Editorial: Morally Bankrupt

FOR MANY OF THE ESTIMATED two million women who have had silicone breast implants placed in their bodies, the May 15, 1995 bankruptcy filing for Dow Corning was yet another painful stumbling block to receiving fair compensation.

 Women with implants experience a host of ailments, including auto-immune disease, scleroderma (hardening and thickening of the skin), joint swelling and chronic fatigue. Studies have also shown long-term effects of the implants to include blood clots, bone erosion, diseases of connective tissue and cancer. More than 19,000 woman have sued Dow Corning over the implants.

 Dow Corning and other implant manufacturers - including Baxter International, Bristol-Myers Squibb, 3M and Union Carbide - reached a settlement with plaintiffs' attorneys in September 1994. Under the terms of the settlement, a $4.23 billion trust would be established - $2 billion of which would be contributed by Dow Corning - to compensate victims. The fund would act as an insurance policy: Women with implants who signed up by the March 1, 1995 deadline would receive compensation if they became ill later, to a maximum of $1.4 million. If they preferred to opt out of the settlement to attempt to recover more through the courts, they had to indicate that they intended to do so by the deadline. The largest component of the trust - $1.2 billion - is a disease compensation fund. When the settlement was reached, Dow Corning agreed that if there was a shortfall in the fund (i.e. if compensation needs became greater than expected), the fund would have to be renegotiated.

Fewer than 10,000 opted out, and more than 410,000 women joined the settlement - 137,000 of whom claim they are already ill because of the implants. This caused a shortfall in compensation funds and U.S. District Judge Samuel Pointer in Birmingham, Alabama, ordered a renegotiation of the settlement, which was in process in the weeks before Dow Corning's bankruptcy filing.

 The bankruptcy will put a halt to any compensation under the settlement, as well as any new lawsuits. Women who desperately need medical treatment, including removal of the implants, will have to wait until the bankruptcy's resolution before receiving funds. (Most insurance companies have refused to cover treatment.) Moreover, the settlement itself is in jeopardy, since Dow Corning, the primary supplier of the gel used in the implants, is the main contributor to the fund.

 Though it has declared bankruptcy, Dow Corning does not appear to be anywhere near bankrupt, except perhaps in moral terms. "Dow Corning emphasize[s] that its underlying business remains strong," a company statement reads. "Our Chapter 11 filing immediately stops all lawsuits against the company," explained Dow Corning Chair and Chief Executive Officer Richard A. Hazleton.

"[A]ttorneys with lawsuits outside of the global settlement have not reduced their exorbitant demands," Hazleton chastened, "threatening our long-term business and, therefore, our ability to fund the global settlement." The message to the victims is clear: If you refuse to accept less for the pain and suffering inflicted upon you, be prepared to accept nothing.

A likely factor behind the decision to file for bankruptcy protection is the tort reform legislation now making its way through Congress. According to Public Citizen's Alan Morrison, the current versions of the product liability bill in the House and Senate would eliminate the liability of a company that only supplied gel for implants, and not the implants themselves. Dow Corning supplied 81 percent of the gel for all implants, and 29 percent of all implants. In the case of the 50 percent of all implants for which it was only a supplier of gel, the new law, if enacted, would exempt the company from liability if the cases are refiled.

 While the bankruptcy filing is symptomatic of a new moral low in a corporate community emboldened by the Republican assault on consumer, health, safety, labor and environmental standards, it is not a new tactic. Johns-Manville , once the largest supplier of asbestos, pioneered this strategy in 1982 when it declared bankruptcy to evade its share of the more than $1 billion in lawsuits from victims of the deadly product. It took six years before a reorganization plan and a trust to compensate those victims was established.

 Like Johns-Manville, Dow Corning will almost certainly emerge from bankruptcy, profitable and free to continue doing business.

 At best, the bankruptcy will mean even more uncertainty and waiting for women harmed by implants. But Dow Corning will also likely use the bankruptcy filing as a means to corral claimants into the settlement - probably a weakened settlement.

"I think this is a very novel and clever tactic designed to lock claimants into the class action settlement," John Coffee, a specialist in product liability suits at Columbia University, told the Los Angeles Times.

 Chapter 11 bankruptcy - designed to set up a mechanism of compensation for creditors of companies in serious financial trouble - was never intended as an escape clause for companies who face litigation over products they make that have crippled and killed their customers.

Once a last refuge, bankruptcy is losing its stigma and becoming an accepted business strategy to avoid costs. It allows a company to take its best shot at defending itself against its victims, and if the outcome is not to the company's liking, it can use bankruptcy protection for a second try.

 The solution is to make corporate executives responsible for egregiously harmful products. Executives found guilty should be criminally prosecuted and jailed. And the conditions for filing Chapter 11 should be tightened to prevent companies from using it as a tactic to evade responsibility.

As long as corporate executives are able to skirt responsibility for the damages caused by the faulty products their company produces, they will have little incentive to cease mugging and maiming consumers. And, without accountability, dangerous products will continue to seep into the marketplace.