Owens-Corning Faces Asbestos-Liability Nightmare Again in Court

In filing for Chapter 11 bankruptcy four years ago, Owens Corning executives said they wanted to put the firm's multibillion-dollar asbestos-liability nightmare behind them.

Jan. 14—PHILADELPHIA — In filing for Chapter 11 bankruptcy four years ago, Owens Corning executives said they wanted to put the firm's multibillion-dollar asbestos-liability nightmare behind them.

But in a packed federal courtroom here yesterday, the Toledo building products manufacturer was forced to once again confront that nightmare as lawyers and witnesses described the devastation wrought by an asbestos-containing insulation named Kaylo on installers and construction workers who sometimes paid with their lives and on a corporation driven to insolvency by lawsuits.

The occasion was the opening of a hearing expected to last at least five days before 83-year-old Judge John Fullam, who will decide how much OC and its Fibreboard subsidiary owe asbestos victims. Competing estimates range from $2 billion to $16 billion.

The hearing in U.S. District Court as part of OC's bankruptcy has attracted enormous interest because it is taking place against the backdrop of a national debate over whether to stop asbestos lawsuits and establish a national claims payment fund financed by former producers of asbestos products.

Wall Street speculators, believing that Congress will act in time to save the firm's doomed stock, have driven its price to over $3 from 50 cents.

For creditors, millions of dollars are at stake in the outcome of the hearing. Lawyers and the para-professionals who work for them filled every space of the courtroom, with a few forced to sit on the floor as the hearing opened. Top legal eagles, some collecting hundreds of dollars an hour paid by OC under bankruptcy laws, were up front and in the jury box.

Presiding over this with humor and occasional impatience was the silver-haired veteran jurist, who began practicing law in 1948. "We would be better off if we can avoid characterizing our opponents arguments in a derogatory fashion," he warned one attorney.

Referring to recent comments from President Bush calling for asbestos-liability reform, the judge, in a light tone, told a lawyer who defended the current system: "You weren't listening to President Bush's speech... I assumed you were going to call him as a witness."

"I would question his expertise," replied New York lawyer Elihu Inselbuch, who represents the asbestos claimants committee.

That committee supports OC's bankruptcy-exit proposal, known as a plan of reorganization. But Mr. Inselbuch rejected suggestions that OC is bearing too big a burden in what has become a national problem.

"Owens Corning did a lot of damage to an awful lot of people," he said.

Company lawyers testified that the first health warning — a vague warning rubber-stamped on cartons but not the product itself — weren't made until 1966, years after evidence emerged of the dangers of asbestos.

Kaylo was used to insulate steampipes in ship yards, steel mills, refineries, and even the World Trade Center, witnesses said. "It was all over and it was well-labeled so it was remembered," Mr. Inselbuch said.

Even casual exposure to asbestos fibers can cause a fatal lung cancer known as mesothelioma. Yet construction workers routinely shaped and sawed Kaylo without knowing the dangers. "It showered asbestos fibers all over the place," Mr. Inselbuch said.

Witnesses in some pre-bankruptcy trials described the effect as a "snowstorm." OC sold the product from 1953 to 1972.

By the late 1980s, OC became the primary target of asbestos lawsuits, witnesses testified.

Clyde Leff, OC's manager of asbestos litigation from 1996 to 1998, testified that the firm faced 200,000 claims when he came on board and that an average of 40,000 new cases were arriving yearly.

With settlements and litigation costs of $300 million annually, OC in the mid-1990s was close to violating agreements with its lenders, which could have triggered an involuntary bankruptcy. "Sometimes we were skating in the wrong direction," he said.

Lost cases and large jury awards put increasing demand on the firm's cash flow, he said. "We were facing an increasing number of trial settings," he explained. "OC was quite typically the target defendant.... It was an environment of increasing risk to the company."

Making the argument for a claims valuation on the lower end of the estimate range is the firm's banks and dissident bond-holders. If the banks can persuade Judge Fullam to accept a lower figure, they stand to recoup substantially more than the 38.5 percent of the $1.5 billion owed them that is allotted under the current bankruptcy-exit plan.

In arguing for a lower figure, bank lawyer Richard Rothman argued that higher estimates are based on the size of settlements made by OC before bankruptcy. But, he noted, punitive damages, which influenced those settlements, won't be permitted by the independent trust fund OC plans to set up to pay claims after it emerges from bankruptcy.

It is unclear when Judge Fullam will issue a ruling.

Whatever amount the judge decides upon, asbestos claimants, like other creditors, will have to settle for cents on the dollar because the amount of the firm's debts far outweigh its value.

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© 2005, The Blade, Toledo, Ohio. Distributed by Knight Ridder/Tribune Business News.