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K. Macon R. Michaud J. Plaut W. Rinehart A. Ritardi R. Sand T. Stewart From: SEEMED as simple as A-B-C. In r(he summer of 1983, like dozens of school boards across the country, the Aurora, Colo., Board of Education com menced a program to seal off, remove or otherwise abate all asbestos-containing Asbestos Fallout of asbestos products, is the focus of discovery in almost all current lawsuits.) Just what is the industry's potential exposure in these and future suits? That's practically impossible to pin down, both plaintiffs and defendants materials in local schools. In order to agree. But it could run into the bil reduce any risk to students, the contrac lions--perhaps many, many bjlhons. tors toiled away on weekends and holi days, working without incident until the It Can Be Hazardous And, even if the defendants ultimately triumph, mounting a defense against schools' Chnstmas break. They com such an onslaught of lawsuits, as Man pleted a particularly thorough clean-up To a Company's Financial Healthjob--but they neglected to clean up after ville learned, can be ah onerous burden, indeed. themselves. The personal injury suits were Jan. 2, 1984. An elementary school teacher, returning to work, confronted a ghastly sight--a layer of white coating slapped primarily on Manville and other asbestos miners and processors, by em ployees (or relatives of deceased em and ceiling debris blanketing parts of her classroom. According to Victor By LAUREN R. RUBLIN ployees) who alleged grave, often fatal consequences from their occupational Ross, Aurora's associate school superin exposure to high levels of the mineral. tendent, the teacher pushed the panic button, spreading news of the asbestos "disaster" far and wide. The local cam era crews came running, and the The mineral itself is a demonstrated carcinogen, linked to lung cancer and other pulmonary diseases. Like the EPA, the U.S. Attorney General and even the In early October, Adams-Arapahoe The "new wave" of litigation focuses on School District 28-J, which includes Au * a different group of more than 50 defen rora, filed suit seeking $40 tjjjllion for dants, including the aforementioned abatement co& from 14 current or for USG, National Gypsum and.'W.R. teacher, too, took some snapshots of the mess, which she sent home with the kids for parental perusal. You'd think the U.S. Congress have deemed its presence mer manufacturers of asbestos products. Grace, as .well as U.S. Mineral Products in friable form in buildings an unquali And that's practically peanuts, com Co., Owens-Corning Fiberglas, Oyvens- fied health hazard. pared with Baltimore's $225 million suit UlinoiSyBaimco's Keene Corp. subsidi Rockies had crumbled. Little wonder, then, that school against 55 companies, or a state of ary and Jim Walter's Celotex. ` When the dust finally settled, Aurora confronted an embarrassing case of mis taken identity. The asbestos "fallout" proved to be spray paint residue from an encapsulation job. What is especially noteworthy about the episode, however, is the town's panicky reaction. Similar anxieties have gripped other communi ties which are grappling with the often monumental task of identifying and abating asbestos materials in their schools. The U.S. Environmental Protection Agency has never mandated such reme dial action, nor has it set a standard for "safe" environmental asbestos exposure boards have been falling over them selves to get the stuff out, despite the asbestos industry's insistence that its products, when properly installed and maintained, represent no risk at all. Many schools thus far have dipped into general operating funds or bond sale proceeds to proceed with their abatement work. Now, though, they're increasingly demanding restitution, through legal channels, from the prod ucts' former manufacturers, whom they accuse of having fraudulently marketed! dangerous goods, while conspiring to conceal their alleged hazards. Nor is the latest burst of litigation Maryland suit which seeks $500 million in relief for clean-up of some 3,000 state-owned buildings. According to An drews Publications' School Asbestos Alert, which has kept tabs on the situa tion since September, more than 40 property damage lawsuits now are pend ing in state and federal courts around the nation. What's more, a federal court judge in Philadelphia has certified a manda tory class action for punitive damages, and a voluntary, or opt-out, class action for compensatory damages, on behalf of all school districts against 53 concerns formerly in the asbestos field. This rul These companies, and others,, incor porated asbestos into building products such as acoustical ceiling and beam sprays, fireproof floor tiles and pipfand boiler insulations--products, ironically, whose use at times was mandajqd by government building codes in thf?years between World War ,JI and 1972/More over, in those years, ri&some cases,,these products accounted for less than }% of company revenues. (The EPA banned the use of sprayed asbestos for fireproof ing and insulation in 1973, and outlawed the use of friable