Highlights of the 3rd Quarter 1999 Filing
CONTENTS:
FINANCIAL SUMMARY
OPERATIONS ISSUES
Individual Evaluation Process
New Claim Filings
LEGAL ISSUES
ASSET MANAGEMENT ISSUES
For the three months ended September 30, 1999, Trust operating expenses, which excludes the expenses of managing the Trust’s investment in the Johns Manville Corporation (“JM”), were $3.6 million, compared to $2.7 million for the same period in 1998. The increase is principally due to professional fees associated with ongoing tobacco litigation (see Legal Issues below). The JM asset management expenses were approximately $550,000 during the three months ended September 30, 1999 compared to $123,000 for the same period in 1998. The increase was due to investment banking, legal and other expenses associated with the Trust’s strategic review of its investment in JM.
During the quarter ended September 30, 1999, Net Claimants’ Equity decreased by approximately $252 million, principally due to the decrease of approximately $150 million in the market value of JM stock held by the Trust, the increase of $72 million in outstanding claim offers and $96 million for the settlement and payment of claims. During the Third Quarter, the Trust had non-JM investment income of approximately $10 million, JM dividends of $7 million and a gain on the sale of JM stock of $63 million (see Asset Management Issues below).
The Trust settled 27,142 and 46,977 TDP claims for the three and nine months ended September 30, 1999 respectively, compared to 6,816 and 19,527 claims for the same periods in 1998. Total payments to settled TDP claimants were $169 million and $85 million for the nine months ended September 30, 1999 and 1998, respectively. In addition, $5 million was paid toward contribution and indemnity claims in the first nine months of 1999, versus $11 million for the first nine months of 1998. $96 million of TDP claims during the three months ended September 30, 1999, was paid because of the settlement of the Adams litigation. Since the implementation of the Trust Distribution Process (“TDP”) in early 1995, the Trust has paid almost $943 million in TDP claim payments and settled 211,000 claims. Excluding dispute resolution and asset management costs, operating expenses of the Trust from early 1995 through the third quarter of 1999 represent 4.7% of all expenditures (including claims payments).
On the Trust’s behalf, the Claims Resolution Management Corporation (“CRMC”) completed the Preliminary Doctor Audit pursuant to the Adams Settlement. Seven doctors were chosen for audit. Their selection was based primarily on a previously established poor pass record when x-rays were submitted for independent B-reader review. Seven hundred claims were randomly selected for review (100 per doctor), with firms representing those claims given 30 days to supplement the claim. Under the terms of the settlement, any physician could “pass” the audit, (regardless of previous x-ray audit results), by providing additional medical corroboration or sufficient co-defendant settlement amounts. The results of the Preliminary Doctor Audit were announced to plaintiff counsel on August 17, 1999. As all seven doctors met the requirements of the Retrospective Audit by providing the required supplemental information concerning medical corroboration or co-defendant settlements, there will be no further audit of the Retrospective claims.
Approximately 53,000 claims were held pending the outcome of the Preliminary Doctor Audit. These claims include 43,928 claims valued at $136,256,376 and 9,800 denials. CRMC began issuing offers on those claims in August 1999, and will have issued all those offers by the end of October 1999.
The Adams Settlement also allows for supplemental payments for claims that were downgraded as a result of the CXR Submission Policy and which settled after August 20, 1998. CRMC has identified 1,335 claims which are due a supplemental payment. Such payments will be made significantly prior to the deadline established in Adams.
During the past quarter, the CRMC staff has examined tens of thousands of claims to ensure appropriate and prompt handling of claims in accordance with the Adams settlement provisions and deadlines, and expects to work constructively with the SCB and their designees in designing efficient and effective Prospective Audit policies.
A summary of the status of the Trust’s unsettled claim population is provided in the chart below:
|
30-Sep-99 |
|
| Unmatrixed Claims |
17,851 |
| Queued for Offer/Denial |
14,442 |
| Offers Outstanding |
57,295 |
| Denials Outstanding |
7,329 |
| ADR WIP |
839 |
| Individual Evaluation WIP |
2,622 |
| Other WIP |
10,221 |
| Total Unsettled Claims |
110,599 |
| Deactivated Claims |
30,556 |
| Previously Settled Claims due Supplemental Payment |
1,335 |
In the Third Quarter of 1999, 601 claims were resolved through the Individual Evaluation (“IE”) process. Resolution of claims which have requested individual evaluation, can occur in a number of different ways, and do not always result in an offer of an individually evaluated amount. Below is a table summarizing the disposition of claims which completed the Individual Evaluation process during the Third Quarter.
| Withdrawn from IE |
338 |
The majority were recategorized as a result of the Adams Settlement. The remainder provided new medical information sufficient for the claim to be categorized. | |
| Accepted Offer |
$11,700,000 |
137 |
Claim value was individually negotiated. |
| Last Best Offer |
$8,835,000 |
72 |
When agreement as to claim value is not reached through negotiation, the Trust issues a “Last Best Offer” and the claimant has the option of accepting the offer by cashing the offer check, or proceeding to ADR. |
| Denied |
54 |
Denied primarily for vague medical reports that did not fulfill the requirements of the TDP. Claimant can arbitrate the Trust’s denial. | |
| Total |
601 |
Total for 1999 to date: 1,827 | |
Last best offers and denials can, of course, proceed to arbitration (see Legal Issues below), but most do not. In many instances, last best offers are accepted and denials expire due to non-response. At quarter-end, there were 2,622 pending requests for IE (as compared to 3,259 at the end of the Third Quarter of 1998). Of those, 476 were in negotiation, and the remainder are in queue awaiting assignment to one of the five staff negotiators. The current wait from request for individual evaluation to assignment to active negotiation is approximately 18 months, and has been steadily declining over the past two years.
