Highlights of the 2nd Quarter 2001 Filing
Offers and Settlements
During the Second Quarter 2001, the Trust made over 7,000 offers, of which 4,700 were first-time offers. These offers cover claims received or reactivated through October 2000 and have FIFO numbers less than 445,001. At the end of March, due to the uncertainties concerning the Trust’s pro rata share (see below), the Trust temporarily placed on hold the issuance of new offers for claims with FIFO numbers greater than 445,000 pending the results of new pro rata share calculations. After consultations with, and interim consent from, the Selected Counsel for the Beneficiaries (“SCB”) and the Representative of Future Claimants (“Futures Representative”), on July 16th, the Trust resumed making offers (see Pro Rata Issues, below). For claims with a FIFO number less than 445,001 as well as exigent health and hardship claims received prior to June 20, 2001, a pro rata percent of 10% will be made. All other claims will receive a 5% payment.
In the Second Quarter, the Trust settled nearly 8,800 claims for total payments of close to $45 million. On June 30, 2001, due largely to the payment moratorium, the Trust had approximately 83,000 active, unsettled claims. Within the active unsettled claim population, 14% are claims with outstanding offers or denials and 86% of the claims require an action by the Trust. The large percentage of claims requiring a Trust action will be receiving offers now that the offer moratorium has been lifted. In addition to the active, unsettled claims, there are 44,071 deactivated claims where the offer or denial notice has now expired.
On June 30, 2001, the Trust had 3,818 claims which had not yet been assigned a Scheduled Disease Category. The Trust anticipates that these claims will be eligible to receive their first offer in the next month.
New Claim Filings
During the first six months of 2001, the Trust received 55,100 new claims, which is 165% greater than the 20,800 claims received during the comparable six month period last year. This compares to 59,200 claims filed during the twelve months of 2000. As of June 30, 2001, the Trust had received a total of 542,700 claims. Of that number, approximately 39,600 claims were permanently disqualified from processing (for such reasons as the claims were duplicates, the claim had been withdrawn, etc.). Two charts are attached. Chart 1, Total POC Filings by Month, May 1998 – June 2001, compares monthly claim filing volumes over time. Chart 2, POC Receipts Rolling Two Year Average, shows increasing claim volumes over time by calculating a two-year average at the close of each new month.
A small number of law firms account for a majority of the claim filing activity conducted by the Trust. Of significance, twenty (20) law firms filed 80% of the 55,100 received during the first six months of this year. Of these twenty firms, five (5) filed 45% of the total. The same concentration applies to unsettled claims although some of the firms are different. As of the end of June, 338 firms represented the 83,360 unsettled Manville Trust claims, but only ten (10) firms represented 55% (46,120) of all unsettled claims.
As of the end of June, there were 44,070 claims for which offers had expired. Of those claims, 75% were evaluated as TDP Category 0. This represents just over half of all offers that have expired since the program began. Other claims for which offers had expired have been reactivated and reentered the settlement process, or claimant accepted the expired offer.
PRO RATA ISSUES
Pursuant to the Courts’ decision in In re Joint Eastern and Southern Districts Asbestos Litigation (Findley v. Falise), 878 F.Supp. 473, (E. & S.D.N.Y. 1995), aff’d in part, vacated and remanded on other grounds, 78 F.3d 764 (2d Cir. 1996), the Trust is required to undertake a re-estimation of the pro rata share (presently ten percent of liquidated claim value) at least every three years. As previously reported, the Trust was scheduled to perform such a re-estimation during the last quarter of 2000. However, this turned out to be an inopportune time for a pro rata re-estimation. Among other things, the Trust was negotiating the sale of its Johns Manville Corporation stock, by far its largest asset; it was preparing to try a lawsuit seeking substantial damages from certain cigarette manufacturers; and it was experiencing a very large increase in claim filings. As a result, with the consent of the SCB and the Futures Representative, the Trustees postponed the pro rata share re-estimation to June 30, 2001.
In light of increased claim filings during the second half of 2000 and the first and second quarters of 2001, the Trustees decided on June 19, 2001 to reduce the pro rata share from 10% to 5%. Although the SCB and the Futures Representative have not given their required consent to this pro rata reduction and have until August 6th to do so, the SCB and the Futures Representative have consented to the Trust making interim 5% pro rata payments without relinquishing their rights to object to the pro rata reducton. In the event the SCB and the Futures Representative do not consent to the pro rata reduction, pursuant to the TDP, the parties will submit the matter to binding arbitration.
