Blue Asbestos and Golden Eggs: Evaluating Bankruptcy and Class Actions as Just Responses to Mass Tort Liability

Abstract

Mass torts give rise to complex legal questions and invidious moral choices. The asbestos litigation has shown that corporations manufactured asbestos decades after its dangers had been publicly recognised. Later, when faced with spiralling claims, firms in the US such as Johns-Manville were permitted to use bankruptcy procedures without proving insolvency thereby forcing tort claimants into a limited fund. In the late 1990s asbestos defendants sought wider powers to collectivise the claims through class actions although this attempt was ultimately unsuccessful. This article provides case studies of US firms and shows that similar strategies are now being adopted in Australia and the UK.

Certain privileges flow from bankruptcy such as the moratorium on claims and the right to distribute entitlements pro rata. However, in the context of mass torts these privileges have frequently led to under-compensation of tort victims, wealth transfers to shareholders and bewilderment about how to protect future claims. The article will explore these problems and consider how they may be ameliorated by effective monitoring.

Keywords: asbestos, mass torts, class actions, insolvency, corporate governance