Highlights of the 3rd Quarter 1998 Filing
CONTENTS:
FINANCIAL SUMMARY
OPERATIONS ISSUES
Settlement Activity
CXR Submission Policy
Indidivual Evaluation Process
New Claim Filings
LEGAL ISSUES
ASSET MANGEMENT ISSUES
Total Trust expenses for the three months ended September 30, 1998 were $2.7 million, compared to $2.3 million for the same period in 1997. Year to date Trust expenses for 1998 are $8.0 million compared to $7.0 million for the nine months ended September 30, 1997. The increase in each period is principally due to the Trust’s efforts to obtain contribution and other payments from cigarette manufacturers. Other expenses for the three and nine months ended September 30, 1998 approximated the 1997 expenses for the same periods.
Since the beginning of the year, Net Claimants’ Equity has increased by approximately $157 million, principally due to the increase in value of the Johns Manville
(“JM”) common stock. For the three months ended September 30, 1998, however, the market value of JM and non-JM investment equity securities dropped significantly reflecting the overall precipitous drop in equity security values during that period. The market value of the JM common stock decreased approximately $461 million during the third quarter and the market value of non-JM securities decreased by almost $23 million. The unrealized losses in non-JM equity securities was partially offset by unrealized gains on fixed income investments.
Non-JM investment income of $21 million and a JM dividend of $7.5 million were significant additions to Net Claimants’ Equity during the most recent quarter. Deductions to Net Claimants’ Equity during the three month period were claim settlements of almost $28 million and an increase of over $3 million in claim offers outstanding to $32 million. During the quarter the Trust settled and paid 6,816 claims for $27.7 million compared to 7,141 claims for $36.7 million for the same time period in 1997. Since the implementation of the Trust Distribution Process (“TDP”) in early 1995, the Trust has paid over $750 million in claim payments (representing a liquidated value of $7.5 billion) and settled over 158,000 claims.
During the third quarter of 1998, the Trust settled a total of 6,816 claims, for total settlements achieved in the first three quarters of 1998 of 19,533 claims. Offers on the next group of 10,000 claims (FIFO numbers 296,001 through 306,000) were made in August. Additionally, as of the date of this letter, all claims up to and including FIFO 306,000 (claims filed through November 1997) have been made eligible for payment under a revised policy announced in the Memorandum dated August 20, 1998, from the Managing Trustee and the Executive Director to all firms representing Trust claimants. Under that policy, pleural disease and cancer claims are now generally released without the need to submit an x-ray for external review. As announced, claims alleging interstitial fibrosis will need to submit an x-ray for external review in order to be eligible for an offer. A number of the reasons underlying this policy change were outlined in the Trust’s last letter to the Courts, and are further described in the referenced Memorandum (Attachment A). As noted below, during September a lawsuit (Adams, et al. v Manville, et al.) was commenced against the Trust, the Trustees and certain members of the Trust staff challenging the Trust’s authority to downgrade or deny claims based on a review of a claimant’s x-ray evidence.
From the inception of the Trust through September 30, 1998, the Trust has received a total of about 390,300 claims. Disqualified, voided and expired claims totaled 67,200, the majority of which were filed by the Maritime Asbestosis Legal Clinic (“MALC”) (discussed later) or claimants whose offers have expired. A total of 188,200 claims have been paid a total of $1.8 billion leaving 134,900 claims unsettled as of September 30, 1998.
On August 20, 1998, the Trust implemented the CXR Submission Policy which replaced the Medical Audit Program in effect up until that time and which applied to claims with FIFO numbers 1 through 306,000. As part of the implementation, the Trust systematically reviewed the approximately 59,000 claims that were pending response to medical audit from law firms. As a result of that review, the requirement to submit a CXR was waived for approximately 4,500 of the claims. During the week of August 24, 1998, the following was distributed to the law firms:
2,422 Checks
2,096 Denial letters
5,899 Deficiency letters
48,723 Requests for chest x-rays
The approximately 49,000 requests for chest x-rays were then distributed among 207 firms. Notices of requests for x-rays for these claims had been sent under the former Medical Audit Program, and for the majority of these claims, notices have been outstanding for more than a year. The notices included a deadline of 180 days to respond. If no response is received, the claim will be deactivated. Of the firms receiving notices, 22 law firms represented approximately 80% of the notices sent. The next batch of requests for chest x-ray notices will be sent in October, with the claims to become eligible for first offer 60 days later. Beginning in January 1999, the Trust plans to move from a quarterly processing cycle to a monthly cycle. Deficiency Letters and Requests for Chest x-rays will be sent monthly with the claims becoming eligible for offer 60 days later. The 60-day time frame is to allow for codefendant notification as specified in the TDP.
