INTRODUCTION
Though the widespread use of asbestos stopped in the 1970s, a deluge of asbestos lawsuits continues to be filed, and increasingly construction companies are being sued. To date, over 600,000 lawsuits alleging injuries from asbestos have been filed. The Rand Report predicts that an additional 500,000 to 2.5 million asbestos lawsuits will be filed. This litigation has forced over 60 companies into bankruptcy.
Plaintiffs’ attorneys increasingly are suing companies with minimal involvement with asbestos or asbestos-containing products, including many construction contractors. This article intends to advise construction companies about their potential risks and defenses against this deluge of litigation.
BACKGROUND ON ASBESTOS
Asbestos occurs in nature: It typically is fibrous and has the unique feature of being very fire resistant. Asbestos also has long been used as a binding agent in making various materials.
Mankind has mined asbestos for centuries. Historians record that Genghis Khan used asbestos fibers to weave tablecloths that could be cleaned by throwing the entire cloth into a fire – any spilled food or drink would be burned, the tablecloth would be unscathed, and the dinner guest would be amazed and intimidated by the mighty Khan.
In the industrial era, asbestos became widely used as an insulating material in applications involving heat, notably as insulation for boilers and steam pipes. Consequently steel mills, oil refineries and most ships were filled with asbestos-containing insulation. For decades, the United States Navy required the use of asbestos-containing insulation on all naval vessels.
In the construction industry, many building materials formerly contained asbestos. Beginning in the 1950s and especially in the 1960s, many common building materials (e.g., cements, fireproofing, caulking, joint compound, fire doors, and many types of wallboard) regularly contained asbestos. In 1972, OSHA issued new regulations concerning asbestos resulting in a gradual phaseout of its use in building materials. By the early 1980s, most building materials had stopped any use of asbestos as an ingredient.
Asbestos is known to cause mesothelioma (a cancer of the membrane surrounding the lung) and lung cancer. Asbestos typically has a long latency period: The disease develops ten to forty years after a worker was last exposed to significant levels of asbestos.
THE LITIGATION DELUGE
Over the last 25 years, asbestos litigation has steadily expanded to more and more remote defendants. In the late 1970s, plaintiffs’ attorneys began suing the companies which mined asbestos, resulting in the bankruptcy of companies like Johns-Manville and North American Asbestos. Then plaintiffs’ attorneys focused on the manufacturers of asbestos-containing insulating products, resulting in the bankruptcy of companies like Celotex, Keene Corp., and Standard Insulation.
Next, the litigation expanded to manufacturers of asbestos-containing building products leading to the bankruptcy of companies like National Gypsum, United States Gypsum, and W.R. Grace. The Rand Report has predicted that every traditional asbestos defendant will wind up in bankruptcy.
Because of the bankruptcies, the mix of defendants has and will continue to change. One prominent plaintiffs’ lawyer likened suing defendants to picking fruit from a tree: The now bankrupt defendants were the easily accessible low-hanging fruit and now the plaintiffs’ bar is reaching farther and farther into the tree.
CLAIMS AGAINST CONSTRUCTION COMPANIES
As the plaintiffs’ bar casts a broader net to ensnare more defendants, plaintiffs increasingly have begun to sue construction contractors. A common claim is that a general contractor was negligent in failing to provide a safe workplace regarding exposure to asbestos dust created by the installation of drywall. Those claims tend to be asserted by former employees of subcontractors whose claims arguably are not barred by workers’ compensation statutes. Plaintiffs’ counsel typically will identify potential defendants by interviewing their clients and asking them about job sites and significant companies involved with various projects.
With younger plaintiffs, “household” exposure claims are increasingly common. Those claims typically assert that a parent was exposed to asbestos on the job site, that the asbestos fibers were on the parent’s work clothes, and that the child was exposed to those fibers while playing with their parent or in helping do the family laundry.
The injured workers typically allege that they suffer lung problems caused by their past exposure to asbestos. The cases with the greatest potential liability involve mesothelioma (a rare cancer of the membrane surrounding the chest of abdominal cavities) or lung cancer. Another significant problem with asbestos litigation is that many plaintiffs with no significant physical impairment will file suit alleging asbestosis – a scarring of the lung – or pleural plaque – the development of plaque on the membrane surrounding the lung which does not impair its functioning. While asbestosis and pleural plaque cases do not involve serious injuries, the potential number of cases often makes the cost of defense prohibitive.
Kellogg, Brown & Root (KBR) provides a high profile example of asbestos claims against construction companies and the potential impact. KBR has long been one of the nation’s largest construction companies, having helped design and build some of the world’s largest industrial facilities. KBR was a subsidiary of Halliburton. After Halliburton faced 474,000 asbestos claims, it filed for bankruptcy reorganization for KBR. To fund its reorganization, Halliburton has paid $4.1 billion in cash and stock to a trust to pay future asbestos claimants.
PROTECTING YOUR COMPANY
1. Save All Insurance Policies.
Plaintiffs typically allege exposure to asbestos over many years, thereby making each year of alleged product exposure the source of a potential insurance claim. Most insurance companies do not save copies of every policy which they issued. If a coverage dispute arises (a near certainty in asbestos litigation), the insured company typically must prove that coverage under the policy applies. The best evidence, by far, is a copy of the actual policy. If a construction company becomes a defendant in any action (asbestos or anything else), it always helps to have a copy of the applicable insurance policy.
2. Predecessor Liability.
While asbestos litigation has primarily been filed against older companies, some companies founded in the 1980s or even 1990s have been sued as the alleged successor in interest.
As a general rule, if a company purchases the stock of another company, then it has acquired all of its assets and all of its liabilities. If a company purchases the assets of another company, then it typically does not also acquire the liabilities. But there are some exceptions to this general rule, and plaintiffs’ counsel likely will argue that one or more of those exceptions apply. Any company considering the purchase of another company’s stock or assets would be wise to consult with experienced legal counsel to properly structure the transaction.
3. Document Retention.
Most companies should have general document retention policies. Those policies become particularly important when one realizes that workers on job sites from decades ago may file suit. Experienced legal counsel regularly advise companies concerning which documents to save (like insurance policies) and which to discard and when.
By James R. McKown
Published in Modern Builder (July-August 2004)
