Where is this money going? Transaction costs have consumed more than half of this money. A famous number in the early Rand study in the 1980's was that less than 40 cents on the dollar were actually going to asbestos plaintiffs. As we moved into the 1990's, both defendants' and plaintiffs' attorneys with the help of judges were able to develop much more efficient of dealing with asbestos litigation. We will see in a moment what some of the consequences of that efficiency have been. But one consequence that everyone thought they would see as that transaction costs would drop dramatically and we at Rand also expected to find that when we went back to take this new look at asbestos litigation.
Indeed what we have seen is that plaintiffs are taking home somewhat more of the dollars spent than they were in the 1980's, but not a heck of a lot more. Defendants' expenses have gone down as they have reutilized their handling of asbestos litigation and as at least in the 90's they coordinated their defense instead of spending lots of money fighting among themselves, which was what they were doing in the 80's.
But plaintiff's attorneys contingent fee arrangements, to the best of our knowledge, have not dropped and so that portion of the money is going to the attorneys leaving plaintiffs, as you can see, with less than half the money.
Now, with the rise of bankruptcies we have seen the development of what are called claimant bankruptcy trusts, as monies or transferred as a part of reorganization plans to plaintiffs and plaintiffs who appear in the future are, therefore, then ordered to claim against a trust. The trusts have done a remarkable job, particularly the Manville Trust of building very efficient procedures and so plaintiffs do collect the lion's share of the money that is flowing through the trust, but the cost of that for plaintiffs have been that they are collecting pennies on the dollar in terms of the liquidated value, as it is called, of the claim, that is the value of the claim by comparison with what they would get if it were being liquidated in the tort system before the bankruptcy.
And most of the dollars that are being paid out are being paid out to claimants who are not claiming cancer. Now, let me point out on this chart, because I didn't before, mesothelioma is a truly dreadful cancer. It is a signature disease for asbestos. There is some debate about whether there are ever any causes for it, but generally, if you are exposed to asbestos and you have mesothelioma, that's because of your asbestos exposure.
Other cancers may also be caused by asbestos. Many of those cancers, like lung cancer, do have other causes and so there many be some dispute about whether it was asbestos related. Those cancers together with mesothelioma, as you can see, represent about 10% of the claims that have been resolved to date.
The large group of nonmalignant claims includes claims of people with asbestosis. Asbestosis is a respiratory disease. It can be severe and its most severe state it can be fatal. In the early years of asbestos litigation, where many of the claims were from shipyard workers who had had very close and long exposure to asbestos, asbestos claimants were seriously ill people who badly needed compensation.
As regulation of asbestos finally kicked in under OSHA, we began to see a decline in exposures in the workplace and the levels of exposure the later workers had to asbestos generally have not produced the kind of severe asbestosis that we saw in previous periods and that is why there is this widely accepted, although we have not been able to come up with statistical data to break down this loose sector, but it is generally accepted that in recent years most of those claimants do not have severe asbestosis.
As you can see the allocation of compensation reflects some degree the severity of the diseases and so properly the mesothelioma and other cancer claimants do receive more of the compensation dollars then the less seriously injured people. Notwithstanding that, the magnitude of the nonmalignant claims is so great that the lion's share of the money that has been spent to date has gone to those people.
How did we get here? This is a very long story, there are lots of reasons, I am going to try and whip through this very quickly, this is the class on sort of asbestos 101. I am going to go through the reasons on this chart.
First of all, asbestos is in many respects a great product, okay, it is versatile, it protects against fire, it was widely used, it was widely used all over the world, it is particularly used in heavy industry. It is estimated that 27 million U.S. workers were exposed to asbestos in industries where there was great exposure between 1940 and 1979.
An unknown number of workers were exposed to other industries in occupations, we do not have good data in the United States, much to my dismay, for exposures outside the so-called high-risk industries. And one of the reasons the litigation estimates are so uncertain is because we are working off these data on exposures from 1940 to 1979. Although we know that there have been exposures since then, from asbestos in place, and in other industries and occupations. And for those of you who are here from the business community, I want to note to you that while Jim Wootton probably talked about the decline in asbestos use and exposure in the United States, that asbestos is still widely used in other parts of the world. And so those of you, I am teaching my students now in civil procedure, that litigation is global, not just something that arises and occurs in U.S. courts. We ought to be thinking about what is going on in the rest of the world with regard to asbestos exposure as well.
