CONTROLLING RISING DEFENDANT EXPENDITURES IN ASBESTOS CLAIMS, LITIGATION, AND BANKRUPTCIES

Review of the A.M. Best and RAND Institute for Civil Justice Asbestos Reports and Their Implications for Medical Information Management

By: Elizabeth B. Juliano Carey J. Marousek James R. Fell

Introduction

The summer of 2001 witnessed the publication of two reports that may have major implications for the management of present and future asbestos claims and litigation. The first of these, A.M. Best's "Asbestos Claims Surge Set to Dampen Earnings for Commercial Insurers,"¹ released on May 7, 2001, speaks to the maturation of asbestos-related diseases, such as mesothelioma; continued problems with asbestos liabilities and corporate bankruptcies; a rise in the number of peripheral defendants in asbestos litigation; and an anticipated tidal surge of asbestos claims.

Subsequently, on August 15, 2001, the RAND Institute for Civil Justice published "Asbestos Litigation in the U.S.: A New Look at an Old Issue,"² which constitutes another examination of the asbestos liabilities quandary. The RAND Institute report highlights the issue that an accurate figure for the number of asbestos-related claims/lawsuits is unknown and that experts differ in their perceptions of the future trend of asbestos litigation.

In general, both reports are noteworthy for the degree of consensus within their independent analyses. Each documents that asbestos claims are on the rise, and numbers are projected to worsen in coming years. This proliferation is predicted to overwhelm existing legal resolution mechanisms and further compromise the financial viability of a great number of American companies. As the A.M. Best report concludes, "the worst is yet to come."

Claims Growth Forecast

A.M. Best cites an alarming increase in the number of new asbestos claims filed against both traditional and nontraditional defendants. This flood of cases is attributed to the growing number of bankruptcy filings by asbestos producers, targeting of more "peripheral" defendants, fears of insurance policy reclassifications, and maturation of costly lawsuits involving mesothelioma, a disease which may have a fifteen-to-forty-year latency period from the time of asbestos fiber exposure to disease manifestation.³

According to RAND Institute estimates, some 27 million individuals in the United States were occupationally exposed to asbestos during the period 1940 to 1979.⁴ No centralized mechanism is presently in place to tabulate total asbestos claims filed; however, the RAND Institute did analyze available claims data associated with asbestos litigation involving five major asbestos defendants. Allowing for overlap of claims filed against multiple defendants, the RAND Institute arrived at a conservative estimate indicating that over 500,000 asbestos claims have been filed to date. ⁵

Mesothelioma claims typically constitute the most serious and costly asbestos-related disease cases. The RAND Institute assessment determined that the numbers of these claims exhibited a downward trend in the early 1990's, but by mid-decade, numbers began to climb once again. Some of RAND's sources opined that this was the most important recent change in asbestos litigation.⁶

Management of these hundreds of thousands of asbestos cases will prove progressively more challenging; as a consequence, legislators, judges, defendant corporations, insurers, attorneys, and claimants will increasingly come to demand innovative solutions to the handling of the asbestos litigation crisis. One facet of asbestos claims management remains problematic and that is the acquisition, organization, storage, and review of millions of pages of plaintiff medical and non-medical records required to appropriately evaluate injury allegations. The following discussion proposes a centralized, national strategy to streamline asbestos case management so as to offer a deeper analysis of medical claims while simultaneously controlling costs for this activity.

Rise in Case Management Costs

The history of fluctuating case transaction expenditures in asbestos litigation is recounted in the RAND Institute report. According to this analysis, in the 1980's, claimants received 37% of each dollar awarded because of the contentious nature of asbestos litigation at that time. Plaintiff attorneys aggressively litigated these cases in response to stiff resistance from the defense. Insurers and defendants quarreled over policy coverage issues. Defendant companies pursued separate legal strategies, resulting in redundant case management expenditures.

In subsequent years, more cooperative types of legal arrangements evolved, such as the 1986 initiative of the Asbestos Claims Facility (that gave way to the Center for Claims Resolution in 1988), which are believed to have lowered case transaction costs. During the 1990's, defendant corporations pursued more collaborative strategies and accordingly reduced overlapping case management expenditures. Furthermore, the RAND Institute report notes that in this decade, insurance coverage issues were less contentious when viewed from a global perspective, and the numbers of costly courtroom battles were reduced as more settlements were negotiated.

