Manville Corp., the building products manufacturer, yesterday agreed to a plan that could lead to settlements of billions of dollars in legal claims filed against the company by asbestos victims.
The agreement is considered significant because it marks the first time the company has accepted a plan that appears to satisfy lawyers for both current and prospective plaintiffs in asbestos-related suits.
Although it is a financially healthy company, Manville filed for federal bankruptcy protection in August 1982 in response to thousands of lawsuits filed by asbestos workers who had contracted asbestos-related diseases. A procedure for handling those suits and future claims would enable Manville to emerge from bankruptcy.
Under the proposal, the company would create a trust fund to assume all present and future liabilities arising from asbestos-related personal injury claims. The fund would be financed initially through a combination of cash from the company, proceeds from Manville's insurance and 50 percent of Manville's outstanding common stock, the company said.
Additional cash and common stock would be contributed as needed by Manville, and the trust eventually could own 80 percent of the company's common stock outstanding. In 25 years, the trust would expire, and the shares would be returned to the company.
The trust would be funded initially with about $815 million, and Manville would add up to $75 million a year beginning the fourth year after the plan was approved and extending 21 years thereafter -- a total of nearly $2.5 billion.
The agreement approved yesterday by the company's board of directors was proposed by Leon Silverman, the lawyer appointed to represent the interests of future victims. The plan still is subject to the approval of the bankruptcy court following negotiations with committees representing the company's shareholders, unsecured creditors and current asbestos-related plaintiffs. This process could take up to 18 months, a Manville spokesman said.
Robert J. Rosenberg, a lawyer representing current plaintiffs, said the plan is the first the company has agreed to that "provides for adequate funding to pay for every single last claim as and when it happens."
The plan "provides a desirable alternative to tort litigation, an equitable and efficient means of compensating all creditors and preserves Manville as a viable business," company President J. T. Hulce said.
When Manville filed for bankruptcy, more than 16,000 lawsuits had been filed against the company, and the number was increasing at a rate of 400 to 500 a month. Unless relief was granted, the company said, it would collapse under the weight of $2 billion in potential liability, a figure a company official said yesterday had risen to more than $3 billion.
Under the proposal announced yesterday, plaintiffs would not be allowed to file further lawsuits against the company, but could take action against the trust, Manville said.
"Our bankruptcy was predicated on future liabilities and claims coming down the road," said Manville spokesman Curtis Linke. "The trick has been to permit the flexibility to deal with an unknown. . . . There is no way of knowing exactly how many claims will come in."
Silverman, a lawyer who previously led the government's investigation of former Labor secretary Raymond Donovan, refused to comment yesterday on the plan, which was based on his proposal. But in a statement, he confirmed that he and Manville's senior management had agreed to a plan of reorganization and that negotiations with the other parties would proceed promptly.
One major problem that could remain in resolving the dispute is the objection of shareholders in the company, who would suffer a dramatic loss in the value of their stock, according to George A. Hahn, a New York attorney appointed to represent their interests.
"Manville turned its back on its shareholders to carve up their stock without their consent, without their presence and without their participation," Hahn said. "The stock is not Manville's to give away. So the agreement to do that is wishful thinking."
Other parties in the dispute, however, discounted the threat the investors pose. Under the terms of bankruptcy proceedings, the judge may approve an agreement over the objections of one of the participants, they said, and the shareholders rank low in priority.
The major remaining party, Manville's unsecured creditors, would be paid $250 million under the plan.
Claims against asbestos manufacturers mostly came from shipbuilders exposed to the cancer-causing insulation during World War II, as well as workers in the construction and railroad industries. As of March 1983, some 24,000 asbestos-victim court cases had been filed, according to research by the Rand Corp., a California think tank.