In a small, hot room in US Claims Court here, the government is fighting what could become its most expensive case ever. It's a sleeper of a case, involving only $380,000. But it could eventually cost the government more than $25 billion and expand government liability for future contracts.
Last week, Manville Corporation, the largest asbestos maker in the United States, and the Justice Department presented closing arguments about whether the government should recompense Manville for money it paid to victims or relatives of asbestos victims.
Manville's case involves only 15 victims who were exposed to asbestos during World War II. But at least six other asbestos companies have similar suits in the wings, which can begin after the judge hands down a decision in mid-August. These suits cover the period of World War II to the 1970s and may eventually involve tens of thousands of victims.
There have been 50,000 to 60,000 suits filed against the industry, and the number is expected to reach 100,000. About half of those suits are brought by people who worked at shipyards owned or operated by the government. Asbestos was used to insulate ships during the war.
Over the years, the average successful claimant has received $106,000 in damages from asbestos companies. If the current cases are also settled for that amount, that's about $5 billion in damages industy-wide, about half of which would go to current and former shipyard workers. Who pays that bill is a matter of intense interest to the industry and the government.
Even the $2.5 billion figure is ``conservative,'' says Richard Fiesta with the House subcommittee on labor standards. In 1985, the Government Accounting Office, based on estimates from the Justice Department, figured that asbestos victims would have $25 billion in claims against the government by October 1987. Given the pace of suits being brought - about 1,500 a month - the government may be looking at an even larger bill, Mr. Fiesta says.
The sheer size of the liability - surpassing the claims of Agent Orange victims and perhaps those of Japanese displaced during the war - makes the red-brick US Claims Court building the eye of a major legal and economic storm. Here's the case, in a nutshell.
During World War II, Manville sold the government asbestos, which was widely used until the 1970s, to insulate naval vessels. Manville claims, among other things, that the government wrote specifications for the production and use of the asbestos, allowed slipshod working conditions, and thus was responsible for the workers' illnesses. And that, the company says, makes the government liable for the $380,000 Manville has already paid to the 15 victims. (These 15 actually represent 54 World War II victims, who have received $1 million in damages.)
One of the victims testified on the opening day of the trial, May 4, that his job was to carry asbestos from the warehouse to the engine rooms and other areas where the insulation was installed. He said asbestos dust was thick but he was never told to wear a respirator.
The government counters that Manville was well aware of the working conditions since its sales representatives visited the shipyards regularly. It also maintains that Manville had ``superior knowledge'' of the harmful effects of asbestos, that the government's specifications were based on the best information the government had about the product, and that the specifications were heavily influenced by Manville. Therefore, the government has no liability, the Justice Department concludes.
There are only two ways to sue the government. One is through the Federal Torts Claims Act. Asbestos companies have tried that avenue, but have failed so far. So Manville, which pioneered new uses of the bankruptcy code by becoming the first healthy company to file for Chapter 11, is again charting a new course in the courts. It is going to the claims courts, saying the government breached its contracts by failing to disclose it was not complying with its own occupations health policies, and that the government should share the damages under the theory of ``mutual mistake.''
Other asbestos manufacturers are watching the case like a hawk.
UNR, which went into bankruptcy in 1982 because of 20,000 asbestos suits against it, and Eagle-Picher, have filed a similar suit, which the judge has limited to cover suits filed by shipworkers after 1958.
That suit will be heard after, and undoubtedly influenced by, the Manville decision. After that, Keene (a subsidiary of Bairnco) and GAF will get their day in court, covering the period after the war through 1958. Two other companies, Fibreboard and H.K. Porter, have also said they will sue the government.
If Manville is successful, ``it opens the way for Manville and other companies to recover damages for all the other cases against it,'' says James J. White, a law professor at the University of Michigan. ``The courts would be doing what Congress has refused to do, have taxpayers take over this liability.''
Last year, Congress considered, but failed to pass, a bill creating a national compensation trust fund for asbestos and other victims of work-related diseases. The bill, which was supported by Manville and other companies, would have limited the liability of asbestos companies and had the government pick up some of the tab.
A favorable decision for Manville also would create ripples throughout the pool of government contractors, says Mr. White.
``Every time a faulty hand grenade goes off at a military base or a military plane crashes, you're going to have a third party [i.e., the government] defending,'' he says.