The Travelers Neon | 113/365 Explored
mfhiatt / Foter / CC BY-NC-SA

For those who watched the Warren-Brown debate on WBZ tonight, you heard Scott Brown continually bring up Elizabeth Warren’s record of, in his words, “siding with the biggest insurance company in the country against asbestos victims.” If you’re wondering what that’s all about, you can get the details of that case from a Boston Globe piece about the Travelers asbestos case. Or you can continue after the jump to read about it here.

In a nutshell, Travelers insured Johns-Mannsville from 1947 to 1976. In 1986, the company declared bankruptcy under the weight of asbestos-related lawsuits. As part of the bankruptcy agreement, Travelers agreed to put $80 million into a larger trust fund from which current and future victims would be paid. These trusts are common in bankruptcy proceedings where there is a large pool of potential victims who could bring suit against the company. They ensure that there is money set aside to pay future victims who come forward, usually without having to bring a suit. In return for that, the company gets a court order granting them immunity from future lawsuits.

In this case, however, the lawsuits didn’t stop. Instead, lawyers for victims found loopholes in the agreement to sue Travelers directly for conspiring to hide the dangers of asbestos. (For the record, it’s very likely that they did exactly that. It’s also nearly indisputable that the original agreement woefully underfunded the trust. Also for the record, Elizabeth Warren had nothing to do with the original settlement.)

In 2004, Travelers entered into another agreement with the asbestos victims, this one brokered by Mario Cuomo. It called for Travelers to set aside $500 million in a trust for asbestos victims, and it granted the company immunity from future lawsuits.

It’s important to understand that the immunity does not mean that the company doesn’t pay future victims. What it actually means is that future victims do not have to fight the insurance company in court. It means that future victims aren’t shit out of luck because the company has gone bankrupt and has no money left to pay them. The structure of the trust generally sets out exactly what a victim has to do to prove their injuries, and in many cases, it will ONLY pay out to actual victims.

And therein lies part of the problem. Most asbestos victims groups were content with the settlement and the size of the trust. A smaller group of victims challenged it because of the immunity clause. The victims were not the only ones challenging it, though. Another insurance company which was being sued along with Travelers and dozens of others, wanted the settlement scuttled so that Travelers would be included in future lawsuits, thereby reducing its own financial liability in the unlikely event a conspiracy lawsuit was successful.

Are you still with me? This all came to pass before Elizabeth Warren came into the picture. Cuomo brokered a deal that most of the victims’ attorneys liked. It guaranteed payments to those who were injured by asbestos, including those who had not yet developed or been diagnosed with asbestos-related illnesses. Other insurance companies objected, because with Travelers out of the picture, they would have to pay a larger portion of any judgments against them.

And this is where Elizabeth Warren comes in. Although most of the country had never heard of her, she was well known in financial law circles. She had presented a number of friend of the court briefs on behalf of injured victims in bankruptcy cases, including one that established the right of individuals filing for bankruptcy to protect their IRAs, and another that fought to allow judges to reduce credit card interest rates in personal bankruptcies.

Based on her reputation as an advocate for consumer rights and as an expert in bankruptcy law, Travelers brought her in to help preserve the agreement and the $500 million settlement trust. She helped craft an argument on the constitutionality of immunity based on the legality of the original 1986 agreement.

The Supreme Court agreed and upheld the settlement, including the $500 million trust and the immunity, but did not rule on whether the other insurance company retained the right to sue. That was the end of Warren’s involvement. She did not foresee what happened next — and it could be argued that perhaps she should have.

The lower court ruled that Chubb, the other insurance company, retained the right to sue Travelers in the future. Another judge ruled that based on that ruling, Travelers did not have to pay out the $500 million, since it was premised on immunity from all asbestos-related lawsuits. In fact, the second judge used the Supreme Court’s ruling to state that Travelers had never needed the second settlement, since the 1986 one protected it from most lawsuits already.

Thus, the argument Warren made to preserve the right of asbestos victims to be compensated was turned around to give Travelers immunity without requiring them to pay anything into the victim compensation fund.






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