asbestos in pipq.and boiler wrappings in 1975.) levels. Since 1982, however, the agency simply more of the horrendous legal ing supersedes an earlier mandatory Since at least the early 1960s, strong has required all school districts to in actior. that has besieged the asbestos class action certification for all damages scientific evidence has linked workplace spect their buildings for friable--easily industry and forced Manville Corp. into against three former asbestos ceiling exposure to high levels of asbestos to crumbled--asbestos products, and no bankruptcy. Rather, these so-called spray makers, USG Corp. (formerly several deadly diseases, including lung tify parents and employees of their find property damage suits are a breed apart U.S. Gypsum), National Gypsum and cancer and mesothelioma, a cancer of ings. from the roughly 25,000 personal injury W.R. Grace & Co., whom plaintiffs' the lung or stomach linings. The farmer The EPA has determined that an claims now pending against industry attorneys contend accounted for more asbestos products makers maintain, estimated 30,830 American schools now members; and many seasoned observers than 50% of the acoustical ceiling spray however, that their liability in property harbor such products, which, when of the asbestos scene believe that, in market in the years from 1946 through damage suits can't be assumed n the damaged, could release millions of mi terms of damages sought, they ulti 1972. (Precise market share figures for basis of their potential liability in-per croscopic asbestos fibers into the air. mately could dwarf those claims. these, and other former manufacturers sonal injury litigation, owing tp. vast Barron's - February HWBUI0001994 IT SEEMED as simple as A-B-C. In the summer of 1983, like dozens of school boards across the country, the of asbestos products, is the focus of discovery in almost all current lawsuits.) Just what is the industry's potential Aurora, Colo., Board of Education com menced a program to seal off, remove or otherwise abate all asbestos-containing materials in local schools. In order to Asbestos Fallout exposure in these and future suits? That's practically impossible to pin down, both plaintiffs and defendants agree. But it could run into the bil reduce any risk to students, the contrac tors toiled away on weekends and holi days, working without incident until the schools' Christmas break. They com It Can Be Hazardous lions--perhaps many, many billions. And, even if the defendants ultimately triumph, mounting a defense against such an onslaught of lawsuits, as Man pleted a particularly thorough clean-up To a Company's Financial Healthjob--but they neglected to clean up after ville learned, can be an onerous burden, indeed. themselves. Jan. 2, 1984. An elementary school teacher, returning to work, confronted a The personal injury suits were slapped primarily on Manville and other asbestos miners and processors, by em ghastly sight--a layer of white coating and ceiling debris blanketing parts of ________________________________________ % her classroom. According to Victor By LAUREN R. RUBLIN ployees (or relatives of deceased em ployees) who alleged grave, often fatal, consequences from their occupational Ross, Aurora's associate school superin exposure to high levels of the mineral. tendent, the teacher pushed the panic The mineral itself is a demonstrated In early October, Adams-Arapahoe The "new wave" of litigation focuses on button, spreading news of the asbestos carcinogen, linked to lung cancer and School District 28-J, which includes Au a different group of more than 50 defen "disaster" far and wide. The local cam other pulmonary diseases. Like the EPA, rora, filed suit seeking $40 million for dants, including the aforementioned era crews came running, and the the U.S. Attorney General and even the abatement costs from 14 current or for USG, National Gypsum and-W.R. teacher, too, took some snapshots of the U.S. Congress have deemed its presence mer manufacturers of asbestos products. Grace, as well as U.S. Mineral Products mess, which she sent home with the kids in friable form in buildings an unquali And that's practically peanuts, com Co., Owens-Coming Fiberglas, Ojvens- for parental perusal. You'd think the fied health hazard. pared with Baltimore's $225 million suit IUinois, Baimco's Keene Corp. subsidi Rockies had crumbled. Little wonder, then, that school against 55 companies, or a state of ary and Jim Walter's Celotex. 