At the end of third quarter 1998, there were 3,259 pending requests for Individual Evaluation (“IE”). Of those, 348 were in negotiation. The remainder are in the queue awaiting assignment to one of the five staff negotiators. The Trust has been steadily working through the IE queue and the number of pending requests has decreased each month since the end of 1997. The number of new requests for IE received in 1998 is significantly lower than in prior years. In 1998 the Trust is averaging 62 requests per month as compared to 1997 which averaged 121 per month and 1996 which averaged 145. The decline in requests is a natural function of the decline in outstanding offers as the Trust has eliminated the backlog of claims awaiting review and eligibility for an offer. In third quarter 1998, 344 claims were resolved through the IE process.
While the original designers of the TDP contemplated that only high value cases would choose individual evaluation, the IE queue consists largely of claims which were either denied or placed in Category I. Denied claims (Category 0) represent 53% of the queue and pleural (Category I) claims are 15%. While some of the claims which did not precisely fit into a matrix category may have value after individual evaluation review, it is likely that a significant portion of these claims will not have any value due to the failure to establish the presence of an asbestos-related disease
During the third quarter of 1998 the Trust received approximately 6,600 new claim filings, bringing the nine-month 1998 total to 24,300 new claim filings. Seven law firms have each filed over 1,000 claims and represent over 14,600 of the claims filed during 1998. As of September 30th, the total number of claims received by the Trust was approximately 390,300. Total claim filings are depicted graphically on two attached charts. Chart 1, titled Total POC Filings, 1996-1998, compares monthly claim filing volumes in 1998 against those of the two most recent years. These monthly numbers include all claims received and processed by the Trust regardless of their current status (e.g. disqualified, settled, deactivated, etc.). Chart 2, titled Quarterly POC Filings, 1994-1998 compares quarterly claim filings for the most recent five years.
As of September 30th, there were approximately 26,000 claims in expired status. This reflects a small increase in number since the end of 1997. Some 80% of these expired claims received Category 0 offers, meaning that the claim did not meet the minimum scheduled value criteria of the TDP. Ten law firms represent over 40% of all expired offers. We expect that some percentage of outstanding expired offers will eventually be reactivated and recategorized with better medical information. Over 11,800 claims have been reactivated to-date.
At the end of the third quarter, a total of 312 claims were in active stages of alternative dispute resolution (“ADR”), as compared to 235 claims in the ADR process reported at the end of the Second Quarter. During the third quarter, 69 ADR cases were resolved, with 11 decisions returned by arbitrators (9 in favor of the Trust, 2 in favor of the claimant), and 58 claimants withdrew their claims from ADR.
The litigation between MALC, a division of the Jaques Admiralty Law Firm, and the Trust and the Trustees was referred during the Second Quarter to Special Master Edwin J. Wesely. MALC has filed almost 27,000 claims with the Trust which are currently reported as disqualified claims. During the third quarter, under the Special Master’s supervision, the parties continued a sample filing and processing of a small number of claims.
The Trust’s lawsuit against the tobacco industry continues. During the third quarter, Magistrate Judge Gold conducted a discovery conference and the parties submitted their positions to the Magistrate with respect to such discovery.
During September, certain Trust claimants represented by a Baltimore, Maryland law firm sued the Trust, the Trustees, and four Trust employees alleging that the defendants were in violation of the TDP because, inter alia, the Trust lacks the authority to downgrade or deny claims based on a review of a claimant’s x-ray evidence. Recently, the Trust filed an Answer and Counterclaim. Adams, et al v. Manville, et al, 98 Civ. 5693 (JBW), United States District Court For The Eastern District of New York.
As of September 30, 1998, the investments of the Trust were allocated as follows:
Market Value
| JM Common Stock | $1,421 | 58% |
| Fixed Income Securities | 878 | 36% |
| Diversified Equities | 159 | 6% |
| Total | $2,458 | 100% |
The Trust’s long-term target for equities (aggregating both JM and Diversified) remains at 60% as compared to an actual allocation of 64%, well within the a range of 40% to 70% set forth in the Trust’s investment policy. Notwithstanding the significant drop in the equity markets and the decline in JM’s share price during the third quarter, the share price was still up slightly from year end 1997, and JM’s underlying business continues to report strong results as evidenced by record third quarter earnings. Furthermore, the company’s management is optimistic about their expected full-year results for 1999.
To obtain a complete copy of the quarterly filing, please contact Manville Trust in care of: inquiry@claimsres.com.