Manville's Bold Maneuver

By James Kelly

Battered by lawsuits, the asbestos giant seeks a bailout

The announcement was dramatic but also mystifying. The Manville Corp., the Denver-based building-materials and forest-products giant, known until last year as Johns-Manville, had filed for reorganization under Chapter 11 of the federal bankruptcy code. It was the same Manville that earned $60.3 million on sales of $2.2 billion last year. The same Manville that ranks 181st on the FORTUNE 500 list of America's largest industrial corporations. The same Manville that, for more than half a century, has been one of the 30 companies included in the Dow Jones industrial average, the most avidly watched indicator of prices on the New York Stock Exchange. As it turned out, the firm was not in any imminent financial peril. Instead, Manville was trying a bold maneuver to limit its liability in thousands of lawsuits charging health damage from asbestos produced by the company. Its surprise step once again focused attention on a longstanding controversy with important legal, political and environmental ramifications.

Over the past 15 years, asbestos has been increasingly recognized as an occupational health hazard of alarming proportions, and Manville, the largest producer of the mineral in the non-Communist world, has been swamped with litigation. Asbestos is composed of tiny, needle-like fibers that are both incredibly strong and light enough to be inhaled. Because asbestos does not burn, it is used to make fire-resistant materials and to line the walls of buildings and insulate pipes and machinery. But asbestos dust can cause serious illnesses. Among them: asbestosis, a chronic disease of the lungs causing shortness of breath similar to emphysema; mesothelioma, a fatal cancer of the chest or abdomen lining; and lung cancer. Medical specialists estimate that over the past four decades 9 million Americans have been exposed to large quantities of asbestos in workplaces; many of them will probably die of cancer. Since 1968, Manville has been hit with 20,000 lawsuits and has paid out $50 million in claims.

It was not the cost of these suits but the potential cost of future settlements that persuaded Manville to act. A Massachusetts consulting firm predicted that Manville could expect about 500 new suits a month, for an eventual total of 52,000. Figuring that each claim costs the firm an average of $40,000 to handle, company officials estimated that Manville would eventually spend at least $2 billion, and probably much more. Accounting rules require a company to set aside funds as a reserve against anticipated claims. With $2.2 billion in assets, Manville decided it had no choice but to file for Chapter 11.

In a full-page ad that appeared in 21 newspapers simultaneously with the news of the filing, Manville Chairman John A. McKinney contended that "to avoid Chapter 11, we would have had to strangle the company slowly, by deferring maintenance and postponing capital expenditures." Without court protection, he insisted, the lawsuits "would cripple us."

By filing for reorganization, Manville immediately suspends all current lawsuits and prevents new ones from being brought against the firm. It is now up to the bankruptcy court to deal with the present claims, as well as to set guidelines for handling any future suits. Company officials stressed that Manville would conduct "business as usual" during the reorganization. "This is not a financial failure," McKinney emphasized. "It is rather a failure of our court and legislative systems to provide an orderly way to compensate victims of unexpected occupational health catastrophe."

But the Manville action drew angry responses from asbestos victims and their attorneys. "They're hoping we'll die off," said Bob Speake, 66, a retired Manville employee who suffers from asbestosis. "A lot of the ones I know already have. They're trying to worm out of having to pay." Said Robert Sweeney, a Cleveland attorney who represents 268 claimants in asbestos-related suits: "It's an outrageous abuse of the judicial process. Chapter 11 is not intended for corporations with $2.2 billion in sales that are operating in the black." Vowed Ronald L. Motley, a Barnwell, S.C., attorney whose firm represents more than 3,000 claimants: "We're going to fight them tooth and nail in bankruptcy court."

The current tangle stretches back several decades and pits Manville against both its insurance companies and the Federal Government. U.S. workers began to be exposed in large numbers to asbestos during the 1930s. During World War II, asbestos was used extensively in Government shipyards, and over the next 20 years the "miracle mineral," as it was once called, grew in popularity.

Critics of the asbestos industry charge that the mineral's harmful effects were first documented in the early 1900s and that evidence of its health hazards grew steadily over the next five decades. Asbestos-related illnesses, however, often take 20 to 40 years to develop. Thus asbestos victims were not diagnosed in large numbers until the late 1960s.

Dr. Irving Selikoff of Mount Sinai School of Medicine in New York City estimates that currently 8,500 people will die of asbestos-related cancer each year, and that by 1990 the number will reach 10,000 a year.

The first lawsuit against Manville was filed in 1968; by 1973 there were only 13 claims.

Manville's insurance companies settled the claims largely without protest. But in 1980, when a total of 5,000 suits were filed, the insurers began to balk. Manville officials wanted the insurers to make good on all policies in effect at the time workers were exposed to asbestos. Most insurance firms, however, argued that they should pay off only on policies that are now in effect, not on those that date from the time that workers were first exposed 30 or even 40 years ago. In 1980 Manville finally sued 27 of its carriers in state court in San Francisco. As part of their defense, some of the firms claimed that Manville was aware of the dangers of asbestos as far back as the 1930s and did not inform them, thus making the policies void. That case has not yet been settled.

In a separate case, in 1981, the California Supreme Court ruled that Manville employees were entitled to damages if they could prove that Manville had know ingly concealed the dangers of asbestos from them. Over the past two years Man ville has been ordered to pay at least ten punitive awards totaling some $5 million.

Punitive judgments are generally not cov ered by insurance.

In filing for reorganization, Manville followed the lead of UNR Industries, a onetime asbestos producer. Saddled with 12,000 lawsuits, UNR moved into bankruptcy court in July. Both cases raise thorny legal questions. Manville may press for an overall settlement for all claimants, and then let them split up the award. Or the firm may push for consolidating all the lawsuits and then setting up panels to evaluate each claim.

But what recourse will future victims have? Will other asbestos producers, most of whom also face lawsuits, be affected?

Admitted Curtis Linke, Manville's corporate relations director: "It's all a big question mark at the moment." Said Los Angeles Bankruptcy Lawyer J. Ronald Trost: "You may see this case go to the Supreme Court."

Some critics claimed that Manville was simply trying to force Washington to share the burden of the asbestos tragedy.

Manville and other asbestos producers ar gue that thousands of asbestos cases have been brought by workers who were first exposed to the deadly substance in Government shipyards during World War II.

The Asbestos Compensation Coalition, an industry lobbying group, is pushing a proposal that would set up a "superfund" for victims, with contributions coming from the Federal Government and from the asbestos and insurance companies.

But Congress is not likely to rescue the asbestos industry. Over the past five years, three asbestos compensation mea sures have been sponsored on Capitol Hill. So far, the only bill with any chance of passage is the one introduced earlier this year by Democrat George Miller of California. He proposed creating a workers' fund financed by the asbestos producers and user companies, like shipyards, but not the Federal Government. Indeed, Miller charged that Manville's action was an attempt "to open up the federal treasury to bail them out." Manville vehemently denies the charge. Whatever the motive, it is clearer than ever before that Manville's problem is also America's problem.

-- By James Kelly.

Reported by Rita Healy and Richard Woodbury/ Denver, with other bureaus

With reporting by Rita Healy, Richard Woodbury

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