The RAND Institute report predicts that recent events in asbestos litigation may again prompt an increase in transactional expenditures. In some cases, plaintiff law firms are pursuing more aggressive asbestos litigation strategies. Experts anticipate increasing insurance coverage controversies. The Center for Claims Resolution, characterized by the RAND Institute as "the leading example of asbestos defendant cooperation," discontinued active claims and litigation management in 2001. The RAND Institute's analysis suggests that these trends may be at the forefront of a relatively lengthy period of higher asbestos litigation and claims management costs.⁷

Deficiencies in the Current System

The RAND Institute's report details a number of shortcomings in the nationwide management of current asbestos litigation and claims:

1. No national registry of asbestos claims or lawsuits presently exists. The true magnitude of the asbestos claims and litigation crisis cannot be accurately estimated, but it is known that, to date, there have been over 500,000 claimants.

2. Most asbestos lawsuits now involve multiple defendants, each keeping their own records. Typical claimants may simultaneously file cases against several dozen corporations; accordingly, the magnitude of asbestos litigation is amplified beyond the situation seen with more traditional tort litigation in which the number of defendants is more limited.

3. Claimants receive money from multiple sources over long periods of time, both from defendants presently in the tort system and various bankruptcy trusts established to manage asbestos liabilities of former defendant companies.

4. Some resources for data on asbestos claimants are not publicly available.⁸

The RAND Institute report notes that all parties involved in the asbestos liabilities crisis are directly impacted by these deficiencies in the current system. The groups include:

• Claimants and their families.

• Defense and plaintiff attorneys/law firms.

• Defendant corporations and shareholders.

• Insurers of defendant corporations.

• Financial institutions bearing the costs of covering asbestos liabilities.

• Civil justice system.⁹

From the perspective of corporate legal departments, insurance claims managers, bankruptcy trust administrators, and outside counsel, effective medical case management of claims and litigation is pivotal in the efficient defense and resolution of asbestos-related disease cases. This paper proposes how a National Asbestos Medical Data Repository (NAMDR) can be created and operationalized for the centralized management of all medical documentation relating to the defense of asbestos claims and litigation.

Goals of the NAMDR

Goals promoting the establishment of the NAMDR make the concept equally attractive to all parties engaged in asbestos case defense:

1. The NAMDR will facilitate timely access to objective analyses of relevant medical information on each asbestos claimant.

2. NAMDR's medical case management will permit early analysis and differentiation of those claimants presenting with viable asbestos-related disorders from those with no disability. For example, protocols can be developed to categorize claimants' medical status according to the variations found among approved bankruptcy trust criteria.

3. The NAMDR will bring consistency to the evaluation of asbestos claims through the implementation of a common review process and collection of standard data sets.

4. The NAMDR will foster improved communication among common defendants in these cases because all participating parties will be reading from universal, shared medical review work products available through the NAMDR in both hardcopy and electronic formats. This concept for asbestos claims resolution is even more applicable in lawsuits involving bankrupt defendants.

5. The NAMDR will conduct ongoing research on the presenting medical and demographic characteristics of the aggregate claimant population whose records undergo review, and will prepare regular reports summarizing these findings. The NAMDR will regularly disseminate these reports to the participating defense parties and will also publish these reports in relevant medical and legal journals.

6. NAMDR's dual incorporation of economies of scale and centralization of record acquisition and review tasks will ultimately result in a reduction of discovery and case resolution expenditures for all defendant parties.

A criticism targeting mass processing of asbestos claims as cited in the RAND Institute analysis is the loss of "individualized" consideration for each particular case. ¹⁰ The NAMDR will overcome this through an impartial review of select, relevant medical documentation for each claim conducted by a medical professional experienced in the critical elements of pulmonary and asbestos medicine. In this manner, the objective of global medical case management of asbestos claims will be achieved.

What the NAMDR is Not

The concept of the NAMDR should not be confused with other national experiences in the centralized management of asbestos claims and litigation, as it will differ from these programs in several important respects:

• The hallmark of the NAMDR will be its neutrality. The NAMDR will not attempt to negotiate claims, settlements, or otherwise seek to resolve asbestos disputes among participating parties. The principal objective of the NAMDR will be the generation of an unbiased medical case review.

• The NAMDR will not attempt to assign liability or allocate injury awards for any of the cases it reviews. The onus of responsibility for these activities will remain with the courts and mediators. Asbestos case reviews prepared by the NAMDR will be restricted to a summarization of the factual evidence relating to the presence and degree of medical injuries in a given claim.

• The NAMDR will not manage payments associated with the resolution of asbestos claims. This activity will continue to reside with existing mechanisms for payment disbursement. Functional separation of medical record evaluation and compensation management activities will help ensure that the NAMDR's medical reviews retain their objectivity.

• The NAMDR will not process the reviews as traditional "claims"; instead, reviews will be conducted by health care professionals possessing clinical experience with pulmonary and other medical records germane to asbestos-related disease cases. These medical professionals will be trained to review asbestos records factually, without rendering any opinion as to the appropriateness or inappropriateness of an asbestos-related disease diagnosis assigned to a given plaintiff.

