NEW YORK, JULY 9 -- A federal judge today ordered a complete overhaul of the financially ailing Manville trust fund created to compensate tens of thousands of victims of asbestos-related disease nationwide.
Using sharply critical language, U.S. District Judge Jack B. Weinstein also supported but did not order a global settlement of an estimated 130,000 claims filed by asbestos victims dating to the 1940s.
In addition, the judge temporarily froze all payments by the trust, citing a ''severe cash shortage ... constituting a judicial emergency.'' Included in the stay are payments of any settlements, court judgments and legal fees. Ongoing court cases are not affected.
''The courts, both state and federal, are now so overloaded with drug cases and other matters that the extra burden of asbestos litigation is seriously interfering with the administration of justice in this country,'' Weinstein said.
He ordered that the trust, created in 1988 as part of Manville Corp.'s bankruptcy court reorganization, be restructured and refinanced by Aug. 6 to allow quicker payments to the neediest victims of asbestos-related disease.
The judge supported but did not order converting all asbestos litigation nationwide into a giant class-action case, a move that could remove some 90,000 cases from the dockets of 500 state courts and all 96 federal courts.
While not imposing such a step, he said ''it is sufficient that it urge all of the parties currently engaged in this wasteful, inefficient war over asbestos to join together and make recommendations to us.''
The Manville Personal Injury Settlement Trust is out of cash to pay new claims and has said that people who file claims now may not get paid until well into the 21st century.
The cash shortage at the trust has been induced by more cases, larger payouts and quicker settlements than expected. To date, the trust has paid $974 million to settle more than 22,300 cases, an average payment of about $43,000 per claim.
Weinstein is involved in the asbestos saga because he is supervising, along with a state judge, 579 cases consolidated for trial involving former workers of the Brooklyn Navy Yard.
Weinstein called for a new method to compensate workers and their families who were most seriously injured by asbestos diseases and need money immediately. He supported installment payments to victims to maximize the trust's available funds.
That would replace the system developed in bankruptcy court that pays victims on the basis of when they file a claim, one of the most highly criticized features of the trust.
As part of its Chapter 11 reorganization, Denver-based Manville placed $2.5 billion in assets, mostly stock, into the trust. The company also agreed to contribute $75 million annually starting in 1991 plus 20 percent of annual net income from 1992 until all claims are paid. The trust effectively controls 80 percent of Manville.
David Austern, general counsel for the Washington-based trust, said he was surprised by the Weinstein's order. He said he would ask the trustees whether to object to the stay of payments.