Garlock’s Pending Deal May Reduce Future Amounts Required for Asbestos Trusts and Assist with Bankruptcy Transparency

Last year, Judge George Hodges, of the U.S. Bankruptcy Court for the Western District of North Carolina, ruled that $125 million was an adequate set-aside amount for Garlock Sealing Technologies’ (GST) asbestos claims. Asbestos plaintiffs had been originally seeking a set-aside of almost $1.3 billion. In an attempt to resolve the ongoing litigation, GST recently made an offer to set aside $358 million.

Concerns regarding the lack of transparency in the asbestos bankruptcy trust system have been prevalent amongst asbestos defendants for years. The concern stems from plaintiffs making claims against various bankrupt asbestos entities and then either excluding or limiting their exposure to asbestos from those entities while litigating against non-bankrupt defendants. In Judge Hodges’ controversial ruling on the set-aside amount, this issue was in the forefront. Judge Hodges indicated that there was evidence of plaintiffs downplaying other sources of their asbestos exposure while obtaining inflated settlements against GST.

What makes GST’s $358 million agreement noteworthy is that the previous trend has been for asbestos set-asides to be for multi-billions of dollars as opposed to multi-millions of dollars. If GST’s proposed settlement amount is approved, it could set a trend of lowering what is necessary by bankrupt entities to fund asbestos set-asides. It may also highlight even more that in order for there to be fair dealings in litigation and settlements, there needs to be transparency in the asbestos trust system. Transparency is required for both defending companies and the Courts to be allowed to have a more honest assessment of asbestos liabilities.

Congress has been on this issue as well. On January 25, 2015, The Furthering Asbestos Claim Transparency (FACT) Act of 2015 was introduced in the House of Representatives, where it was sent to the House Judiciary Committee for consideration. If passed, the bill would amend Title 11 of the United States Bankruptcy Code and require asbestos bankruptcy trusts to release information on those seeking compensation due to asbestos exposure in quarterly reports.

We will continue to monitor any developments, as the possible changes could have wide sweeping implications in defending and settling asbestos claims.

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