Tort Reform: Asbestos and Ohio's Impact on the National Debate
When Ohio enacted landmark comprehensive asbestos reform legislation (H.B. 292 of the 125th Ohio General Assembly) in 2004, beating even the federal government to the punch, it did more than capture the honor of being the first state to take such an action. It also established standards since followed by Florida (H.B. 1019), Texas (S.B. 15) and Georgia (H.B. 416) - the requirement that a person demonstrate actual impairment under objective medical criteria established by the American Medical Association before proceeding with claims.
Asbestos litigation is rampant across the country. Currently, more than 200,000 asbestos liability cases are still pending in the state and federal courts. Last year alone, more than 60,000 new cases were filed, many by persons who show no symptoms of an asbestos-related illness. As a result of the sheer magnitude of the litigation, more than 70 US companies have filed for bankruptcy, leading to the loss of 60,000 jobs with the costs imposed on displaced workers approaching US$3 billion.
Ohio's answer to the problem is comprehensive and forward-thinking. First, Ohio's law eliminated the claims of those who are not sick and allows them to file suit only after they show symptoms of an asbestos-related illness. Second, the reform clarified liability in three ways: it established statutory premises liability; codified Ohio's "piercing the corporate veil" doctrine; and limited asbestos-related liability for successor corporations. Third, Ohio applied the physical impairment requirement, premises liability and corporate veil doctrine to liability arising from exposure to silica and mixed dust.
The path to reform in Ohio was not an easy one, and was marked by years of debate, court challenges and state referenda campaigns. The passage of asbestos reform legislation arose from a larger effort led by Senator Steve Stivers (R-16th) to enact comprehensive tort reform legislation (S.B. 80). When that effort stalled, a coalition of asbestos reform proponents succeeded in moving a separate reform package through the legislature. Through the leadership of House Civil and Commercial Law Committee chairman Bill Seitz (R-Cincinnati), a working group of proponents and opponents met regularly to hash out comprehensive reform.
As the debate on the asbestos reform bill moved through the legislature, proponents introduced silica and mixed dust disease claims into the debate. While those reforms were not contained in H.B. 292, the discussion led to enactment of H.B. 342, which effectively applied the same standards for asbestos cases to silica and mixed dust claims as well. Limited asbestos-related liability of successors was also enacted subsequently in S.B. 80.
This article examines in more detail the specific aspects that differentiate Ohio's landmark legislation: the need to demonstrate physical impairment and provisions clarifying liability. It also examines the impact of the Ohio law both on other states and on the federal legislative scene.
Ohio's move to require the demonstration of physical impairment had the most immediate impact. By eliminating the claims of those who are not sick, the Ohio law helped preserve the assets needed to compensate people impaired from asbestos. When the law was enacted, the state's largest county had 41,000 pending asbestos cases. The law permits those persons currently unimpaired to file a claim later if medical symptoms develop, but in the meantime it frees the system rationally to handle the cases of those with symptoms.
Ohio requires a plaintiff with nonmalignant cancer to prove a "physical impairment" before suing for damages for an asbestos-caused illness. Plaintiffs with mesothelimoa, or malignant cancer caused by exposure to asbestos, do not have to establish that asbestos was a substantial contributing factor to their illness. The law is retroactive and applies to any applicable cause of action unless a party's substantive right would be altered in violation of the Ohio Constitution.
Plaintiffs alleging either a nonmalignant condition, lung cancer in the case of smokers, or wrongful death of a person exposed to asbestos must make an initial case that asbestos exposure substantially contributed to the illness before they can continue the suit. A plaintiff must file a written report and supporting tests establishing prima facie evidence that the impairment meets the medical criteria established by the American Medical Association. If the court finds that a plaintiff did not make the required showing that asbestos was a substantial cause of illness, Ohio must dismiss their case without prejudice.
In addition to establishing a demonstration of physical impairment, the Ohio law clarified liability in three important ways: establishing clear guidelines in determining premises liability; codifying the common law doctrine for piercing the corporate veil; and generally limiting asbestos-related liability of successors.
Ohio has codified premises liability regarding asbestos, silica and mixed dust disease claims, establishing clear definitions that guide adjudication of liability.