1 When the dust finally settled, Aurora confronted an embarrassing case of mis taken identity. The asbestos "fallout" proved to be spray paint residue from an encapsulation job. What is especially noteworthy about the episode, however, is the town's panicky reaction. Similar anxieties have gripped other, communi ties which are grappling with the often monumental task of identifying and abating asbestos materials in their schools. The U.S. Environmental Protection Agency has never mandated such reme dial action, nor has it set a standard for "safe" environmental asbestos exposure levels. Since 1982, however, the agency has required all school districts to in spect their buildings for friable--easily boards have been falling over them selves to get the stuff out, despite the asbestos industry's insistence that its products, when properly installed and maintained, represent no risk at all. Many schools thus far have dipped into general operating funds or bond sale proceeds to proceed with their abatement work. Now, (hough, they're increasingly demanding ' restitution, through legal channels, from the prod ucts' former manufacturers, whom they accuse of having fraudulently marketed dangerous goods, while conspiring to conceal their alleged hazards. Nor is the latest burst of litigation simply more of the horrendous legal acri'jr. that has besieged the asbestos industry and forced Manville Corp. into Maryland suit which seeks $500 million in relief for clean-up of some 3,000 state-owned buildings. According to An drews Publications' School Asbestos Alert, which has kept tabs on the situa tion since September, more than 40 property damage lawsuits now are pend ing in state and federal courts around the nation. What's more, a federal court judge in Philadelphia has certified a manda tory class action for punitive damages, and a voluntary, or opt-out, class action for compensatory damages, on behalf of all school districts against 53 concerns formerly in the asbestos field. This rul These companies, and othersc incor porated asbestos into buildStjig products such as acoustical ceiling and beam sprays, fireproof floor tiles and pip^and boiler insulations--products, ironically, whose use at times was mandated by government building codes in the ?years between World War II and 1972/More over, in those years, in some cases.:these products accounted for less than of company revenues. (The EPA banned the use ofsprayed asbestos for fireproof ing and insulation in 1973, and outlawed the use of friable asbestos in pipg,and boiler wrappings in 1975.) ing supersedes an earlier mandatory Since at least the early 1960s, strong class action certification for all damages scientific evidence has linked workplace against three former asbestos ceiling exposure to high levels of asbestos to crumbled--asbestos products, and no tify parents and employees of their find ings. The EPA has determined that an estimated 30,830 American schools now harbor such products, which, when bankruptcy. Rather, these so-called property damage suits are a breed apart from the roughly 25,000 personal injury claims now pending against industry members; and many seasoned observers of the asbestos scene believe that, in spray makers, USG Corp. (formerly U.S. Gypsum), National Gypsum and W.R. Grace & Co., whom plaintiffs' attorneys contend accounted for more than 50% of the acoustical ceiling spray market in the years from 1946 through several deadly diseases, including lung cancer and mesothelioma, a cancer of the lung or stomach linings. The filmier asbestos products makers maintain, however, that their liability in property damage suits can't be assumed on the damaged, could release millions of mi terms of damages sought, they ulti 1972. (Precise market share figures for basis of their potential liability hr per croscopic asbestos fibers into the air. mately could dwarf those claims. these, and other former manufacturers sonal injury litigation, owing to vast HWBUI0001995 February i l, 1985 BARRON'S Page? differences in orders of magnitude of chyj's opinion, on behalf of the AIA. exposure. The occupational risks of And, in response to a query about Mary manufacturing asbestos products, argues land's whopping claim, USG President Axel Swanson, National Gypsum's vice Robert Day recently quipped at an ana president for finance and treasurer, lysts' meeting, "It's kind of a trendy aren't "at all relevant to what risk, if thing for attorneys general who want to any; is being caused by this so-called be reelected to have a suit against some `low-level' " exposure allegedly found in body for something." schools. Moreover, the major asbestos prod The industry, in formulating its de ucts manufacturers continue to insist fense, has drawn heavily on the research they're innocent, and that a resolution of of ^Canadian commission that recently the snowballing asbestos cases won't studied the asbestos situation in Ontario buildings. The commission calculated More than 30,000 American materially pinch their pocketbooks. Nor are these companies currently that "the air in buildings with sprayed asbestos-containing insulation usually schools now harbor friable, setting up reserves to cover potential damages. Explains USG's Thad Snell: averages less than . . . 