Welding Fume Litigation Update

Four strategies to protect your company's assets

By Laurie Waller

Much has happened in the industry with regards to welding fume litigation claims since Elam in 2003 and Clendenden last spring. GAWDA has been at the forefront, helping members understand, defend and protect against such claims.

GAWDA General Counsel and Government Affairs Consultant Richard P. Shweitzer addresses the history in his introduction to the Welding Fume Library at www.gawda.org. He writes:

“The basic claim in all of these cases is that welding rods and wire contain manganese, and that fumes emitted during welding can cause symptoms similar to Parkinson's disease. Although several thousand welding rod cases have been filed to date in federal and state courts, only ten cases have gone to trial since 1992. The juries found for the defendants in the first eight of those cases, but in October 2003 a jury in Madison County, Illinois (a notoriously plaintiff-friendly venue), awarded a $1 million judgment in the Elam case.

“In addition, in May 2004, a jury in Pennsylvania awarded a plaintiff $500,000 on a claim that exposure to fumes from welding rods caused lung cancer, but that case claimed injury from asbestos in the welding rods rather than from exposure to manganese.

“The main question is whether claims of exposure to manganese in welding fumes is likely to produce the mass jury verdicts for plaintiffs that the asbestos industry has faced in recent years, i.e., whether welding rod litigation will become 'the next asbestos.' A recent analysis from the investment firm Goldman Sachs concludes that welding rod litigation is unlikely to become the next asbestos scenario as the medical link is not as clear.”

Diagnosing for Dollars
History has shown that industries that remain divided in their approach to mass tort litigation have not faired well in court. Asbestos is one example. There are other examples when a court allowed facts in evidence without a scientifically reliable basis.

In the 1980s, a number of plaintiffs sued silicone breast implant manufacturers based on a variety of symptoms, and the Food and Drug Administration removed the implants from the market pending an epidemiological review. Before the review was completed, some 400,000 cases were filed, leading to a multi-billion settlement and one of the largest corporate bankruptcies in U.S. history. Then in 1994, the FDA concluded as a result of its study that implant recipients had no greater risk of disease than the general population, but the damage to the defendants had already been done.

As an industry, we are asking the court not to repeat this mistake in the welding fumes cases. Even if the plaintiffs do not obtain a favorable verdict, litigation costs can devastate a company.

According to Steve Harburg, partner at the law firm of O'Melveny & Myers LLP in Washington, D.C., there is a clear strategy for plaintiffs to file mass tort litigation. That strategy includes using television and newspapers to advertise for plaintiffs, conducting screenings, filing cases and then rushing trials in what Harburg calls “magic jurisdictions,” parading threats and any state court trial victories before the media and market analysts—an article in Forbes last year did just that (“Torch Song,” 2/2/04)—and then pressuring defendants for broad settlement of claims.

It is important for business owners to understand and accept our roles in this situation. We must be a participant in the process of protecting our industry. The plaintiff's bar is well organized and we need to be also.

Our industry is developing a multi-faceted approach to the onslaught of litigation, and to date, our efforts as a unified industry are reaping positive results. Remember, the welding fume litigation issue will not go away easily. Following are four approaches that can be used to protect your business and our industry. Together, they provide a strong defense.

Manufacturer Indemnity Agreements
A good first line of defense is an indemnity agreement from the manufacturer of the welding rod or wire. You want to know that the maker of the product will back it up. In a presentation to GAWDA members at the 2004 Annual Conference, Katherine Henry, Esq., from the law firm of Dickstein Shapiro Morin & Oshinsky LLP in Washington, D.C., explained that the indemnity agreement specifies what manufacturers are going to cover for distributors. Are they going to cover you on defense costs? Are they going to cover you if you are liable for a portion of the settlement? The type of protection in the agreement may vary, depending on the nature of your relationship with the manufacturer.

The Lincoln Electric Company was the first to offer distributors such agreements. Other manufacturers currently are considering offering these agreements.

Manufacturers' Joint Defense Strategy/Multidistrict Litigation
Manufacturers' Joint Defense Strategy is also being described as multidistrict litigation (MDL). MDL allows all cases pending in all federal courts nationwide to be transferred to a single federal judge for coordinated proceedings. Currently, 3,200 welding fume cases have been transferred to Judge Kathleen O'Malley in the Northern District of Ohio.

According to Attorney Steve Harburg, the MDL process is more consistent and yields greater efficiencies. The MDL court handles all pretrial proceedings. There is coordinated discovery, particularly with company depositions, core expert reports, and an expert vetting process. Rulings in the MDL proceeding resolve issues for all federal cases, and may also influence outcomes in state courts.