The law states that a premises owner is potentially liable in a tort action for injuries to an individual allegedly resulting from exposure to asbestos. Premises owner is broadly defined to include any individual or entity that owns, controls or leases a building, land or waterway; or leases a state-owned building, land or waterway. A plaintiff may recover damages from a premises owner for exposure to asbestos on the premises owner's property.
The Ohio law further clarifies liability based on when the alleged exposure occurred.
- If exposure to asbestos is alleged to have occurred before January 1, 1972, it is presumed that a premises owner knew of and maintained safe levels of asbestos exposure. To rebut this presumption the plaintiff must prove by a preponderance of the evidence that the premises owner knew or should have known that the levels of asbestos in the immediate breathing zone of the plaintiff regularly exceeded certain threshold limit values.
- A premises owner that hired a contractor before January 1, 1972 to perform the type of work at the premises owner's property that the contractor was qualified to perform cannot be liable for asbestos exposure caused by any of the contractor's employees or agents on the premises owner's property unless the premises owner directed or significantly influenced the activity that resulted in or led to the individual's injury.
- If exposure to asbestos is alleged to have occurred on or after January 1, 1972, a premises owner is not liable for any injury to any individual resulting from that exposure caused by a contractor's employee or agent on the premises owner's property unless the plaintiff establishes the premises owner's intentional violation of an established safety standard that was in effect at the time of the exposure and that the alleged violation was in the plaintiff's breathing zone and was the proximate cause of the plaintiff's medical condition.
Further, a premises owner is presumed not to be liable for any injury to any invitee who was engaged to work with, install, or remove asbestos products on the premises owner's property if the invitee's employer held itself out as qualified to perform the work. To rebut this presumption the plaintiff must prove by a preponderance of the evidence that at the time of the alleged exposure to asbestos the premises owner had actual knowledge of the potential dangers of the asbestos products that was superior to the knowledge of both the invitee and the invitee's employer.
Piercing the Corporate Veil
Ohio codified the common law doctrine for piercing the corporate veil in asbestos, silica and mixed dust disease claims. Simultaneously, Ohio eliminated the common law cause of action and remedies relating to piercing the corporate veil in such claims. For example, plaintiff P sues company A for damages resulting from asbestos exposure. A is bankrupt, so P also sues company B, which owns stock in company A. P can pierce the corporate veil and reach B's assets only if B controlled A, was the alter ego of A or used A to perpetuate a fraud on P for B's direct pecuniary benefit. Ohio law provides that a plaintiff seeking to pierce the corporate veil has the burden of proof on each and every element of the person's claim and must prove each element by a preponderance of the evidence.
The codified corporate veil law applies to all asbestos, silica and mixed dust disease claims commenced on or after September 2, 2004 or commenced prior to and pending on September 2, 2004. All actions asserting the corporate veil doctrine may be brought against a shareholder if any of the following apply: (1) the shareholder is an individual and resides in Ohio, (2) the shareholder is a corporation organized under the laws of Ohio, (3) the shareholder is a corporation with its principal place of business in Ohio, (4) the shareholder is a foreign corporation authorized to conduct or has conducted business in Ohio, (5) the shareholder is a foreign corporation whose parent corporation is authorized to conduct business in Ohio or (6) the person seeking to pierce the corporate veil is a resident of Ohio.
Limited Asbestos-Related Liability of Successors
Ohio law generally limits the successor asbestos-related liabilities of certain corporations. Liability is limited to the fair market value of the acquired stock or assets of the transferor if the corporation is a successor in a stock or asset purchase, and to the fair market value of the transferor's total gross assets if the corporation is a successor in a merger or consolidation.
The asbestos-related liability limitation applies to all asbestos claims and all litigation involving asbestos claims, including claims and litigation pending on the law's effective date. The limitation, however, does not apply workers' compensation premiums, obligations arising under the National Labor Relations Act, a collective bargaining agreement or any contractual right to indemnification.
The law is retroactive and applies to any applicable cause of action unless a party's substantive right would be altered in violation of the Ohio Constitution.