On June 29, 2001 the plaintiffs and the defendants in Falise v. The American Tobacco Co., et al., commenced in 1997, filed a Stipulation of Dismissal. The decision of the plaintiffs to agree to the dismissal of the case was based on a series of recent Appellate Court decisions that made approval of a trial verdict for the Trust by the United States Court of Appeals for the Second Circuit unlikely. After measuring the cost of litigation versus the likelihood of a favorable outcome, particularly at the appellate level, the Trustees determined that it was not in the best interests of the beneficiaries to pursue the litigation.
At the end of the Second Quarter, there were 241 pending claims in the Trust’s Alternative Dispute Resolution (“ADR”) program, as compared to 253 claims at the end of the First Quarter 2001. Some of these claims, however, were awaiting claimants’ position papers to be submitted to arbitrators and additional claims were awaiting claimants’ rebuttal statements to be submitted to arbitrators. Three law firms represent 45% of the pending ADR claims.
Individual Evaluation Process
While the majority of claimants settle their claims by accepting the Scheduled Value Offer, some claimants request Individual Evaluation (“IE”) if the claim does not meet the criteria of any of the seven Scheduled Disease categories or if they believe the claim has a value higher than the Scheduled Disease category. At quarter-end, the Trust had 760 outstanding requests for IE.
During the Second Quarter 2001, 903 claims were resolved through the IE process. Of those 119 claims were resolved by issuing a matrix offer following claimants’ submission of new information that qualified the claim for a higher Scheduled Disease. The Trust also issued 784 offers following individual evaluations – 148 with agreed upon values and 167 that were issued when an impasse was reached. An additional 469 claims that were initially denied because they did not meet the criteria of any of the seven Scheduled Disease categories, were denied again after individual evaluation, either for a lack of adequate medical documentation or for providing no evidence of an asbestos-related disease.
In the Second Quarter of 2001, the Trust received 196 requests for IE. Since the implementation of the IE program in March of 1996, a total of 7,972 claims have been resolved through this process.
Total operating expenses for the three months ended June 30, 2001 were almost $5.3 million compared to $5.9 million in the same period in 2000. Operating expenses for the three months ended June 30, 2001, excluding cigarette litigation costs, were $4.0 million compared to $2.5 million for the same period in 2000. The increase in non-litigation operating expenses between the periods is principally due to the Electronic Claims Filings project and consulting costs associated with the pro rata share re-estimation. The majority of the Electronic Claims Filings costs during the second quarter and going forward are for the development of computer software for filing, processing and payment of claims electronically. It is expected that these development costs will benefit future periods through reduced operating costs, but they have not been capitalized on the Trust’s financial statements. The system is scheduled for final testing in August and broader implementation on October 15, 2001.
During the three months ended June 30, 2001, because of the moratorium, the Trust paid 8,745 claimants approximately $45 million, plus $120 thousand for co-defendant and distributor contribution claims. For the same period in 2000, the Trust paid $61 million to almost 16,000 claimants and $7.9 million co-defendant and distributor contribution claims. Pending the result of the pro rata re-estimation, pursuant to the moratorium the Trust only made offers during the quarter for claims with FIFO numbers less than 445,000 and all exigent health and hardship claims. Since implementation of the Trust Distribution Process (“TDP”) in early 1995, the Trust has paid almost $1.5 billion to TDP claimants and settled over 347,000 TDP claims. For that period, operating expenses, excluding class action, tobacco litigation costs and JM asset management expenses, represent 4.2% of all claim payments. Since inception, the Trust has paid almost $2.7 billion to approximately 375,000 claimants.
As of June 30, 2001, the Trust’s total assets were approximately $2.2 billion, of which about $1 billion (47%) were invested in diversified equities and the remaining $2.2 billion (53%) in cash and fixed income securities. The Trust is slowly adding to its investment in equities to reach its targeted, long-term allocation of 65% of total assets. Despite the year to date overall decline in diversified equity values of about 7%, the Trust total diversified portfolio generated a small positive return of about 1% due to the large investment in fixed income securities.
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