0.001 fibers per cubic centimeter," a level at which, it or easily crumbled, asbestos, "We've got to build up a little kitty as we go along, to meet things as they come concluded, "asbestos in building air will almost never pose a health hazard to building occupants." which the EPA, the U.S. Attorney General and even down the pike. But we haven't built up anything substantial." National Gypsum is providing for anticipated legal bills The industry takes pains to point out that 0.001 f/cc is a magnitude of dosage lower than the U.S. Occupational Safety and Health Administration's current al lowable workplace exposure limit of 2 fibers/cc, on a time-weighted basis, or OSKA's recently proposed reduced levels of either 0.5 fibers/cc or 0.2 fi bers/cc. Congress has deemed an unqualified health hazard. each quarter, according to Edward Fordyce, Snell's counterpart there. "The le gal bills are the lion's share of it. The ' settlements are very small," he says. Drawing confidence, perhaps, from such statements. Wall Street seems par ticularly unfazed by the latest turn in asbestos-related events. To be sure, news of yet another staggering suit, or a de ' The real public hazard, industry members charge, is the EPA, which, by refusing to establish environmental as bestos safety thresholds, has failed to put fendant's disappointing day in court, has given some stocks a momentary jolt, but nothing lasting. National Gypsum and Grace closed Friday at 44 and 4154 re the "asbestos scare" in perspective. In spectively, not far from their all-time stead, accuses National's Swanson, "cer tain quarters have beat emotion and hysteria up to a faretheewell." In the end, he adds, "I think you'll find that the problem is not significant, and that the money [school districts are spend ing'is getting thrown down a rathole." Not so, school board and govern ment officials counter. True, they agree, the mere presence of asbestos in build ings'poses no risk, but it's impossible to expect asbestos-containing materials, even if properly installed, to remain un tilable over several decades. The likeli hood ofdeterioration, they argue, is par ticularly acute in schools, which suffer constant wear and tear. The bottom line, according to the plaintiffs and the EPA, is that there is no known safe threshold of exposure to asbestos fibers; any exposure carries some- risk. Comparing environmental asbestos levels with OSHA workplace standards, they say, also is both danger ous and misleading. Notes Dr. Irving Selikoff, a Mount Sinai Medical School professor and prominent asbestos au thority: "The OSHA standard is not safe--it's feasible. It will reduce the risk, butit's not going to prevent disease." highs; USG, somewhat weaker of late, closed at 6415. Recent developments in the litiga tion arena, however, suggest that a little worry might well be m order. Consider these statistics: National Gypsum, in its traded by people who had been envi concealment... of the relationship be 1983 annual report, alerted shareholders ronmentally exposed to low levels of tween asbestos and various diseases as to 25 "completed construction" suits it asbestos, often only briefly. early as the 1930s," charged plaintiff was defending. By last year's third quar "We don't know as a matter of medi Barnwell, S.C., School District No. 45 in ter, that number had nearly doubled, cal knowledge what causes cancers of its suit against U.S. Gypsum et al, one and it's still on the rise. National noted, any kind," rebuts Thaddeus Snell, of the bases for the current class action in its quarterly, that it had offered to USG's vice president and general coun pending in U.S. District Court in Phila settle with plaintiffs in "up to" five indi sel. Adds Nick Hluchyj, government af delphia. The complaint goes on, "all vidual school district cases, although the fairs counsel for the Asbestos Informa industry members . . . adhered to an company has refused to disclose the tion Association: "We know there are industry-wide practice of refusing to sums involved or comment further on its other causes of mesothelioma, but as provide necessary warnings as to the position. National also is a defendant in bestos is the easy target It's a large hazards presented by exposure to as more than 2,500 personal injury suits. industry, and there are a lot of lawyers bestos and asbestos-containing prod USG's exposure similarly has in ready to litigate [against it].'' ucts." Retorts the asbestos group's Hlu creased dramatically during the past Nearly all those lawyers allege, in chyj, "It's a monstrous thing to postu year; indeed, the company has been the latest spate ofproperty damage suits, late." named in nearly every pending property that asbestos products manufacturers Meanwhile, the former asbestos con damage suit. USG also is contesting well knew full well they were playing with cerns formed a new trade organization, over 2,000 personal injury cases, al fire for years, before they let on to their the Safe Building Alliance, last fall, though it has managed to dispose of customers the inherent hazards of the which has been lobbying the industry's many of these suits for around $250 mineral. position on Capitol (fill, and attempting apiece. "Members of the asbestos industry, to force the EPA's hand in the matter of Then, there's the matter of USG's through . . . their participation in the nationwide asbestos identification and recent reorganization, into a holding funding of the ATI [Asbestos Textile abatement standards. Busily defending company with nine independent operat- Institute], their funding and control of themselves on scientific grounds, the mg units. The