Highlights of the 1st Quarter 2001 Filing
Operating expenses for the three months ended March 31, 2001, excluding litigation costs for the trial that was conducted during this quarter, were $3.4 million compared to $2.6 million for the same period in 2000. The increase in non-litigation operating expenses between the periods is principally to due the Electronic Claims Filings project discussed below. The majority of these costs during the first 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, though they have not been capitalized on the Trust’s financial statements. Total operating expenses for the quarter ended March 31, 2001 were almost $6.4 million compared to the first quarter of 2000 expenses of $6.0 million.
On February 26, 2001 the Trust received over $1.4 billion as a result of its sale of the remaining shares of Johns Manville Corporation (“JM”) common stock which includes $90 million for assuming JM’s statutory and contractual obligation to pay the Trust’s future income taxes. As a consequence of the tax agreement, the Trust recorded a provision for income taxes of $725,000 based on its income from the closing of the sale of JM through the end of the quarter.
During the first quarter 2001, the Trust paid over 25,600 claimants approximately $107 million, plus $1.1 million paid for co-defendant and distributor contribution claims. During the same period in 2000, the Trust paid almost $70 million to over 17,000 claimants and $1.2 million co-defendant and distributor contribution 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 338,000 TDP claims. For that period, operating expenses, excluding class action, tobacco litigation costs and JM asset management expenses, represent 4.1% of all claim payments. Since inception, the Trust has paid over $2.6 billion to claimants and as of March 31, 2001 had approximately the same amount of asset as it had at its inception, namely, $2.2 billion (See Asset Management).
During the First Quarter 2001, the Trust made nearly 19,164 offers, of which 16,539 were first time offers. These offers cover claims received or reactivated through October 2000. These claims have FIFO numbers less than 445,000. 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. The Trust is continuing to make offers on exigent health and hardship claims, and claims with FIFO numbers less than 445,000.
In the First Quarter, the Trust settled nearly 25,600 claims for total payments of close to $107 million. The average settlement amount was $4,164. On March 31, 2001, the Trust had approximately 63,000 active, unsettled claims. Within the active unsettled claim population, 27% are claims with outstanding offers or denials and 73% of the claims require an action by the Trust. The large percentage of claims requiring a Trust action is due to the new offer moratorium. In addition to the active, unsettled claims, there are 43,037 deactivated claims where the offer or denial notice has now expired.
On March 31, 2001, the Trust had 10,950 claims which have not yet been assigned a Scheduled Value Category. The Trust anticipates that these claims will be eligible to receive their first offer in the next few months.
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 Value categories or if the claimants believe the claim has a value higher than the Scheduled Value. At quarter-end, the Trust had 1,427 outstanding requests for IE.
During the First Quarter 2001, 654 claims were resolved through the IE process of which 100 claims were resolved by issuing a matrix offer as a result of new information being supplied by the claimants and the claim qualifying for a higher Scheduled Value. The Trust also issued 554 individually evaluated offers – 301 with an agreed upon value and 118 which were issued as a result of impasse. An additional 135 claims, which were initially denied because they did not meet the criteria of any of the seven Scheduled Value categories, were also denied after individual evaluation, either for a lack of adequate medical documentation or for providing no evidence of an asbestos-related disease.
In the First Quarter of 2001, the Trust received 160 requests for IE. Since the implementation of the IE program in March of 1996, a total of 7,776 claims have been resolved through this process.
During 2000 new claims totaling 59,200 were filed with the Trust. This represented an 82% increase in volume over the 32,500 claims filed during 1999, and was the greatest volume of claims received in any year since 1989, the first full year the Trust received claims. That escalating trend continued into 2001; during the First Quarter, the Trust received 24,500 claims. That is over 133% more than the 10,400 claims received during the same period last year. Ten law firms accounted for 56% of claims filed during the First Quarter 2001. These same ten firms were among the heaviest claim filers during 2000 but many were not previously substantial filers. Apparently, this trend is being experienced by other asbestos claim-paying facilities.
At the end of March 2001, the Trust had received a total of 512,173 claims of which approximately 38,600 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, February 1998 – March 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.