Beyond Pleural Registries

The mission of the NAMDR also should not be confused with that of court-mandated "pleural registries." These entities have been primarily designed to manage the overloaded dockets of asbestos litigation courtrooms by shifting claims filed by asymptomatic, non-impaired asbestos plaintiffs to an inactive status until such time as actual asbestos-related disease manifests. For such cases, statutes of limitations are to be tolled until the claimant develops a compensatory asbestos illness.

Pleural registries are presently a jurisdictionally driven concept, rather than a more encompassing national solution. Furthermore, pleural registries have met with varying degrees of acceptance by some parties in asbestos litigation who may perceive this concept as favoring one party at the expense of the other.

Centralized Management

The most important element of an NAMDR will be the creation of a central repository for relevant medical data on asbestos plaintiffs who have filed claims involving participating defendants. The "one stop shopping" nature of the NAMDR will provide each defendant and its agents with a single source for medical record acquisition, review, and reporting. As a result, the NAMDR will offer the following case management benefits:

1. Coordination: The concept of the NAMDR is very compelling for asbestos litigation involving multiple defendants. As the number of "peripheral" asbestos defendants continues to swell, there will be an increasingly heightened need for some form of centralized management of medical documents. The NAMDR will coordinate the one-time acquisition and review of medical records relevant to each claim. Defense counsel and bankruptcy trust administrators will then obtain copies of these medical records, and their respective objective reviews, from the central NAMDR facility on an "as needed" basis.

2. Communication: Once the NAMDR acquires medical records for a given asbestos claim, original hardcopy will be warehoused at the central NAMDR location. These records will also be maintained in a master NAMDR database so that defense litigators and bankruptcy trust administrators will have the option to request either photocopies or electronic images of a given set of documents.

A similar option will exist to obtain NAMDR's medical reviews prepared from these records. The NAMDR will offer participating parties the flexibility to consider case documents and reviews via access to a secure Extranet site hosted and maintained by the repository.

For the individual attorney, centralization of medical information management within the NAMDR provides a single source for answers regarding findings contained in the case review. Because records associated with each claim will be reviewed by only one designated medical professional, attorney questions will be researched and addressed quickly by the individual who actually reviewed the medical documentation.

3. Cost Sharing: The NAMDR will offer participants significant cost savings resulting from economies of scale associated with a common protocol for the acquisition and review of voluminous quantities of medical and non-medical records. Further economies will be realized as additional participants sign on to the NAMDR. This assertion is validated by the A.M. Best special asbestos report that notes "legal defense costs have been steep for the industry, particularly given the piece-meal handling of the same suits by multiple insurers (emphasis added)."¹¹

The argument for a centralized approach to medical information management in asbestos litigation is most compelling from the perspective of cost sharing. Case preparation expenditures will be minimized as the NAMDR acquires and stores one single copy of pertinent medical and non-medical records for each claimant in a central repository. When a defense attorney needs full text versions of these records, the NAMDR will be positioned to quickly deliver the indicated files. Acquisition expenses and charges for photocopies/electronic files of the medical records for a given action will be shared among all parties requesting copies.

4. Consistency: Once the NAMDR acquires a collection of records for a given plaintiff, documents will be organized according to mutually agreed upon protocols. Attorneys will always receive these documents in a consistent format with elimination of the need to adapt to differing organizational schemes.

The NAMDR will develop templates for common work products resulting in a standardized layout for each medical review. This practice will result in significant time saving for attorneys and their staff as the need to adapt to different formats and changing styles of medical reviews will be eliminated. Development of these templates will be based upon input from end-users.

5. Quality Assurance: An internal program of peer review will ensure that case reviews developed by NAMDR's medical professionals are factual, accurate, and consistent in format.

Medical Record Acquisition

Review of medical records will be restricted to those materials essential to completing an objective case evaluation. Accordingly, medical record acquisition and related costs will be limited to those directly required to accurately review the claim. In general, these documents will include, but may not be limited to:

• Copy of the claim or lawsuit filed, including the medical allegations.

• Pulmonary function test (PFT) reports.

• Radiologist interpretations of chest and related pulmonary radiographs. These will include all B-reader evaluations.

• Chest CT and associated imagery studies.

• Independent medical examination (IME) evaluations.

• Asbestos and other occupational/non-occupational histories.

• Relevant surgical and related pathology reports.

The NAMDR will coordinate the nationwide acquisition of these medical records and become the central repository for their storage. The efficient capture and delivery of data will be dependent on application of state-of-the-art technologies. Because of the large volume of documents involved, the NAMDR will employ imaging technology to scan and electronically index these materials. The use of optical imaging/storage will facilitate multiple user access to a single medical document, thereby significantly reducing photocopying and storage expenses. The NAMDR will also maintain a restricted entry Extranet site for online access to imaged medical records for law firms desiring this option.

