The Effect of Joint and Several Liability on the Bankruptcy Rate of Defendants: Evidence from Asbestos Litigation

36 Pages Posted: 27 May 2004  

Charles Mullin

Vanderbilt University - College of Arts and Science - Department of Economics

Anup Malani

University of Chicago - Law School; University of Chicago Pritzker School of Medicine; Resources for the Future; National Bureau of Economic Research (NBER)

Date Written: May 27, 2004

Abstract

If two defendants share a joint and several liability and the first becomes insolvent, his unpaid liabilities are reallocated to the second. While the second defendant's assets may cover its share of liability, they may not cover the first defendant's share. Thus, the one defendant's insolvency may trigger the other's. We quantify this externality in the context of asbestos-related torts. We choose this example because 61 companies with major asbestos liabilities have gone bankrupt since 1982 and nearly 8,000 other companies have been named in asbestos suits. Using data from 10-K forms and asbestos trials, we estimate that payments on asbestos claims grew 5 - 10 percent annually - over 150 percent total - during 1990 - 2002 due to the bankruptcy of jointly liable defendants. We discuss the implications for the priority of tort claimants in bankruptcy and piecemeal tort litigation as a compensation mechanism for mass torts.

Keywords: Joint and several liability, bankruptcy, asbestos, tort

JEL Classification: G33, K13

Suggested Citation

Mullin, Charles and Malani, Anup, The Effect of Joint and Several Liability on the Bankruptcy Rate of Defendants: Evidence from Asbestos Litigation (May 27, 2004). Available at SSRN: https://ssrn.com/abstract=552081 or http://dx.doi.org/10.2139/ssrn.552081

Charles Mullin

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States

Anup Malani (Contact Author)

University of Chicago - Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States
773-702-9602 (Phone)
773-702-0730 (Fax)

HOME PAGE: http://www.law.uchicago.edu/faculty/malani/

University of Chicago Pritzker School of Medicine

Chicago, IL 60637
United States

Resources for the Future

1616 P Street, NW
Washington, DC 20036
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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