COLUMBIA, S.C. (Legal Newsline) - Nothing to see here, folks. That was the position of lawyers who appeared at an unusual hearing last week called by South Carolina Judge Jean H. Toal to explain how the receivership process in her asbestos court works, and why details about it should remain secret.
In court filings and a PowerPoint presentation entered into the court record, attorneys for Hartford Insurance, USF&G, Cincinnati Insurance and others said they need secrecy to protect the amounts they pay a court-appointed receiver to resolve coverage disputes as well as the tactics they use in litigation.
Opening the records to public scrutiny would interfere with their “ability to resolve cases fairly and consistently in the future,” said Cincinnati Insurance in a letter discussing the receivership of Piedmont Insulation, one of more than 20 defunct firms facing asbestos claims Judge Toal has revived for the purposes of asserting claims against decades-old insurance policies.
Judge Toal has appointed Peter Protopapas, a personal injury lawyer, as receiver in all of those cases under a contingency fee agreement awarding him a third of any money he recovers. It is unknown how much money Protopapas has earned under that arrangement, although in the one case where dollar amounts are public, he collected at least $16 million in fees.
The rest of the money – presumably tens of millions of dollars – flows into “qualified settlement funds” Protopapas manages under liberal rules allowing him to spend it on litigation expenses, including fees. It is not known how much of that money has been paid to asbestos plaintiffs, as opposed to plaintiff lawyers.
Some insurers are making a play for these private records, and one of those, which was not listed on the PowerPoint, has expressed frustration with these procedures. National Union Fire Insurance Company of Pittsburgh last year, in an ongoing dispute over the rebirth of a company that died in the 1980s, said Protopapas is acting in his own interest and not for the company over which he'd been appointed receiver.
"This case follows the pattern of other cases in the South Carolina asbestos docket, in which particular plaintiffs' asbestos firms file suit against defunct corporations and seek appointment of the same Receiver (Mr. Protopapas)," lawyers for the insurer wrote.
"The Receiver then leverages settlements with insurers of the defunct corporation to obtain massive contingent fees for himself and his lawyers, as well as fees for administering the resulting settlement funds and making payouts to the asbestos plaintiffs."
The hearing Friday appeared to be an attempt to clear the air, although no further financial details about the QSFs were revealed. A total of 19 of the funds were listed, many of them Delaware partnerships that Protopapas can operate without financial reporting to the court or public statements.
The QSFs are structured under a provision of the federal tax code allowing money to flow into partnerships without incurring tax as long as the money is ultimately used for litigation expenses. In a recent filing, Protopapas said he had hired Third Point, a New York hedge fund, to manage some of the money.
In his presentation, Protopapas said he and lawyers he hired had processed millions of pages of documents and identified $2 billion in old insurance policies that might be tapped to pay asbestos claims. Two-hundred and fifty-two plaintiff cases were resolved with payments, he said, while 318 were ended without payment.
The presentation didn’t identify how much money was paid to plaintiffs or where it came from. The presentation did say the receivership law firms were paid directly by insurers, and the QSFs hadn’t paid anything for claims administration. Protopapas said he hadn’t been paid anything by the QSFs, although he collects his one-third share before the money enters those vehicles.
James Ruggieri of The Hartford was quoted as saying “Mr. Protopapas has conducted himself professionally” and described confidentiality as “part of the bargained-for consideration.” Of 20 insurers listed, only State Farm said it would consent to disclosure of its settlement amounts.
Insurers may seek to maintain secrecy to keep plaintiff lawyers guessing about settlement amounts as well as to protect detailed information about the operations and product sales of companies they insured. That makes it harder and more expensive for plaintiffs to assemble a case claiming they were injured by asbestos contained in products shipped to a specific site where they worked, often 30 or more years ago.
Plaintiff lawyers routinely name 50 or more defendants in asbestos lawsuits and are increasingly including Johnson & Johnson and other talc manufacturers, as well as retailers who sold the product, under a theory the ubiquitous product also contains asbestos. Manufacturers say the claims are false.
By appointing Protopapas to assemble evidence and sue insurers for payment under old policies, Judge Toal has unleashed a powerful mechanism for bringing money into her South Carolina court, possibly at the expense of plaintiffs elsewhere. She has approved “buy backs,” under which insurers pay millions to the receiver to effectively cancel those policies, meaning no one else can ever collect from them.
Her strategy may be reaching its limits as she asserts jurisdiction over out-of-state and even international companies, however. A federal court in New Jersey rejected the judge’s attempt to halt the bankruptcy proceedings of Whittaker Clark, a wholesale talc supplier based in that state.
And a London court is considering whether to challenge her appointment of Protopapas as receiver for Cape PLC, a solvent company based on the island of Jersey that complains it has never done business in South Carolina.