Protecting Future Claimants in Mass Tort Bankruptcies
Posted: 21 Jan 2005
Mass tort bankruptcy trust funds generally have failed to attain fair treatment for future claimants - those individuals who have been exposed to a harmful product but have yet to manifest any injuries. This article examines the causes of unfair distributions to future claimants from mass tort trust funds in bankruptcy and other contexts. The article also offers several recommendations for achieving equitable treatment of future claimants in upcoming trust funds, such as the asbestos trust fund proposed by the Fairness in Asbestos Injury Resolution ("FAIR") Act now debated in Congress. First, we argue that future claimants are inadequately represented in mass tort bankruptcy proceedings. We recommend that representatives for future claimants be compensated based on a percentage of the total funds placed in trust for these claimants. This approach motivates representatives to self-interestedly pursue a favorable allocation for future claimants, in contrast to the current system which compensates future claimants' representatives using other methods. We then discuss a hitherto overlooked aspect of inequitable allocations for future claimants - their overexposure to risk relative to present claimants. To guarantee that future claimants are treated fairly, we suggest that future claimants receive a greater average award than present claimants to compensate the future claimants for bearing additional risk. Finally, we examine the allocation of risk between tort claimants and other creditors. Previous mass tort bankruptcy trust funds (as well as the FAIR Act fund) allocated considerable risk to future claimants, who are poor risk bearers. To remedy this deficiency, we recommend that tort claimants be allocated as little risk as possible. In return, tort claimants should receive a lower average payment.
JEL Classification: K1, K2
Suggested Citation: Suggested Citation