During the Third Quarter of 1999, approximately 9,350 new Proofs of Claim (POCs) were received; this represents the highest quarterly filing rate in either 1998 or 1999. Nine-month filing volume is 23,000, and 32,700 total new claim filings are projected for 1999. As of September 30th, the total number of claims filed since the Trust’s inception was over 419,000. Recent monthly filing patterns are depicted on Chart 1, titled “Total POC Filings 1996-1999.”
As of the end of the Third Quarter of 1999, voided or disqualified claims totaled 37,500, including over 20,000 filed by Maritime Asbestosis Legal Clinic (“MALC”), and are virtually unchanged from the end of the previous two quarters. The MALC claims are being refiled under the terms of a settlement agreement terminating litigation concerning their claim filings’ inadequate documentation, credibility and reliability. To date the Trust has received nearly 2,200 MALC revised filings to replace previously disqualified claims.
At the end of the Third Quarter the number of expired offers had declined slightly, to 30,600, from 31,700 at the end of the Second Quarter. About 80% of the expired offers were Category Zero offers (denial or deficiency notices). Our experience is that about 36% of all claims with expired offers are revised and eventually reactivated.
Pursuant to orders issued by Magistrate Judge Steven M. Gold, discovery in the litigation filed by the Trust against seven tobacco manufacturers continued during the Third Quarter. CRMC legal staff continues to take the lead in responding to the defendants’ discovery requests, and is assuming a greater role in this litigation.
The Trust has been served with a Complaint naming it as a co-defendant in a dispute over attorney fees. A number of Mississippi attorneys disagree as to how they should split attorney fees resulting from their former alliance through which they represented several thousand asbestos personal injury claimants. The Trust has made initial pro rata payments to many of those claimants through the Scruggs, Millette, Lawson, Bozeman & Dent law firm (“the Firm”), which agreed to hold all attorneys’ fees in escrow until the fee dispute was resolved, and also agreed to indemnify the Trust from any liability on account of claims to any attorneys’ fees. On behalf of himself and other attorneys, Wm. Roberts Wilson has sued the firm and others for alleged failure to properly distribute or account for the escrowed fees. (Wm. Roberts Wilson, Jr., et al. v. Richard F. Scruggs, et al., No. 99-2215, Chancery Court, Jackson County, Mississippi.) Wilson has also named numerous asbestos defendants, including the Trust, in the suit. The basis for a cause of action against the Trust is unclear from the Complaint, inasmuch as the Complaint refers to numerous exhibits which were not served with it. The exhibits are purportedly under seal based on an Order of another Mississippi court. The Firm has moved to dismiss the action on the grounds that it is duplicative of an action that has been pending for more than five years in another county. The Trust has retained Mississippi counsel to defend this action.
The CRMC General Counsel’s office continues to provide legal analysis and advice with respect to the legal issues that have arisen as a result of the settlement in the Adams litigation, and the post-Adams legal environment. As a result of the settlement, alternative dispute resolution activities have decreased, but it is too early to determine whether that is only a temporary phenomenon.
As of September 30, 1999, total investments were approximately $2.6 billion with the Trust’s holdings of Johns Manville Corporation (JM) common stock comprising about $1.5 billion (58%) of the portfolio, based upon the September 30, 1999 closing price of $13.125. Equities as a whole, including JM common stock, were approximately 67% of the portfolio, above the current long-term target of 60%, but below the 70% ceiling adopted by the Trustees. Notwithstanding the payment of $175 million in claims during the first nine months of this year, at the end of the third quarter the diversified, unrestricted portion of the portfolio (excluding JM stock and restricted assets) totaled over $1 billion, with nearly $325 million in cash and cash equivalents. In large part, the strong cash position is the result of the sale of JM stock and debt back to the company that was reported to you in my letter accompanying the Trust’s second quarter financial statements. These monies are readily available to pay the $178 million in outstanding offers plus new offers to be made during the remainder of 1999 and into the year 2000. The remaining approximately $710 million in non-JM investments are largely in diversified fixed income securities ($503 million) and diversified equities ($207 million). The Trustees remain committed to enhancing and preserving the Trust Estate as we continue to resolve and pay claims as equitably, rapidly and efficiently as possible.
Finally, it is with great regret that the Trustees report that Patricia G. Houser, who has been with the Trust since 1987, has served as Executive Director of the Trust for eight years, and has been the President of the CRMC for the past year, is leaving the CRMC at the end of this year. A national search for her replacement is in process, and will be completed as soon as possible. Ms. Houser has agreed to assist the Trust and the CRMC in any way required to ensure a smooth transition to a new President.
To obtain a complete copy of the quarterly filing, please contact Manville Trust in care of: inquiry@claimsres.com.