a number of future years before a renegotiation.

In my opinion, defendant companies that survive the best in asbestos litigation quickly settle claimants with clear exposure and a serious diagnosis, but they have a trial team ready to go anytime, anywhere.

A fixed-fee arrangement that incents counsel to think and behave in the best long-term interest of the defendant is likely a multi-year arrangement with an earlier opportunity for termination.  Most importantly, a bonus arrangement for keeping claims filings steady, or decreasing, and settlement values steady, or decreasing, will incent the defense firms to balance a settlement with a trial strategy.

  1. Undertake Structural Optimizations

Structural Optimizations, also known as “ring-fencing,” have been around in the asbestos world for over 20 years but they have become increasingly prevalent in the last five.  Several KCIC clients are undertaking or have completed such reorganizations.

In this type of arrangement, each subsidiary that is tainted by legacy liabilities — or at significant risk of being tainted — is split into two corporations in a so-called “divisive merger”.  The old company will keep the legacy liabilities, insurance rights and the name; the new company will take the operating assets.  Each of the old companies is then brought under a common parent at the periphery of the corporate organization.

This is Step One.

Step Two may be to sell the old companies to a third party for reverse consideration in a process called “disaffiliation”.  This is an accounting concept that means the tainted old companies being sold no longer need to be consolidated with their former parent.

Corporations and their boards of directors may rightly think long and hard before pulling the trigger on a disaffiliation.  It is imperative to employ the services of expert restructuring counsel to get it done right. But there is little to no downside risk in undertaking step one, which may take some time to accomplish, and thereby create the option for a step two.

I recommend that every defendant involved in serious tort-system liability should seriously consider the exercise.  I predict many more disaffiliation transactions in the next five years than in the last five.

  1. Collaboration

Finally, collaboration. Compared to the plaintiffs’ bar, defendant companies tend to work in relative isolation. It’s understandable – litigation often appears like a zero-sum game. But some collaboration could benefit everyone. But with 12,000 defendants named on asbestos complaints just last year, we’re in this together. 

It is also a classic case of game theory, sometimes referred to as the “prisoners dilemma” — charmingly illustrated in the fable of the marauding cat and the mice that resolve to fix a bell to its tail.  One by one, the mice slink away from doing the job.  Thus, in litigation, no defendants want to be the one left holding the bell at the start of the trial.  The downside risks of taking a plaintiff’s verdict may vastly outweigh those of paying settlement dollars for a meritless case.

It is not my place, not my expertise, to advise groups of defendants to stay in cases together, longer, so that the verdict, if adverse, falls more lightly on many.  But I must observe that the status quo is not working at all with 12,000 defendant names on asbestos complaints in 2023 — and 74 defendant companies, on average, named on every complaint.

One “no brainer” area of collaboration is that of keeping bankrupt companies in evidence instead of allowing them to slip out of the litigation record and escape being allocated a share.  Another is in supporting advocacy groups such as the American Law Institute to advocate for tort reform at the state level.  A third option is for defendant companies to anonymously share settlement data with one another in order to benchmark their own settlements.

The words do not easily spring to my lips, but change agents are to be found among insurers who may see comprehensive sets of data that put them into a position to encourage and even dictate collaboration.  Resolute, because of its relationship with National Indemnity Company, through its Strategic Asbestos Unit, can give a measure of leadership on trial strategy and sometimes they do.

Mesothelioma diagnoses are holding fairly steading, bucking the seminal predictions of Selikoff, Perkel and Nicholson.  As time and distance from provable asbestos exposure continue to grow, the cases ought to become increasingly winnable — that is, if there is any justice in our judicial systems.

These six strategies come from a lifetime around asbestos litigation. They’re not quick fixes, but they can make a difference. The cases do keep coming, but with thoughtful planning, collaboration, and data driven decisions, we can better navigate this challenging landscape.

Jonathan Terrell

About Jonathan Terrell

Jonathan Terrell is the Founder and President of KCIC. He has more than 30 years of international financial services experience with a multi-disciplinary background in accounting, finance and insurance. Prior to founding KCIC in 2002, he worked at Zurich Financial Services, JP Morgan, and PriceWaterhouseCoopers.

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