NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Explaining the Flood of Asbestos Cases

"Legal innovations have worsened the asbestos crisis by making trial outcomes more favorable to plaintiffs and therefore giving plaintiffs' lawyers an incentive to file additional claims in the same courts."

Although asbestos has not been used since the 1970s, the number of asbestos personal injury claims filed each year has been increasing, rather than decreasing, over time. At least 600,000 people have now filed asbestos exposure claims. Eighty firms have filed for bankruptcy because of asbestos liability, including 30 since the beginning of 2000. Insurers have paid out approximately $32 billion in compensation to date and the total cost of asbestos compensation is projected to be between $200 and $275 billion, making asbestos the largest mass tort in U.S. legal history.

Explaining the Flood of Asbestos Litigation: Consolidation, Bifurcation and Bouquet Trials (NBER Working Paper No. 9362), Research Associate Michelle J. White finds that because most asbestos claims are filed in a small number of states and jurisdictions, judges in these jurisdictions have thousands of cases on their dockets. In response, they have developed new legal procedures intended to resolve large numbers of cases at once by encouraging mass settlements. These new legal procedures have changed trial outcomes in plaintiffs' favor. As a result, they give plaintiffs' lawyers incentives to file large numbers of additional cases in the same jurisdictions, thereby making the asbestos crisis worse.

One of the procedural innovations is consolidation, which involves trials of multiple claims before a single jury. Another is bifurcation, which divides the trial into liability and damage phases. After the first phase, trial judges direct the parties to settle and may become directly involved in the negotiations. Sometimes judges threaten that, if the parties do not settle, they will direct the jury to consider punitive damages. The third procedural innovation involves bouquet trials, in which a small group of cases is selected for trial from a much larger group. At the end of the bouquet trial, the judge directs the parties to settle the larger group of cases based on the template of the small group outcomes.

White finds that these legal innovations have worsened the asbestos crisis by making trial outcomes more favorable to plaintiffs and therefore giving plaintiffs' lawyers an incentive to file additional claims in the same courts. Using a dataset of asbestos trials from 1987 to 2002, she finds that bifurcation and bouquet trials increase plaintiffs' expected returns from trial from $636,000 to about $1.8 million, nearly a three-fold increase. In consolidation of up to seven plaintiffs' cases, plaintiffs receive between $200,000 and $305,000 more, an increase of 31 to 48 percent. These figures include both compensatory and punitive damages.

In the three most pro-plaintiff states -- Mississippi, West Virginia, and Texas -- which have become centers for asbestos litigation, the expected return from trial is $1 million to $2 million higher than in the other states.

-- Les Picker


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