Highlights of the 3rd Quarter 1997 Filing
CONTENTS:
FINANCIAL SUMMARY
OPERATIONS ISSUES
Settlement Activity
Medical Audit Program
Individual Evaluation Process
New Claim Filings
LEGAL ISSUES
ASSET MANAGEMENT ISSUES
Trust Operating and Dispute Resolution expenses for the nine months ended September 30, 1997 were $7.0 million, compared to $6.0 million for the same period in 1996. Operating expenses in 1996 were reduced by approximately $300,000 due to the Trust’s collection of a contempt of court proceeding against an attorney brought in 1991. The receipt of the judgment was credited against professional fees because the litigation costs were originally charged to professional fees during the prior periods when they were incurred. The net increase of Trust Operating expenses over 1996 of approximately $700,000 is attributable to an increase in staffing, principally senior staff, an increase in general legal fees and one-time purchases of computer hardware and software as the Trust upgrades its computing capabilities.
Total Trust expenses for the first nine months of 1997 were $7.5 million compared to $8.2 million for the same time period in 1996. The decrease in total Trust expenses is principally due to the elimination of Class Action costs in 1997, compared to $1.2 million of such costs in the same period in 1996. In addition, JM Asset Management costs are about $500,000 less in 1997 because the Trust completed the work on the Profit Sharing Exchange and sale of Riverwood International Corporation during 1996. Since implementation of the final Trust Distribution Process (approximately January 1, 1995) total Trust operating costs, including JM Asset Management and Class Action costs, have represented approximately 4.5% of total claim payments compared to 11.8% since the inception of the Trust to date.
Net Claimants’ Equity increased for the first nine months of 1997 by almost $92 million, principally due to an unrealized gain (for the 12th consecutive quarter) in the Johns Manville Corporation (JM) securities of approximately $90 million and investment income of $62 million, less claim settlements of $120 million partially offset by a reduction in outstanding offers of $55 million for a net reduction of approximately $65 million. Claim payments during the period were $120 million. The Trust’s investment income increased $24 million for the first nine months of 1997 compared to 1996 and included unrealized gains in equity securities in excess of $22 million, exclusive of JM investments.
As of September 30, 1997, the Trust had approximately $948 million in unrestricted cash equivalents and marketable and fixed income securities, exclusive of the Trust’s investment in JM securities ($1,477 million).
Throughout 1997, settlement rates have averaged almost 2,800 claims per month, and through the end of the first nine months of the year, approximately 25,000 claims have been paid a total of approximately $120 million. When compared to the very high settlement rates in 1995 and 1996 (4,500 settlements per month over the two year period), settlement rates have decreased due to the large percentage of claims that now require the submission of an x-ray prior to an offer being made as a result of the Trust’s medical audit program (see Medical Audit Program below), and the substantial lack of response to those requirements.
As it has for all claims since the full implementation of the medical audit program in late 1994, prior to making new payment offers, the Trust audited a 5% random selection of claims within the FIFO range 256,001 through 271,000 (the 15,000 claims filed from August 1995 through April 1996). The results of that audit were then used to determine which claims would require submission of additional documentation prior to making an offer, and which claims would be immediately released for payment. The audit results discussed below apply only to this limited FIFO range.
- Of those 15,000 claims, 10,727 claimants represented by 48 firms were subject to random audit. (An additional 2,700 claims are represented by firms with populations considered too small for a comprehensive audit, or were claims already in medical audit for reasons other than the random sample process. If the firm had already established a medical audit record in previous quarters, their claims are paid based on the firm’s prior period medical audit status.) Approximately 2,000 claims within the relevant FIFO range were either already settled or had been deactivated.
- At this time, 10 firms representing 2,383 claimants in the FIFO range submit to random audit have adequate response and pass rates for their claims to be released for immediate payment. For the population being audited, the average pass rate is 93%. NOTE: The Trust requires a 90% response rate and an 80% pass rate to have all claims released for imediate payment.
- Currently, the medical audit status of 8 firms representing 1,550 claimants in the eligible FIFO range is still pending. These firms submitted their responses after the deadline and their responses are being evaluated.
- Thirty firms of the audited group have inadequate response and/or pass rates and, therefore, all the claims represented by those firms must send either an x-ray, corroborating medical reports or evidence of sufficient co-defendant settlements prior to the Trust sending an offer. These firms represent 7,345 claimants, or approximately 50% of the claimants in the eligible FIFO range. Certain malignancy claims (Category 5 and Category 7) will be released without further audit. Currently, the average response rate for these firms is 75% and the average pass rate is 44%.
- It should be noted that approximately 2,000 of the claims in this FIFO range have been placed in medical audit as a result of the Trust identifying two physicians whose cumulative pass rates are sufficiently poor as to have resulted in automatic audit for any claim using them as the diagnosing physician. Virtually all of these claimants are represented by firms already subject to 100% medical audit.
Through the end of the 3rd Quarter of 1997, the Trust has identified approximately 53,000 claims out of the FIFO range from 1 to 271,000 for which, because of the firms’ medical audit record, a response to medical audit is required prior to an offer being made. Despite this large number of claims currently eligible for offers, very few firms have submitted the additional material. A total of 19 firms represent 74% of those claims and the Trust is in active conversations with representatives of those firms to encourage them to submit the required documentation.
