Insurance companies have joined the list of parties that want to pry open the records of secretive bankruptcy trusts that plaintiff lawyers set up to pay asbestos-related claims.
In a similar so-called subrogation action, insurers are preparing to sue
Once Pfizer pays the asbestos plaintiffs, the insurers say, their "rights to those funds will be substantially impaired.” Court dockets “contain only partial identifying information for each claimant,” making it impossible to “match these lists against their enrollment records.”
There is a bit of irony in this latest wave of demands. Defendant manufacturers have been trying for years to lift the veil covering bankruptcy trust records in order to show that people suing them for asbestos exposure have made conflicting claims against other companies, or are trying to collect money for smoking-related diseases like lung cancer. The health insurers, on the other hand, are taking the plaintiffs and their lawyers at their word and demanding trust records so they can recover the money they spent treating what the plaintiffs have said, frequently on penalty of perjury, are injuries stemming from their exposure to asbestos.
A Humana spokesperson said the firm doesn't comment on litigation. United Health didn't respond to my request for comment, and lawyers at Lowey Dannenberg, the lead firm in both cases, declined comment.
This isn't the first time health insurers have tried to assert their right to collect money paid to people covered by their policies. The U.S. Supreme Court upheld the principal with its 2006 decision Sereboff v. Mid-Atlantic, in which a self-insured company sued to recover some $75,000 in medical expenses it paid for the care of an employee injured in a car accident. Under the Employment Retirement Security Act, the court ruled, the company could sue for a piece of the employee's $750,000 legal settlement.
In their lawsuits over asbestos claims, the insurers cite ERISA and other federal laws that allow them to collect as much as double damages from "primary payers" that disregard their subrogation rights. The right stems from the insurance contract embedded in most plans, in which employees agree to reimburse their healthcare costs if they are also compensated through litigation.
“Given that plaintiffs represent a substantial proportion of the U.S. population, and that over 230,000 individuals have already received at least a partial payment from Pfizer since 2004, plaintiffs should have received tens of thousands of such notices," the insurers say in the expected Pfizer suit, which was submitted as an exhibit in the Quigley bankruptcy. "In fact, they have received only a handful."
Asbestos companies tried a similar tack in the 1990s, suing tobacco companies to recover the billions of dollars they paid out for lung conditions likely caused by smoking. Judges in Mississippi and elsewhere dismissed those claims, however.
Critics have long complained that plaintiff lawyers who drive companies into bankruptcy with asbestos claims also control the trusts that courts set up to pay their clients' claims. Most trusts keep claims secret, supposedly to protect the health records of claimants, and resist requests for information on what plaintiffs said caused their illness. Some trusts will pay claims based on the barest evidence of exposure to a company's products, such as work records showing a person once was employed at a facility identified in other records as having received asbestos-containing materials.
"There's at least one trust that where all you have to say is you worked at Penn State's main campus," said S. Todd Brown, an associate professor at State University of New York Buffalo Law School and expert on asbestos bankruptcy trusts. "It can be that loose for claims at some trusts."
Normally plaintiffs surrender their anonymity and privacy when they file a lawsuit, but secrecy crept into the asbestos-litigation business in the early 2000s when a single judge was handling almost 20 bankruptcies simultaneously, Brown said. Insurance companies that were footing most of the bills demanded proof that plaintiff lawyers had legal representation agreements with their plaintiffs (kind of important, as I reported earlier this week). But as they started turning over those records, high-volume asbestos firms realized that could unveil problematic details such as the fee-splitting arrangements that are common in this business.
Many asbestos claimants enter the system through a nationwide network of lawyers who advertise for plaintiffs and then hand them off to specialist firms in exchange for a piece of the ultimate fees. Ethical rules prevent fee-splitting, however, unless the referring firm performs meaningful legal work on the case.
"The larger firms said `Wait a sec, if we produce this it is going to be horrible for us,'" Brown told me. "This is going to be bad for our business model."
Plaintiff lawyers took a hit recently when a bankruptcy judge slashed the amount of money they were seeking in the Garlock bankruptcy, citing the "impropriety of some law firms" in submitting claims to bankruptcy trusts that conflicted with their claims in the gasket maker's bankruptcy. The judge allowed Garlock to conduct discovery on 15 settled cases, and discovered plaintiff lawyers had failed to disclose evidence in all 15.
Last year the House of Representatives passed the FACT Act, which would require asbestos bankruptcy trusts to disclose the names of claimants. It cannot get past the Democratic Senate or the president, however.
The Pfizer settlement included a deal with high-volume plaintiff firms Weitz & Luxenberg and Peter Angelos to pay $800 million, or some $20,000 per claimant before fees, to settle 40,000 claims.
In a surprising twist, one of the firms representing health insurers is Hagens Berman, best known for its class-action litigation and the epic 1997 tobacco settlement that continues to yield hundreds of millions of dollars a year in fees to the lawyers who negotiated it.