Epidemiologists have estimated close to a quarter of a million of premature deaths through 2009, as a result of this exposure. As I have already indicated, there are a variety of diseases that associated with this exposure. I do want to note that the epidemiologists' predictions show us having cases identified, cases of asbestos-related disease at least through the year 2030 in the United States. So, when Jim talked about expectations about the litigation declining or perhaps even disappearing, the expectations were real that the litigation would stabilize and that defendant who face the litigation would be able to project what their risk would be.
Those who were faced with this litigation and people in the medical system knew that there would be cases appearing for many decades because asbestos-related diseases typically are so-called latency diseases. You are exposed now, you may not actually show an injury until forty years from now. And that's been one of the problems in terms of projecting the diseases.
So, we know there are going to be diseases coming forward. We have some notion as to what the distribution of the diseases will be, what has surprised people is the distribution of the claims.
So, let me move on to telling the story of the litigation because that's the key story here. In the beginning, asbestos litigation, in the beginning, the beginning was in the 60's and 70's, in the beginning, the litigation was very difficult to win from a plaintiff's perspective. Plaintiff's face serious obstacles in terms of statutes of limitation. How can you come forward with a disease that you had actually incurred 30 to 40 years ago? The answer in many jurisdictions was that you couldn't.
And there we key issues about the litigation, what did the defendant know, what was the state of the art at the time that the person was exposed and defendants, of course, used every aspect of the substantive and procedural law to advocate vigorously their case. And plaintiffs lost lots of cases.
But then plaintiffs began to win cases, there were some key substantive law decisions, many states changed their statutes of limitation, so the statute didn't start to run until you discovered the injury and plaintiffs' attorneys who brought those first successful cases, learned something very important that has colored all of tort litigation since. And that is the way for plaintiffs, who, generally speaking, have fewer resources than large corporations to succeed in litigation against corporations, is for attorneys to identify many, many claimants who have the same type of claim, arguably identical, similar, etc., and to bring those claim en masse, and when you bring those claims en masse, you change the risk profile between plaintiffs' attorneys and defendants.
Plaintiffs' attorneys who learned that lesson early became the successful leaders of this litigation. And once they learned that lesson, of course, they needed to find more plaintiffs and the way they found more plaintiffs was by helping unions and others support mass medical screenings to see who actually showed signs of exposure. Once those people came forward with signs of exposure, arguably in injury, arguably the statute of limitations started to run and they had to bring those cases.
Since it was a small number of firms that learned these lessons fast, a small number of firms came to represent a very large proportion of plaintiffs in most parts of the country.
Much of the litigation was concentrated initially in jurisdictions where there had been a heavy exposure, jurisdictions, for example, was shipyards, judges tried to get their arms around that litigation and they used the tools of case management to do that. Defendants, looking at their litigation costs in the late 70's and early 80's tried to come up with programs that would restrict their litigation exposure risk and offered settlements that reduced their own litigation costs.
And as the first bankruptcy trusts came on line, as I have already said, the bankruptcy trusts tried to control transaction costs, because that was in the interests of the trustees and the beneficiaries of the trust and so we had a set of efficiency efforts and they were successful and they did reduce transaction costs somewhat and they made it a lot cheaper to bring more litigation and in our American free enterprise system, plaintiffs' attorneys got that message and began to bring more litigation.
The number of law firms with large caseloads of asbestos think of these, these are product liability claims, allegedly very complicated claims to bring. This chart shows you the number of firms with 100 or more new filings. That number of firms began to grow as other people, other firms began to see that this was a litigation in which you could represent people who arguably needed compensation and you could make a considerable amount of money doing so.
Well, by the 1990's, courts and parties and plaintiffs' attorneys have learned that the way you deal with this kind of litigation is to do so-called global settlements. And, so, not surprisingly, the courts and the defendants and at least some of the leading plaintiffs' attorneys tried to achieve those settlements under the rubric of multi-district litigation in the federal courts and ultimately under rule 23. And those attempts to do global settlements failed and failed most spectacularly when the U.S. Supreme Court overturned two settlements that had been seen as models for perhaps bringing about a resolution of this litigation.
And during this period, as federal courts began to act to collect these cases, okay, and when it became clearer that the federal courts were not going to succeed in resolving the cases, filings moved out of the federal courts, where about half of the cases had been during the 1980's, into the state courts.
And so today, although we are sitting here in Washington talking about this litigation, this is primarily state court litigation.
State courts adopted different procedures, different interpretations of substantive law, different interpretations of venue rules that had effects on asbestos litigation and, not surprisingly, in our federal system where plaintiffs' attorneys get the first shot of where to bring their case, the cases move to states that were perceived as being the most jurisdiction and to venues within those states that were seen as being most favorable to plaintiffs.
