Forecasting Asbestos Liability After Recent Bankruptcy Decisions: How Forecasts Must Adjust for Changes in the Tort System
8 June 2006
By Dr. Faten Sabry et al.
The recent decision in the Owens Corning estimation hearing, in which the Court ruled that the company establish an asbestos trust of less than half the tort claimants liability estimate, was a dramatic departure from previous cases -- and the 2005 Federal Mogul hearing -- that relied on historical trends in filings and settlement costs. In his decision, Judge John P. Fullam reasoned that, in light of significant changes taking place in the tort system, historical values are not deterministic of future claims and should be adjusted to account for probable changes.
This NERA brief reviews Judge Fullam's ruling in the context of other recent developments in tort reform and consider the implications for companies currently going through the bankruptcy process. Although the Court did not provide guidance as to the magnitude of the adjustments that should be made, the authors note that, moving forward, forecasting methodologies will have to account for the impact of Judge Fullam's seven factors for approaching asbestos estimation. They conclude that in order to accurately forecast asbestos liabilities, credible empirical support accounting for changes in the litigation environment must be conducted.
