According to a ruling by the U.S. Court of Appeals for the Third Circuit, former members of an asbestos claims resolution group are allowed to sue a bankrupt co-member for breach of contract. The appeal was filed against GI Holdings by two former members of the Center for Claims Resolution – United States Gypsum Company and Quigley Company.
In the 1980s, manufacturers of asbestos-containing products sought a method to defend themselves against the increased frequency of asbestos-related personal injury lawsuits. Approximately twenty companies formed the Center for Claims Resolution to ensure effective handling of lawsuits and to administer the best possible defense. Although membership with the group may be ended by written notice, bankruptcy, or resolution of the board, an agreement between all participants states that former members “continue to have and to honor all of the obligations incurred by it or on its behalf as a member prior to the effective date of its membership termination.”
Although GI Holdings filed for bankruptcy in January, 2001, the Center for Claims Resolution alleged the company owed $254.7 million for breach of contract. Both United States Gypsum Company and Quigley Company paid to cover GI Holdings’ obligation, and it was these funds the companies sought to recover through the appeal.
“Once the former members were required to make additional payments to cover the shortfall in amounts due to asbestos plaintiffs caused by [GI Holdings’] nonpayment, the former members suffered damages and had a straightforward breach of contract claim,” wrote Circuit Judge Michael Fisher in his opinion.
Asbestos-related personal injury lawsuits have become quite common in the past few decades, mostly because of the almost-always-fatal disease mesothelioma, which is primarily caused by asbestos exposure. Although asbestos was banned in the 1970s, mesothelioma has a lengthy latency period, so it isn’t uncommon for a diagnosis to be made several decades after the exposure occurred. Each year, there are approximately 3,000 diagnoses made.