Back to the Futures: Privatizing Future Claims Resolution

Abstract

The futures problem is very much with us. The judicial system deals fairly well, if imperfectly, in resolving mass accident cases of the airplane crash/train-wreck variety. Latent-injury mass torts, however, are more difficult to resolve because defendants and their insurers are unwilling to negotiate any deal that does not include future claims. Resolving future claims, then, is the ticket to the settlement table and what the defense lawyers call “global peace.”

As we have learned, plaintiffs' lawyers are quite willing to punch the futures ticket and negotiate with defendants and their insurers to resolve future claims in latent injury mass torts. Hence, plaintiff and defense lawyers, aided and abetted by adventuresome judges, have creatively exploited various techniques to solve the futures problem.The idea to privatize the resolution of future claims is derived from a few propositions that frame the practical problems involved in these claims. These include the necessities to: (1) resolve future claims as a part of any latent injury mass tort settlement; (2) sever future claims from current claims resolution; (3) estimate future claims accurately; and (4) create an independent entity to process future claims.

These practical problems can be addressed by utilizing current procedural mechanisms coupled with economic incentives.Defendants will not settle a latent injury mass tort litigation unless the deal includes some disposition of future claims. If latent injury mass torts are to be settled or resolved under judicial auspices ― or through legislative initiative, for that matter ― the resolution must include some disposition of future claims.

The resolution of future claims must be accomplished separately from the resolution of current or “inventory” claims. Hence, plaintiffs' attorneys cannot be involved in simultaneous negotiations for the resolution of current and future claims. If a latent injury mass tort involves future claims, that fact must be identified early in the litigation and the future claims should be severed from the litigation to avoid any possibility of conflicts of interest, sell-outs, or taint of collusion.Some entity other than the parties, their attorneys, and their experts should be responsible for determining the number of future claimants. If we have learned anything from three decades of mass tort litigation, it is that the actors involved in latent injury mass torts have proven to be notoriously bad at estimating the universe of future claimants.

The miscalculation of the numbers of future claimants has a cascade effect because the underestimation of future claims will quickly exhaust a settlement fund to the detriment of other future claimants. Thus, any system for dealing with future claims must include some mechanism for inducing the most accurate estimate of the universe of future claimants.

The idea for privatizing the resolution of future claims is simple. It is based on three fundamental propositions: (1) that future claims in latent mass tort litigation can be resolved in a manner that is fair and consistent with due process; (2) that parties in the present litigation and the judiciary are not the best actors to resolve future claims property, because among other reasons they lack incentives to do so; and (3) that economic incentives will encourage private vendors to efficiently, expeditiously, and fairly resolve future claims.

Here is how privatization would work: First, any mass tort litigation filed in federal court would be subject, under local rules or C.J.R.A. (Civil Justice Reform Act) plans, to complex case tracking. Mass tort litigation involving latent injury claims immediately would be sent to a judge.

Second, the judge would ascertain, from the pleadings and in conference with the parties, whether the litigation involved a latent injury mass tort. If so, the judge would exercise power, under the Federal Rules of Civil Procedure, to sever the future claims from the litigation. Third, the judge would meet and confer with the parties regarding the remainder of the litigation, which would consist of current claims only. The plaintiffs and defendants could proceed to trial or negotiate a settlement, but the parties would deal only with current claimants.

Fourth, the judge ― under a local rule authorizing such referral ― would refer the future claims to “future claims vendors” for a bidding process. The court would appoint a guardian or other fiduciary for the future claimants and maintain continuing jurisdiction over the future claims. The court would pre-screen and approve future claims vendors. These vendors would have to demonstrate sufficient capitalization and expertise in administering future claims funds. Vendors could demonstrate adequate capitalization through multiple mass tort funds, thereby spreading risk among pooled assets.

Fifth, the interested future claims vendors would prepare and submit bids to the defendant for administering future claims involved in the latent injury mass tort. This bid would include a guaranteed payment to the claimant, based on current values for like claims resolved in the tort system, and adjusted for the time value of money (or inflation or escalation). The bid also would include the vendor's estimate of the number of claims, administration expenses, and profit. The bid would include details relating to claims administration, including mechanisms for providing notice, proof of claims, and pay-outs.

Sixth, the defendant could accept or reject any bid from a future claims vendor.Seventh, the defendant and the vendor would present their agreement to the court for approval. The guardian or fiduciary for the future claimants would present an independent report to the court concerning the substantive and procedural sufficiency of the bid. The court would assess the agreement for substantive and procedural sufficiency.

Consent of future claimants to a fair, court-approved future claims fund would be implied.Finally, when the defendant has accepted and the court has approved a vendor's bid, the defendant would deposit the agreed fund and be relieved of any further obligation to future claimants. Future claimants could not sue the defendant in the tort system but rather would be referred to the vendor. The future claims vendor would administer claims under the terms of the agreement.