Other States Require Proof of Physical Impairment
Passage of federal legislation would preempt state laws, but proponents of asbestos reform are not letting up on state efforts, as evidenced by passage of the Florida, Georgia and Texas laws, which have all followed Ohio's lead and required proof of physical impairment to proceed with an asbestos-related liability lawsuit. These states have also included silica claims in their reform measures. Ohio still stands alone in clarifying defendants' liability for asbestos and silica-related claims. In addition to the core medical standards provision, Florida limited the right to sue to residents or those exposed in Florida to limit venue shopping.
Meanwhile, other states continue to debate asbestos reform. California, where labor plays a prominent role, is engaged in a high-profile debate, focused primarily on subrogation rather than medical criteria, which may lead to a statewide initiative. At this time, there are no other serious proposals similar to Ohio's codification of the corporate veil doctrine and premises liability.
Congress Follows Suit
Debate on these issues continues in the US Congress. The two main proposals involve the establishment of a universal asbestos trust fund and a requirement of evidence of physical impairment. The debate so far has not involved silica and mixed dust.
Efforts in Congress to make a universal asbestos tort liability law have gone on for several years. The Fairness in Asbestos Injury Resolution (FAIR) Act of 2005, S. 852, was introduced by Sen. Arlen Specter (R-PA). The FAIR Act takes a different approach to resolving the asbestos crisis than the laws enacted in Ohio, Florida, Texas and Georgia. The FAIR Act would supersede state laws and establish an insurance fund through which all asbestos-related personal injury claims must be filed, insulating defendants from future lawsuits.
The Asbestos Injury Claims Resolution Fund would pool US$90 billion dollars from asbestos claim defendants. Defendants would be required to contribute to the fund depending on their class and prior expenditures on asbestos claims. Defendants would also have to make annual payments until they have satisfied their obligation to the fund. The proposal seeks to exempt some small businesses from contributing to the fund. The Fair Act anticipates receiving at least US$3 billion per year from defendants for the first 30 years.
Unlike Ohio's asbestos reform, the FAIR Act would not require plaintiffs to demonstrate physical impairment to receive an award. Instead of going to court, the administrator of the fund would assess a claimant's asbestos-related injury according to a nine-level ranking of asbestos disease that would include malignant and nonmalignant conditions. The administrator would then pay an award to the claimant based on the claimant's level of asbestos disease and whether the claimant smoked tobacco products.
The FAIR Act does not limit claims for asbestos-related disease under workers' compensation, healthcare or disability benefits. The administrator must be satisfied that a claimant's condition is proven by a preponderance of the evidence and must also reduce an award by any collateral source compensation and prior awards received by a claimant. The FAIR Act would require a claimant to file a claim within five yeas of an initial medical diagnosis.
Senator Orrin Hatch (R-UT) previously circulated a similar bill proposing a trust fund of up to US$153billion in exchange for protection from future asbestos lawsuits. Victims were to be compensated depending on their degree of injury, with the most serious mesothelioma sufferers receiving US$1 million. The bill was criticized by both asbestos victims and defendants. Victims warned that they would receive smaller awards than those handed out by juries, and defendants were concerned that the fund would be insufficient to handle all future claims. The FAIR Act is similarly bogged down in partisan disputes and will face an uphill challenge to satisfy critics.
In April 2005 Congressman Chris Cannon (R-UT) and 41 original cosponsors introduced H.R. 1957, the Asbestos Compensation Fairness Act of 2005. Rep. Cannon's bill is similar to the physical impairment laws in Ohio, Texas, Florida and Georgia and requires that a claimant demonstrate that he is physically impaired as a result of asbestos exposure to maintain a civil suit for damages. Unlike the FAIR Act, Rep. Cannon's bill does not propose an insurance fund and would retain the courtroom as the forum for deciding asbestos liability. His bill derives medical criteria from the American Medical Association's "Guides to the Evaluation of Physical Impairment." It has picked up support in the House; however, strong opposition by trial lawyers is expected to test the bill's momentum.
Ohio's landmark legislation began a trend that has gained traction in a small number of states, and aspects of it have contributed to debates in other states and in Congress. Still, the impact of the Ohio law on the national scene is far from being determined.