Radiograph Repository

Another service provided by the NAMDR will be the acquisition, cataloging, and storage of plaintiff chest radiographs and CT scans. The NAMDR repository will obtain copies of these films from hospitals, clinics, physician offices, etc., on an "as-needed" basis; log the films into the NAMDR central database; and house the films in secure, fire-resistant storage. When these films are needed by defense attorneys or B-readers, the NAMDR will provide options for either on- or off-site review.

The Review Process

The primary defense attorney work product available from the NAMDR will be the Medical Record Abstract. This document will consist of a brief summarization of relevant factual information from IME, radiology, PFT, surgical, pathology, and other reports. This information will be limited to the most pertinent demographic and clinical information. In addition, a numeric Case Severity Rating will indicate the most severe, documented asbestos-related disease diagnosis or finding

Validation of PFT Reports

Administration and interpretation of PFT tests for asbestos claimants have proven contentious based on allegations of fraudulent application. In claims involving controversial PFT records, the NAMDR will analyze the reports against standards promulgated by professional associations, such as the American Thoracic Society (ATS) and American Association for Respiratory Care (AARC). Both organizations have published widely accepted guidelines for PFTs. The NAMDR will review disputed PFT studies to determine if the conduct and reporting of these tests achieved professional benchmarks. The NAMDR will develop a reporting system, the PFT Validation Study, derived from the ATS and AARC protocols.

Medical and Scientific Literature

The foundations upon which asbestos claims and defenses are based have evolved significantly in the past decade. During the early 1980's medical and scientific research, or lack thereof, often played a pivotal role in the litigation process. Although asbestos litigation has matured, defense attorneys continue to need access to medical/scientific literature on certain issues, such as the significance of pleural plaques as markers for future development of more severe asbestos-related conditions. Currently, each law firm conducts its own review of the literature to address these concerns.

The NAMDR concept proposes that its central facility will also become a focal resource for asbestos reference materials via a Centralized Asbestos Medicine Reference Center. This national repository will allow for easy access to medical and scientific articles, texts, reports, etc. Medical information specialists at the NAMDR will be able to assist in research, retrieval, and dissemination of asbestos reference documents in a highly cost efficient manner.

Other Asbestos Information

The NAMDR will also offer an asbestos news service accessible by all its users. This free defense resource will consist of a regular, web-based update containing summaries of the latest medical and scientific literature relevant to asbestos litigation. Whenever feasible, this news service will incorporate hyperlinks to full text versions or abstracts of a given report/article.

Although some web sites currently publish calendars containing medical legal conference postings, no comprehensive listing exists at this time. To promote networking and professional development among asbestos attorneys representing the defense, the NAMDR web site will also host a complete calendar of upcoming medical legal conferences sponsored by various associations, publishers, and law firms. Particular emphasis will be placed on targeting seminars devoted to such subjects as asbestos, silica, and related toxic torts.

Summary

The conclusion of the RAND Institute's report identifies a number of policy implications associated with the asbestos liability crisis that support the concept of a National Asbestos Medical Data Repository as put forth in this paper:

1. The matter of resolving asbestos claims fairly and efficiently remains a significant policy issue.

2. In the aggregate, not even 50% of potential asbestos claims have yet been filed in the United States.

3. Given the numbers of asbestos company bankruptcies filed within recent years, a window of opportunity may now be open to rethink national strategy for management of asbestos claims and litigation.¹²

Although a national policy to address the asbestos dilemma presently languishes, the NAMDR concept anticipates that eventually a unified social policy will be enacted for the management of claims and litigation. Objective, knowledgeable, and centralized medical case management will be the cornerstone of an equitable claims resolution process. Accordingly, the NAMDR proposal offers an effective solution to achieve these ends in the asbestos litigation crisis.

The authors wish to express their appreciation to John G. Gaul, Esq. for his review of this article.

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1. G Altonji, K Horvath, E Simpson. Special Report: Asbestos Claims Surge Set to Dampen Earnings for Commercial Insurers. Oldwick, NJ: A.M. Best; May 7, 2001. Online: www.ambest.com.
2. D Hensler, S Carroll, M White, J Gross. Asbestos Litigation in the U.S.: A New Look at an Old Issue. RAND Institute for Civil Justice. Santa Monica: August 2001. Online: www.rand.org.
3. A.M. Best. 3, 5.
4. RAND. 21.
5. RAND. 2-3.
6. RAND. 7.
7. RAND. 37-9.
8. RAND. 3, 15.
9. RAND. 14.
10. RAND. 49.
11. AM Best. 4.
12. RAND. 50.
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