Asbestos Lawsuits: Do They Bankrupt Companies?

2007-03-08 10:33:40

( Legal )



Asbestos was widely used as a construction material until the late 1970s. Scientists have linked fibers inhaled from asbestos exposure to various pulmonary diseases. Since the findings were made public, manufacturers and insurance companies have been the target of multimillion-dollar asbestos lawsuits.

There are proponents for legislative action to stop the asbestos lawsuits, arguing that the litigation has already bankrupted dozens of large companies and will bankrupt even more. You must have heard of the failure so far of legislative efforts to find a compromise.

Proposed legislation wanted to create a trust fund to cover asbestos claims, based on a formula that considers the type and severity of disease. There would have been caps placed on the amount of compensation, and all future asbestos lawsuits would be banned. The latest version of the Senate asbestos bill is different from the earlier versions you read about, which would have allowed court action in case the proposed trust fund ran out.

You have probably read about industry claims that the numerous asbestos lawsuits pose a serious threat to the economy. As the Senate asbestos deliberations continue, you'll hear even more of the bankruptcy arguments. The health-related origins of asbestos lawsuits have been relegated to the background.

As you ponder this situation, you should try to remember that when a company declares it is going bankrupt that is different from your usual concept of bankruptcy. You would usually think of massive layoffs, asset liquidations, and business shutdowns. The asbestos companies are filing for bankruptcy under Chapter 11 of the bankruptcy code, which is not liquidation but reorganization. These filings for bankruptcy become a means to stop existing and potential asbestos lawsuits, and protect companies from future liability.

Even those companies that have already filed for bankruptcy have declared in their press statements and public interviews that their business goes on as usual.


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