What is an Asbestos Bankruptcy Trust?

Asbestos Bankruptcy Trust

What is an Asbestos Bankruptcy Trust?

Asbestos is a mineral fiber naturally occurring and used in U.S.  products throughout the 20th century. Asbestos has been linked to several deadly diseases such as mesothelioma, lung cancer, and asbestosis. Due to a long latency period between asbestos exposure and disease development for asbestos litigation cases have continued for over decades. Many companies were forced into bankruptcy, and U.S. courts required those companies to set up a trust for victim compensation as a condition for granting bankruptcy. This article provides an overview of the asbestos personal injury trusts.

The origination of the asbestos bankruptcy trusts

In the 1970s, individual employees and their families brought lawsuits against companies that exposed them to toxic asbestos and the number of claims flooded the U.S court system. Roughly 730,000 people had filed asbestos-related lawsuits against companies that knowingly exposed their workforce to asbestos by 2002.

Close to 100 companies were driven to file bankruptcy. The courts ordered the companies to establish asbestos personal injury trusts to compensate those injured as a result of their past negligence. The order was made a condition of reorganization to emerge from bankruptcy.

In 1982, the Johns Manville Company set up the first asbestos trust. Almost 100 companies have declared bankruptcy with some asbestos liability, sixty of which set up trusts as ordered by the courts. These trusts hold over $18 billion in assets, with an additional $12 billion earmarked for trusts of companies still in the process of emerging from bankruptcy.

What is a trust?

A trust is a legal arrangement that allows a third-party, called a trustee, hold assets on behalf of beneficiaries. The asbestos trusts are created during the bankruptcy process and funded by companies going into bankruptcy. Once the trusts are funded, they become the sole source of compensation from the bankrupt companies for asbestos-related injuries.

How do the trusts work?

A company facing asbestos liabilities petitions the bankruptcy court for bankruptcy protection and reorganization. All lawsuits against the company are immediately stopped. After negotiation with the company’s creditors, the company submits reorganization plan to the court, which establishes and funds and independent asbestos personal injury trust. The trust will use the company’s assets to collect and pay all valid asbestos personal injury claims filed by the claimants with the trust. The reorganized company is shielded against all current and future asbestos-related liability.

A bankruptcy court determines the amount of money set aside for the trust based on expert testimony and examining past lawsuits and settlements.

Who oversees the asbestos bankruptcy trusts?

Independent trustees manage the trusts. Trustees evaluate the trust’s investments and expenses periodically and forecast an estimate of future claims. The trust’s payment percentage can be adjusted lower if it appears they may be in danger of expending their funds prematurely.

The trusts coordinate the claim processing by assigning liquidated values for various diseases, setting medical criteria for the different conditions, following prescribed review procedures, and establishing alternative dispute resolution processes to resolve disputes between the claimant and the trust.

What companies are represented by the trusts?

According to data published by the Rand organization, roughly 22 trusts represent the magnitude of the assets in trust and account for more than 99 percent of the claim payments.













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“Asbestos Bankruptcy Trusts, Rand Institute for Civil Justice”, RAND Corp., (2010). [link]
Dixon, L.S., McGovern, G., & Coober, A., “Asbestos Bankruptcy trusts: an overview of trust structure and activity with detailed reports on the largest trusts”, (2010). [link]
Dixon, L. S., & McGovern, G., “Asbestos bankruptcy trusts and tort compensation. Santa Monica, CA: Institute for Civil Justice”, (2011). [link]

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