Among the many trends noted in claim filings is an increase in Second Injury Claim (“SIC”) filings. Claimants who settle a non-malignancy claim with the Trust and have not signed a general release, are eligible to file a Second Injury Claim if they are subsequently diagnosed with an asbestos-related malignancy. While limited in number, SICs have been steadily increasing from 280 in 1999, to 680 in 2000, to 210 in the First Quarter of 2001.
During the beginning of the First Quarter, the Trust General Counsel’s office particiapted in the cigarette litigation filed by the Trust in the United States District Court for the Eastern District of New York in December 1997. Trial began on December 4, 2000 and a mistrial was declared on January 25, 2001, after six days of jury deliberation. The General Counsel’ office has also participated in post-trial motions.
At the end of the First Quarter, there were 254 pending claims in the Trust’s Alternative Dispute Resolution (“ADR”) program, as compared to 283 claims at the end of 2000. 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 46% of the pending ADR claims.
As previously reported to the Courts, during 1998, the Trustees established the Claims Resolution Management Corporation (the “CRMC”), a Virginia corporation that is owned by the Trust. Pursuant to an agreement between the Trust and CRMC, CRMC processes, values and pays Trust claims.
During 2000, the Trustees requested the CRMC to determine whether, consistent with the Trust purpose, the electronic filing of claims was feasible. In September 2000, the CRMC reported to the Trust that such claim filing, as well as electronic processing and payment, was both feasible and likely to be more efficient and cost effective.
The Trustees authorized the development of an “e-Claims system,” and by the end of First Quarter 2001, the Trust had spent $628,000 on e-Claims software development costs and consultations with a widely representative group of claimants’ attorneys have produced an enthusiastic support for this initiative.
The target date for e-Claims implementation, assuming testing is successfully completed in a timely manner—is October 15, 2001.
Pursuant to the Courts’ decision in In re Joint Eastern and Southern Districts Asbestos Litigation (Findley v. Falise), 878 F.Supp. 473, 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. 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 JM 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 representatives of the plaintiffs’ bar and the Trust’s Futures Representative, the Trustees postponed the pro rata share re-estimation to June 30, 2001.
As noted above, the increased claim filings continued through the first quarter of 2001. In light of the increased claim filings during the second half of 2000 and first quarter of 2001, the Trustees concluded during March that it was unfair to pay beneficiaries ten percent of the liquidated value of their claims if there was a material risk that beneficiaries paid a few weeks thereafter would receive a smaller percentage of liquidated value. As a result, the Trustees established a 60-day moratorium on new Trust offers with FIFO numbers greater than 445,000, except for exigent health and hardship claims.
During April 2001, the Trustees and the CRMC staff have been meeting with Trust consultants and consultants retained by the Futures Representative concerning future claims forecast. Prior to June 30, 2001, the Trustees, with the consent of the representatives of the plaintiffs’ bar and the Futures Represenative, will determine a new pro rata share.
Following the receipt of $1,555,500,647 for the sale of the Trust’s JM stock and the assumption of its tax liabilities, the Trust has been implementing a re-investment plan recently approved by the Trustees. The cornerstone of this plan is building a diversified portfolio of equity securities such that, over the long-term, the Trust will hold roughly 65% of its investments in equities. As of the end of March, the Trust held about $929 million or 43% of its total portfolio in equities and the balance of $1,241 million in investment grade, fixed income securities.
The Trust anticipates gradually adding to its investment in equities in the coming months and eventually reaching our long-term target allocation. At the same time, the Trust will also be considering alternatives to its passively managed, indexed equity holdings, such as adding active managers in specific sectors and reviewing other alternative investments that are expected to achieve equity like returns, but are less correlated to the broad market for public equities. However, the primary focus in the coming months will be on the interaction between the Trust’s current investment strategy and the re-estimation of the pro rata percentage. To the extent that the Trustees risk tolerances or expectations regarding the timing and magnitude of future claims changes in the course of reviewing the pro rata percentage, the Trustees may need to make subtle or significant changes in the Trust’s investment policy.
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