2004: How would Munger reform asbestos torts?

AUDIENCE MEMBER: Good afternoon, gentlemen. My name is Hugh Stephenson. I’m a shareholder from Atlanta, Georgia. This question is for both of you.

If you would both comment on the subject of tort reform, specifically asbestos tort. And if you could construct an optimal solution, how would you construct it, balancing the interest of legitimate plaintiffs versus the attorneys, versus the opportunists?

WARREN BUFFETT: OK, Charlie’s the lawyer, so he’s going to get to answer this one.

CHARLIE MUNGER: As a matter of fact, that is an easy question.

What’s happened in asbestos is that a given group of people get mesothelioma, that came — which is a terrible form of lung cancer that kills people — really only from asbestos. And those people got it from somebody’s asbestos. And that’s one group of claimants.

Then there’s another group of claimants, and these are people who’ve smoked two packs a day of cigarettes most of their lives, and they’ve got one little spot here or there, in an elderly lung.

And God knows what the spot is, but an enterprising lawyer can get an enterprising physician, who just happens to find that every damn spot in any lung must be asbestos-caused.

And once you’ve got one expert witness whom you can bribe, in effect, to say that, you’ve got a claim that can be filed.

And so you get millions of claims on behalf of people who have no symptoms, and who say that I’m worried about getting cancer from this spot that my attorney’s doctor says was caused as asbestos.

There isn’t enough in the companies that made the asbestos to pay off everybody. And what happens is that a huge percentage of the money does not go to the people that got the cancer, or another group of people who got terrible lung impairment that is obvious.

But that’s another small group relative to these people who just have one little spot and are — and now say they are worried about getting cancer.

And they can file those cases where they say they’re worried in some state, usually a southern state, where they’ve got a jury pool that just hates all big corporations.

And so you’ve got an industry — and of course the lawyers who are representing the people that aren’t hurt are really stealing money from the people who are hurt.

And the guy who gets mesothelioma doesn’t get as much as he should. And all these other people are getting money they’re not entitled to.

It’s a bonkers system. But with federalism the way it is, there’s just no way to stop it.

And the United States courts — United States Supreme Court — refused to enter it, and just grab hold and make a decision. And so it just goes on, and on, and on, and the claims come in.

I think the Manville Trust had more new claims come in last year than in any year in history.

WARREN BUFFETT: That’s correct.

CHARLIE MUNGER: And they have mined and sold asbestos for the last time, what 35 years ago, or —?

WARREN BUFFETT: Yeah.

CHARLIE MUNGER: And it just never stops.

The people who are trying to buy these people off, it’s like trying to douse a fire by pouring gasoline on it, because word processing machines can grind out these phony claims, and the doctors can ground up — grind out these phony opinions.

And so, a huge proportion of all the money that’s available to pay people who’ve suffered from asbestos goes to lawyers, experts, doctors, contingent fees to the lawyers, defense lawyers.

I think — is it something like 20, 25 percent of the money is flowing through to people who were injured? So it’s a total national disgrace.

The only people who have the power to fix it would either be the Supreme Court of the United States or Congress.

The Supreme Court — some people would say rightly, other people would say in too chicken a fashion — ducked the issue. That means the only party that has the power to fix it is Congress. And Congress so far, given the politics, has not fixed it.

Once you get wrongdoers so rich, they get this enormous political power to prevent change in the laws that are enriching them.

I mean, it means that we should all be more vigilant about stepping on these wrongs when they’re small. Because when they get large, they’re very hard to stop.

But it would be easy to fix this. The right way to fix it, we just are not going to pay off on these tiny claims.

WARREN BUFFETT: But Johns Manville — we own Johns Manville. They went bankrupt. They were the first, at least big one, that asbestos took into bankruptcy, and probably on the history of things, they somewhat deserved it, I think, Charlie. Isn’t that right?

CHARLIE MUNGER: Their behavior was among the worst in the history of American corporations.

WARREN BUFFETT: Yeah.

CHARLIE MUNGER: They knew this stuff was causing terrible injury, and they deliberately covered it up, time after time, and year after year, to make more money. There’s no doubt about the guilt of the original management at Johns Manville.

WARREN BUFFETT: So they went bankrupt in the early ’80s, and out of that bankruptcy was formed something, as Charlie mentioned, called the Manville Personal Injury Trust. We’ve got — have no connection with that.

I mean, this is a new company that we bought a few years ago, and this company has no connection with that except the historical — history.

The — but the Manville Personal Injury Trust was established, and had over time — had a couple billion dollars in it.

And as Charlie said, last year — it’s been around now for almost, I would say, close to 20 years — and last year they had a record number of claims introduced.

They didn’t have a record number because of the incidents of asbestos compared to the ones that were prevailing at the time it was established, or something of the sort. It’s just that it’s become a honey pot.

And as a result, the Mansville Personal Injury Trust is now paying out five percent because their 2 billion will only go so far. They’re paying five percent of claims.

So as Charlie says, the guy that’s got a — that has really been drastically injured by asbestos gets this tiny fraction, and the tens of thousands of claimants for whom it’s a gleam in the eye, or rather a gleam in their lawyer’s eye, perhaps, also get their five percent.

And it’s, you know, it’s not the right way to do it, but it’s very hard to correct.

We’ve observed the asbestos legislation over the — proposed legislation — over the last year. And in the end, what they came up with, we did not support because it didn’t get the answer that’s needed.

And it was Charlie’s and, you know, my view that the Supreme Court, when they ducked it, I mean, they left open a can of worms which will be around for decades, and decades, and decades. And the right people will not get compensated.

CHARLIE MUNGER: And those of you who want to be cynical ought to look into it, and see the perjury.

What’s happened, of course, is that all the really horrible people pretty well are broke and gone, and maybe there’s some money left in a trust here or there. But by and large, there isn’t enough money.

But now, there’re, like, three solvent people left. And you’ve got some little spot, or something or other. And by a strange coincidence, every one of those people can only remember three names of products that —

WARREN BUFFETT: Might’ve caused it?

CHARLIE MUNGER: — somehow saw, that might’ve caused it. And it’s an amazing coincidence, the three that are left solvent are the only names he can remember.

And so you — it’s obvious you have a vast amount of perjury being suborned by practicing lawyers. It’s not a pretty picture.