ostensible reason for the Furthermore, as a 1981 U.S. Attor- the Saranac [N.Y.] asbestos dust studies companies involved aren't, at first blush, corporate makeover? Greater efficiency, ney General's report on the subject re during the 1930s, their control over working themselves into a public lather flexibility, operating independence and vealed, medical investigations through trade publications, and through other about their alleged financial liabilities in the like. However, the proxy material out. the 1960s and 1970s documented agreements . . . cooperated and assisted the school suits. requesting shareholder approval for the numerous cases of mesothelioma con- each other in the suppression and active "Much ado about very little," is Hlu- Continued on Page 22 HWBUI0001996 Page 22 BARRON S . Asbestos Fallout Continued from Page. 7 move also said that "segmenta tion . . . may better insulate each business from obligations and liabilities incurred in unre lated operations." Thad Snell scoffs at the sug gestion USG's top brass had as bestos on the brain in rigging this plan. "The asbestos situa tion was not the reason for the reorganization. This basically is not in the picture. Nobody wants to walk away from things and leave a company behind." he contends. "We feel it's only fair to tell the world we're some thing more than a gypsum com pany." On another front the major defendants are engaged in longrunning, and still unresolved, disputes with their respective in surance carriers. USG has sued its insurers, allegedly seeking "clarification" on policy issues such as who cover? what, and when. National is in "discus sions" with its carriers, appar ently over similar subjects. Ex ecutives at both clearly believe their companies are insured, and eventually will recover most of their asbestos defense and settlement costs. Some plaintiffs, though, aren't so sure. According to Snell, the in surance industry currently is "playing a cat and mouse game" for two reasons. "One, they don't want to do anything that would prejudice the posi tion they are asserting in court--that they have no liabil ity," he explains. "Secondly, they also have the use of the money in the interim." He hastens to clarify that publicly the carriers are dis claiming any obligations, al though "privately we are in dis cussions as to how much they might be willing to pay." The inconsistency, Snell elaborates, stems from the carriers' concern that "talk about insurance tends to inflate the appetites of plain tiffs' lawyers." Thus, he says, the insurance industry doesn't want to lead USG into thinking it will recover, because "[we) might pass that along to the phuntiffs." In any case, things aren't ex actly going swimmingly for the defendants in court. According to Axel Swanson, his company, and others, have had a bit of trouble convincing some judges that "we're not looking at any thing like a tort or a bodily injury. [We've argued that) we have been looking at some type of economic or contractual loss"--a breach of warranty, ia other words, that presumably would be barred from a hearing by statutes of limitation. Alas, he says, that defense has been struck down "in the few cases . where that has been decided." USG, as sole defendant, suf fered a setback last April, when it settled, for nearly double the $378,000 in damages sought, the first and only property damage suit that's actually gone to trial On the trial's fourth day, ac cording to Dan Speights, wha represented the plaintiff, the Lexington County, S.C., school board, "[Wej got a corporate employee on the stand who denied the company had any knowledge of the dangers of as bestos until the late 1960s." Documents produced in dis covery, however, indicated that U.S. Gypsum helped fund the 1936 industry study of asbestos dust hazards, and agreed to keep the results confidential. Lawyer Speights also produced a 1948 internal document classi fying asbestos as dangerous, and a 1934 company bulletin requiring employees working with the mineral to wear respi rators. "Then we settled the case," he crows, and for a healthy $673,000, to boot. USG, not surprisingly, re calls the events somewhat dif ferently. Says Snell: "We had produced some documents in a different case that had recently beendiscovered in our files, and ... we did not know they were there at the time we answered interrogatories in the Lexington case." Because, he claims, Lex ington went to trial on rather short notice (a charge Speights vigorously disputes), the com pany hadn't yet amended an swers to the interrogatories to reflect those additional docu ments. "Mr. Speights made a little apparent Gay out of that situation with one of our wit nesses," he adds. The real problems in Lex ington, claims the company, were "peculiar circumstances in the farts," an extremely hostile judge, and the unavailability of certain expert witnesses. So, Snell says, USG made a tactical decision, in no way an "admis sion of liability or a prediction of things to come," not to "fin ish the ballgame." The settle ment figure, notes another com pany executive, covered both the cost of removing "our al