Obviously, defendants get their shot at deciding jurisdiction, they can try and remove cases and they have and they did, but in general this litigation has become increasingly state court litigation through the combination of substantive and procedural rules and judicial practices.
As state courts found themselves facing lots and lots of cases, they use the same tools that the federal courts had used earlier, they used judicial case management, which includes the ability to consolidate cases for pre-trial and sometimes for trial and to handle them as if they were all one humungous thing. And these efforts by judges were often pointed at trying to get control of their own caseload and ignored the effects that they were having on litigation dynamics, which was namely to grow the litigation and the effects more controversially on outcomes which defendants, at least, argue is that the risks to the defendant of facing these huge collection of cases is so great, that they settled the cases for more than the cases would be worth individually and, of course, that simply invites more litigation.
As the attraction of consolidation grew, okay, we had more and more consolidated trials. Now, people sometimes ask, how any trials have there been in this litigation, you are telling us about hundreds of thousands of claims, did any of them ever go to trial. We have actually been trying to track what has been happening at trial as part of the Rand study. You have about 1,600 plaintiffs whose cases actually reach trial in this period 1993 through 2001, this is when we have a good database for doing that because about two-thirds of those claims were tried in groups. Those 1,600 plaintiffs actually represent 527 trial verdicts, verdicts that cover multiple plaintiffs.
Now, this whole question of consolidated trials has attracted a lot of attention in the last few years. I think it is important to note that when I say two-thirds of claims were tried in groups when we look very carefully at the data, what we see is that mostly these are small numbers of plaintiffs. These are four plaintiffs, six plaintiffs, who cases arise out of the same work site and these are not class action trials. There are no absent plaintiffs involved. The jury is being asked to decide the fate of the plaintiffs before them. However, when a jury is looking at a set of plaintiffs whose injuries are different from each other, those - the injuries of one plaintiff may shape the jury's sense of what is gin got happen to another plaintiff. And so we may get verdicts that are different that the verdicts we would have gotten if those plaintiffs were tried individually. Some plaintiffs may be at a disadvantage as a result, and defendants may be at a disadvantage. And, in fact, we could have both things going on in the same trial.
Now, it is the very large trials that have attracted attention. So, far we have really just found sixteen of these during the period, just, I say in quotes, because sixteen is a small number, but altogether it looks like these were procedures that were intended to bind close to 60,000 plaintiffs. Those trials had different outcomes, including some cases that were consolidated and then dismissed and in the report that we are currently working on we will have more to say about those.
Indeed what we have seen is that plaintiffs are taking home somewhat more of the dollars spent than they were in the 1980's, but not a heck of a lot more. Defendants' expenses have gone down as they have reutilized their handling of asbestos litigation and as at least in the 90's they coordinated their defense instead of spending lots of money fighting among themselves, which was what they were doing in the 80's.
But plaintiff's attorneys contingent fee arrangements, to the best of our knowledge, have not dropped and so that portion of the money is going to the attorneys leaving plaintiffs, as you can see, with less than half the money.
Now, with the rise of bankruptcies we have seen the development of what are called claimant bankruptcy trusts, as monies or transferred as a part of reorganization plans to plaintiffs and plaintiffs who appear in the future are, therefore, then ordered to claim against a trust. The trusts have done a remarkable job, particularly the Manville Trust of building very efficient procedures and so plaintiffs do collect the lion's share of the money that is flowing through the trust, but the cost of that for plaintiffs have been that they are collecting pennies on the dollar in terms of the liquidated value, as it is called, of the claim, that is the value of the claim by comparison with what they would get if it were being liquidated in the tort system before the bankruptcy.
And most of the dollars that are being paid out are being paid out to claimants who are not claiming cancer. Now, let me point out on this chart, because I didn't before, mesothelioma is a truly dreadful cancer. It is a signature disease for asbestos. There is some debate about whether there are ever any causes for it, but generally, if you are exposed to asbestos and you have mesothelioma, that's because of your asbestos exposure.
Other cancers may also be caused by asbestos. Many of those cancers, like lung cancer, do have other causes and so there many be some dispute about whether it was asbestos related. Those cancers together with mesothelioma, as you can see, represent about 10% of the claims that have been resolved to date.
The large group of nonmalignant claims includes claims of people with asbestosis. Asbestosis is a respiratory disease. It can be severe and its most severe state it can be fatal. In the early years of asbestos litigation, where many of the claims were from shipyard workers who had had very close and long exposure to asbestos, asbestos claimants were seriously ill people who badly needed compensation.
