Hard cases making bad law (San Francisco Chronicle) May 19, 2003

Judges have long admitted that hard cases make bad law. Sometimes a jury, or even a judge, will find the facts of a case so sympathetic and compelling that they stretch the law, or even overlook it, in order to compensate a victim. The law itself is unfortunately damaged in the process, and a high price paid in future cases.

In the seemingly bottomless pit of asbestos litigation, a California jury has made more bad law. A civil jury in Los Angeles concluded that insurance companies must not only pay for current claims, but must also pay today for claims expected to be made in the future. As a result, several U.S. and British insurance firms will be required to pay into an asbestos trust fund now for claims that have yet to be filed.

If such a precedent-setting verdict survives an appeal, it will have a disastrous effect not only on companies with asbestos products, but upon the insurance industry and potentially other businesses as well.

California juries are known for defining the leading edges of liability, but this one apparently traveled in a time machine. Paying in the present not only for liabilities of the past but also for those of the future seems unfair, and it undercuts the way large verdicts are frequently financed.

As the tobacco settlements show, corporations and their insurance companies are often persuaded to pay huge verdicts by stretching payments over time. The Los Angeles case, if applied widely, would remove that tool, thereby reducing the chances of settlements and increasing already high insurance costs. Smaller insurers may well be driven out of business altogether.

This case if further evidence that the tidal wave of asbestos litigation is not only overwhelming companies and insurers but also the law and the judicial system. Asbestos was used most heavily during World War II and in the postwar construction boom. With a 10- to 40-year latency period before illnesses emerge, it was assumed that this problem would have largely worked its way through the legal system and the economy by now.

Instead of diminishing, asbestos cases are exploding. In 1982, when it was presumed claims would begin to decline, there were 21,000 plaintiffs, with potential costs of asbestos damages estimated at $1 billion. Today, there are mroe than 600,000 plaintiffs, with cost estimates ranging above $50 billion with much more to come. More than 60 corporation have goon bankrupt over the last five years because of asbestos litigation.

How could this be? The answer is related to our California jury verdict. As economists say, you get what you subsidize, and the law has created a huge pot of gold for asbestos claimants, and has steadily reduced normal legal defenses to recovery. As a result, claimants with only prospective injuries are not getting huge financial recoveries, which in turn spawns more lawsuits. In one typical case, a plaintiff, despite overwhelming evidence of no injury or inability to continue his normal activities, received a jury award of $1 million and an additional $25 million in punitive damages, later reduced by the judge to $500,000 and $2 million respectively. Another plaintiff got recovery from a single day of exposure to asbestos as a babe in arms visiting a church roofing project.

To be sure there is adequate money for victims, courts have lowered legal thresholds for injury, relaxed causation requirements, overridden insurance policy protections, relaxed procedural rules and allowed higher damage awards. The early hard cases of truly injured victims have led to bad law and now a flood of expensive and unfair litigation – a trend further accelerated by this California verdict.

When court reach the outer boundaries of what the law can handle, a larger public policy solution is needed. Congress has been working for years on a national trust fund with its own rules for asbestos recovery. The California verdict underscores the need for Congress to act soon.

This op/ed appeared on Page B-7.