leged product," and the plain tiffs defense. t Several days later (a coined-1 deuce plaintiffs' counsel also! makes "a little apparent hay"} out of), attorneys for USG,, National Gypsum and W.R. Grace conferred in Philadelphia with David Berger, a local class action expert then representing four school districts, and U.S. District Court Judge James Kelly. The subject: a pending das action on behalf of school boards against the three compa- Continued on Page 24 HWBUI0001997 Page 34 ______ BARRON S ________ ___ ________ February ; Asbestos Fallout i. Continued from Page 22' nies. On'April 13, apparently at Berger's request and with the companies* agreement not to object, Kelly certified a manda tory national class action against them. His order didn't sit well with plenty of other school district attorneys, who suspected the class certification really was de signed to fatten Berger's pockets and substantially cut the major defendants' potential losses. As a result of such protests. Judge Kelly reheard the matter during the summer. In September, he modified his prior ruling. Instead and in connection with another pending class ac tion, Kelly certified a manda tory class action for punitive damages, but a voluntary, or opt-out, class for compensatory claims, against some 54 former asbestos products makers. USG, National Gypsum and Grace are conditionally appealing the denial of a mandatory class ac tion. They have argued, since the beginning, that the individ ual school board suits filed thus far suggest "the tip of the ice berg," and ought best to be con solidated for efficiency's sake. In the opinion of Edward Westbrook, a Charleston, S.C., attorney representing school boards in some 20 states, the companies' agreement not to fight a class action "was a litiga tion decision. But it backfired, and now they have the worst of both worlds." So it would seem. For, while the class action remains bogged down by infighting and myriad certification appeals, individual school districts across the coun try have been filing their own suits against the industry or busily preparing to file same. Having done their homework in compliance with EPA regula tions, many communities were set to launch legal action against the former asbestos products makers just as soon as an opt-out class was declared. Many small school districts, or those with negligible claims, thus far have included them selves in the class; larger plain- tiffs, however, generally feel that they'll get a better hearing on their own turf, before sym pathetic local juries. Besides the aforementioned Baltimore and Maryland suits, substantial claims have been filed by the New York City Board of Edu cation, the Los Angeles Unified School District and the District of Columbia. New York, which boasts one of the nation's most advanced asbestos abatement programs, is seeking $250 million in com pensatory damages, and un specified punitive damages, from 64 companies who were connected in some fashion with asbestos. Los Angeles has sued more than 90 companies for compensatory damages in ex cess of $ 135 million, and puni tive damages of more than $50 million. And the District of Co lumbia recently filed suit against dozens of manufacturers and distributors, seeking S400 million to recoup the expected cost of abating asbestos in the city's public schools. 0* % Meanwhile,- a Chicago Board of Education attorney warns that the industry "should be hearing from some Illinois school districts within the next month." And what they will be hearing will be a substantial suit. The state's governor, she adds, signed a law in August requiring "removal, not abate ment," of all friable asbestoscontaining materials from state schools. The state of Virginia, according to a spokesman for its attorney general, also plans to file an asbestos suit against a - stew ofconcerns, for at least S30 million, within the next month. And, with city and school board officials increasingly anx ious about becoming targets, themselves, of parents' and teachers' suits, it's a safe bet that the former ceiling spray and insulation makers face much more of i^ch litigation. The EPA has estimated that between $300 million and S2 billion, in today's dollars, prob ably would cover the expense of removing all asbestos-laden school ceilings. (The agency derived its rather expansive range by calculating abatement costs of between $2 and S13 per square foot for approximately 169 million square feet of '`con taminated" ceiling space.) Many plaintiffs' attorneys, how ever, figure the tab will run closer to $2 billion, with abate ment work averaging around S10 a square foot. The EPA hasn't yet calcu lated the cost of containing or removing asbestos pipe and boiler insulation, even more prevalent in many schools. The real wild card, however, is the possible cost of eliminating fria ble asbestos from other public and private buildings, should more states, municipalities or private property owners seek to do so, and then sue. At that point, folks who keep an eye on the issue believe, the industry - potential property damage lia bilities could soar exponen tially. HWBUI0001998