As regulation of asbestos finally kicked in under OSHA, we began to see a decline in exposures in the workplace and the levels of exposure the later workers had to asbestos generally have not produced the kind of severe asbestosis that we saw in previous periods and that is why there is this widely accepted, although we have not been able to come up with statistical data to break down this loose sector, but it is generally accepted that in recent years most of those claimants do not have severe asbestosis.
As you can see the allocation of compensation reflects some degree the severity of the diseases and so properly the mesothelioma and other cancer claimants do receive more of the compensation dollars then the less seriously injured people. Notwithstanding that, the magnitude of the nonmalignant claims is so great that the lion's share of the money that has been spent to date has gone to those people.
How did we get here? This is a very long story, there are lots of reasons, I am going to try and whip through this very quickly, this is the class on sort of asbestos 101. I am going to go through the reasons on this chart.
First of all, asbestos is in many respects a great product, okay, it is versatile, it protects against fire, it was widely used, it was widely used all over the world, it is particularly used in heavy industry. It is estimated that 27 million U.S. workers were exposed to asbestos in industries where there was great exposure between 1940 and 1979.
An unknown number of workers were exposed to other industries in occupations, we do not have good data in the United States, much to my dismay, for exposures outside the so-called high-risk industries. And one of the reasons the litigation estimates are so uncertain is because we are working off these data on exposures from 1940 to 1979. Although we know that there have been exposures since then, from asbestos in place, and in other industries and occupations. And for those of you who are here from the business community, I want to note to you that while Jim Wootton probably talked about the decline in asbestos use and exposure in the United States, that asbestos is still widely used in other parts of the world. And so those of you, I am teaching my students now in civil procedure, that litigation is global, not just something that arises and occurs in U.S. courts. We ought to be thinking about what is going on in the rest of the world with regard to asbestos exposure as well.
Epidemiologists have estimated close to a quarter of a million of premature deaths through 2009, as a result of this exposure. As I have already indicated, there are a variety of diseases that associated with this exposure. I do want to note that the epidemiologists' predictions show us having cases identified, cases of asbestos-related disease at least through the year 2030 in the United States. So, when Jim talked about expectations about the litigation declining or perhaps even disappearing, the expectations were real that the litigation would stabilize and that defendant who face the litigation would be able to project what their risk would be.
Those who were faced with this litigation and people in the medical system knew that there would be cases appearing for many decades because asbestos-related diseases typically are so-called latency diseases. You are exposed now, you may not actually show an injury until forty years from now. And that's been one of the problems in terms of projecting the diseases.
So, we know there are going to be diseases coming forward. We have some notion as to what the distribution of the diseases will be, what has surprised people is the distribution of the claims.
So, let me move on to telling the story of the litigation because that's the key story here. In the beginning, asbestos litigation, in the beginning, the beginning was in the 60's and 70's, in the beginning, the litigation was very difficult to win from a plaintiff's perspective. Plaintiff's face serious obstacles in terms of statutes of limitation. How can you come forward with a disease that you had actually incurred 30 to 40 years ago? The answer in many jurisdictions was that you couldn't.
And there we key issues about the litigation, what did the defendant know, what was the state of the art at the time that the person was exposed and defendants, of course, used every aspect of the substantive and procedural law to advocate vigorously their case. And plaintiffs lost lots of cases.
But then plaintiffs began to win cases, there were some key substantive law decisions, many states changed their statutes of limitation, so the statute didn't start to run until you discovered the injury and plaintiffs' attorneys who brought those first successful cases, learned something very important that has colored all of tort litigation since. And that is the way for plaintiffs, who, generally speaking, have fewer resources than large corporations to succeed in litigation against corporations, is for attorneys to identify many, many claimants who have the same type of claim, arguably identical, similar, etc., and to bring those claim en masse, and when you bring those claims en masse, you change the risk profile between plaintiffs' attorneys and defendants.
Plaintiffs' attorneys who learned that lesson early became the successful leaders of this litigation. And once they learned that lesson, of course, they needed to find more plaintiffs and the way they found more plaintiffs was by helping unions and others support mass medical screenings to see who actually showed signs of exposure. Once those people came forward with signs of exposure, arguably in injury, arguably the statute of limitations started to run and they had to bring those cases.
Since it was a small number of firms that learned these lessons fast, a small number of firms came to represent a very large proportion of plaintiffs in most parts of the country.