Several MDL trials are expected over the course of the coming year. The first trial began on August 29, 2005, Charles M. Ruth, III v. A.O. Smith Corporation, et al., and will be watched closely. Three more trials are scheduled to begin on October 31, 2005, February 6, 2006, and May 22, 2006. Up-to-date information on these cases can be found at www.welding-rod-litigation.com, the Web site for the Plaintiffs' National Leadership Counsel for Multidistrict Litigation.

GAWDA Legal Defense Fund
Insurance for welding rod litigation is no longer available on the commercial market. Most current claims, however, are from the past, when we all had fairly strong insurance coverage for product liabilities. During the mid to late '90s, insurers began to add a “pollution exclusion” to most commercial policies. This exclusion was the result of environmental litigation at the time. Insurers now are trying to use the pollution exclusion to get out of paying for welding fume claims.

In U.S. Fire Insurance Co. v. Clendenin Brothers, Inc., U.S. Fire Insurance sought a court order that the general pollution exclusion in its liability policy was broad enough to include welding fume claims. Therefore, U.S. Fire had no obligation to cover or defend such claims.

GAWDA filed a friend of the court brief in the case on behalf of the insureds, to advise the court that this is a nationwide problem and arguing that prior case law on pollution exclusions and similar policy provisions do not support allowing insurers to avoid defense or coverage obligations. Because this was an issue of state law and the case law from the Maryland state courts was significantly more favorable to the industry than the federal court precedents, GAWDA asked the federal court to certify the case to the state court of appeals. The court granted our motion and issued an order certifying the case to the Maryland Court of Appeals.

In a letter to members last April, GAWDA President Robert Thornton Jr. wrote: “Without GAWDA's involvement, the court would probably have viewed the motion by the insurance company as an issue involving one company. With Clendenin's cooperation, GAWDA took a lead position on the case on behalf of the industry, and was able to convince the court that the issue would affect hundreds of companies.”

President Thornton says, “Our purpose is to make it as difficult as possible for plaintiffs to score a quick and precedent-setting victory with a member who is ill-prepared to respond effectively to a claim for damages. GAWDA should be our members' first call when their company is named as a defendant in a welding fume case. We can manage long-term defense costs, but we can't withstand adverse jury awards. Keep in mind, part of this defense strategy would be to help make our prior insurance companies accountable and to protect our rights under these policies. Separately, we need to address the current lack of coverage for fume-related claims arising out of future exposures. We are pushing the insurance companies and supporting an independent group of members to make available other insurance options.”

Risk Retention Group - An Insurance Option
Congress passed the Liability Risk Retention Act in 1986 to help U.S. businesses, professionals and municipalities obtain liability insurance which had become either unaffordable or unavailable due to the liability crisis in the United States. The Act provides insurance buyers with a marketplace solution to the liability crisis, enabling them to have greater control of their liability insurance programs. To achieve this goal, Congress created risk retention groups (RRGs), a liability insurance company that is owned by its members.

Ten distributors of welding products have come together over the last year to determine if it is feasible for distributors to create an insurance company specifically to insure the welding fume liability exposure. Based on proposals the group received from insurance professionals in March and the results of a July survey that was sent to all GAWDA distributors, the group believes that it will be economically feasible to establish a risk retention group, which it has named NationWeldRRG.

The group has funded an actuarial study that is under way to establish the insurance rates and service costs for NationWeld-RRG. They expect to receive the results of the study in late September, and if the costs are reasonable, the group intends to launch the company and begin accepting applications for coverage sometime in the fall of 2005.

The RRG, which will be capitalized by distributors, is intended to be a final safety net, or last resort, to protect against liability claims arising out of welding fumes. The first line of defense for distributors will be their protection under manufacturers' indemnity agreements, and the effectiveness of the manufacturers' joint defense strategy and the GAWDA Joint Defense Fund for Welding Fume Litigation.

Teamwork
Each of the four strategies above has a certain degree of dependency on the other. Ideally, the Manufacturers' Joint Defense in the multidistrict litigation in federal court will be able to prevent a large amount of frivolous claims based on junk science . But if a claim slips through that hurdle and a distributor has an Indemnity Agreement with the manufacturer, there may be some financial relief. If you do not have that agreement, you will be relying on your former insurance carrier. Hopefully, your former carrier will cooperate. Chances are, they will not. This is where the GAWDA Joint Legal Defense Fund is vitally important. Previous insurers must be held accountable to pay for the claims we thought we were insuring.