During the 3rd Quarter, the Trust received a total of 198 requests for Individual Evaluation (“IE”). During that period, 21 claims were withdrawn from IE when sufficient new information was submitted to allow re-matrixing of the claim; 75 were withdrawn with a request for a reissue of their matrix offer; 40 were settled through negotiation; 47 were negotiated and the Trust issued its last, best offer; and 68 were denied as having no value. During the quarter, therefore, there was a net decrease in the IE queue of 53 claims. There are currently 3,789 pending requests for Individual Evaluation. An additional negotiator was recently assigned to the Individual Evaluation staff, and the current complement of five negotiators and a supervisor have approximately 370 claims in active negotiation. As we have previously reported, firms have been slow to respond to the negotiation process, and the Trust’s outstanding written offers have an average Claimant response time of over 80 days. With this pervasive problem, settlements are moving more slowly than we would like, especially since only eleven law firms represent the vast majority (70%) of the claims in the IE queue.
Approximately 7,300 new claims were filed during the 3rd Quarter of 1997, bringing the total number of claims received to date by the Trust to about 360,000. Approximately 16,300 new claims were received during the first three quarters of 1997 and the Trust estimates total filings of 25,000 in 1997. This is approximately half the number of claims received during 1996. Unusually however, and for unascertainable reasons, approximately 50% of the claim receipts last year were received in the last quarter.
During this quarter, the number of claims eligible for settlement declined from approximately 138,300 to 136,400, as settlements and deactivations exceeded new claim receipts. Two charts are attached. Chart 1, titled, Qualified POC filings, 1994-1997, shows monthly claim filings excluding void, deactivated and disqualified claims. Chart 2, which is a more accurate depiction of Trust-wide workload, encompasses all claims filed with the Trust, is titled, Total POC Filings, 1994-1997, and includes all claims received and processed by the Trust. A review of either of these charts shows how similar this year’s claim filings are to filings in 1994.
During the third quarter, Alternative Dispute Resolution (“ADR”) claims continued to grow. For the eight month period ending August 31, 1997, the Trust received an average of twenty-nine (29) ADR requests per month. While there may be some diminution in ADR requests through the fourth quarter as a result of the Trust’s suspension of offers during the first and second quarters of 1997, there is no indication that the disputes which have driven the ADR program during the past year have changed in a way that would materially affect the rate of requests. As of the end the third quarter, 157 ADR position papers were at various stages of drafting by either the Trust or Claimant’s counsel. Two temporary lawyers to assist with the increased ADR caseload have been hired.
A substantial amount of the Legal Department’s time has been devoted to litigation matters. During June two identical suits were simultaneously filed with the United States District Courts for the Eastern and Southern Districts of New York (a total of four separate law suits). against the Trust and its Trustees by clients of the Maritime Asbestos Legal Clinic (MALC) who had filed Proofs of Claim (POC’s) with the Trust (the Valles Actions). On that same date two other identical suits were simultaneously filed with each of the above-noted courts against the Trust and its Trustees by clients of MALC who had not yet filed POC’s with the Trust (the King Actions). Among other things, the Valles Actions allege the defendants wrongfully disqualified the Valles plaintiffs’ claims and the King Actions allege the defendants wrongfully refused to accept for processing the Kingplaintiffs’ claims. The suits are now pending before the Honorable Jack B. Weinstein. During August the Trust filed motions to dismiss the complaints, the Trustees filed answers in both actions, and the Trustees filed a third party complaint against Leonard C. Jaques (Jaques) and The Jaques Admiralty Law Firm, P.C. a/d/b/a MALC (hereinafter MALC) in both the Valles Actions and the King Actions. The Trust and Trustees deny these allegations and will vigorously defend these suits. The plaintiffs in the King and Valles actions filed their oppositions to the Trust’s motions to dismiss and during October MALC and Jaques filed answers to the third party complaints and Jaques filed motions to dismiss the third party complaints in both actions.
The Legal Department continued to address a variety of matters related to Codefendant contribution claims, including exploring various options to address the processing and other issues presented by claims filed by multiple co-defendants and trying to reach agreement on an appropriate form of release.
The Trust is also vigorously attempting to secure a means by which to best protect the unique interests of asbestos claimant’s who smoked under the proposed national tobacco settlement being considered by Congress.
As of September 30, 1997, the Trust’s allocation of its investments by sector was as follows:
|
Market Value (Millions) |
L/T TargetAllocations |
||
| Equity in Johns Manville |
$ 1,459 |
59% | |
| Diversified Equities |
$ 156 |
6% | |
| Subtotal – Equities |
$ 1,615 |
65% |
60% |
| Fixed Income Investments |
$ 878 |
35% |
40% |
| Total Investments |
$ 2,493 |
100% |
100% |
The Trust’s long-term target allocation to equity remains at 60% of total investments and the actual allocation to equities of 65% remains below the Trust’s internal investment ceiling of 70%. Since 1991, the Trust has diversified its total portfolio by reducing the part represented by JM securities by more than one-third from over 90% of the total portfolio under 60%. In order to better match anticipated cash requirements and make the portfolio more efficient, the Trust is continuing to reallocate fixed income investments into different markets and extend the duration of these investments. The Trustees, and their staff and outside investment advisers, are continuing to monitor the total portfolio and advise the Trust’s investment strategy and tactics in anticipation of and response to changing conditions.