Much of the litigation was concentrated initially in jurisdictions where there had been a heavy exposure, jurisdictions, for example, was shipyards, judges tried to get their arms around that litigation and they used the tools of case management to do that. Defendants, looking at their litigation costs in the late 70's and early 80's tried to come up with programs that would restrict their litigation exposure risk and offered settlements that reduced their own litigation costs.
And as the first bankruptcy trusts came on line, as I have already said, the bankruptcy trusts tried to control transaction costs, because that was in the interests of the trustees and the beneficiaries of the trust and so we had a set of efficiency efforts and they were successful and they did reduce transaction costs somewhat and they made it a lot cheaper to bring more litigation and in our American free enterprise system, plaintiffs' attorneys got that message and began to bring more litigation.
The number of law firms with large caseloads of asbestos think of these, these are product liability claims, allegedly very complicated claims to bring. This chart shows you the number of firms with 100 or more new filings. That number of firms began to grow as other people, other firms began to see that this was a litigation in which you could represent people who arguably needed compensation and you could make a considerable amount of money doing so.
Well, by the 1990's, courts and parties and plaintiffs' attorneys have learned that the way you deal with this kind of litigation is to do so-called global settlements. And, so, not surprisingly, the courts and the defendants and at least some of the leading plaintiffs' attorneys tried to achieve those settlements under the rubric of multi-district litigation in the federal courts and ultimately under rule 23. And those attempts to do global settlements failed and failed most spectacularly when the U.S. Supreme Court overturned two settlements that had been seen as models for perhaps bringing about a resolution of this litigation.
And during this period, as federal courts began to act to collect these cases, okay, and when it became clearer that the federal courts were not going to succeed in resolving the cases, filings moved out of the federal courts, where about half of the cases had been during the 1980's, into the state courts.
And so today, although we are sitting here in Washington talking about this litigation, this is primarily state court litigation.
State courts adopted different procedures, different interpretations of substantive law, different interpretations of venue rules that had effects on asbestos litigation and, not surprisingly, in our federal system where plaintiffs' attorneys get the first shot of where to bring their case, the cases move to states that were perceived as being the most jurisdiction and to venues within those states that were seen as being most favorable to plaintiffs.
Obviously, defendants get their shot at deciding jurisdiction, they can try and remove cases and they have and they did, but in general this litigation has become increasingly state court litigation through the combination of substantive and procedural rules and judicial practices.
As state courts found themselves facing lots and lots of cases, they use the same tools that the federal courts had used earlier, they used judicial case management, which includes the ability to consolidate cases for pre-trial and sometimes for trial and to handle them as if they were all one humungous thing. And these efforts by judges were often pointed at trying to get control of their own caseload and ignored the effects that they were having on litigation dynamics, which was namely to grow the litigation and the effects more controversially on outcomes which defendants, at least, argue is that the risks to the defendant of facing these huge collection of cases is so great, that they settled the cases for more than the cases would be worth individually and, of course, that simply invites more litigation.
As the attraction of consolidation grew, okay, we had more and more consolidated trials. Now, people sometimes ask, how any trials have there been in this litigation, you are telling us about hundreds of thousands of claims, did any of them ever go to trial. We have actually been trying to track what has been happening at trial as part of the Rand study. You have about 1,600 plaintiffs whose cases actually reach trial in this period 1993 through 2001, this is when we have a good database for doing that because about two-thirds of those claims were tried in groups. Those 1,600 plaintiffs actually represent 527 trial verdicts, verdicts that cover multiple plaintiffs.
Now, this whole question of consolidated trials has attracted a lot of attention in the last few years. I think it is important to note that when I say two-thirds of claims were tried in groups when we look very carefully at the data, what we see is that mostly these are small numbers of plaintiffs. These are four plaintiffs, six plaintiffs, who cases arise out of the same work site and these are not class action trials. There are no absent plaintiffs involved. The jury is being asked to decide the fate of the plaintiffs before them. However, when a jury is looking at a set of plaintiffs whose injuries are different from each other, those - the injuries of one plaintiff may shape the jury's sense of what is gin got happen to another plaintiff. And so we may get verdicts that are different that the verdicts we would have gotten if those plaintiffs were tried individually. Some plaintiffs may be at a disadvantage as a result, and defendants may be at a disadvantage. And, in fact, we could have both things going on in the same trial.
Now, it is the very large trials that have attracted attention. So, far we have really just found sixteen of these during the period, just, I say in quotes, because sixteen is a small number, but altogether it looks like these were procedures that were intended to bind close to 60,000 plaintiffs. Those trials had different outcomes, including some cases that were consolidated and then dismissed and in the report that we are currently working on we will have more to say about those.
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