Missoulian, April 3, 2001

Grace files for bankruptcy
Company wants all asbestos claims lumped together

By KATHLEEN McLAUGHLIN Missoulian State Bureau

HELENA -- Groaning under the weight of asbestos-related lawsuits, W.R. Grace and Co. filed for bankruptcy Monday and cast yet another dark cloud of uncertainty over Libby, where dozens of residents have died or are sick from asbestos exposure from the company's former mine there.

The chemical company filed for Chapter 11 protection in U.S. Bankruptcy Court in Wilmington, Del., seeking a shield from lawsuits while it addresses the amassing claims, a company news release said Monday.

W.R. Grace and Co. officials pledged that business would continue as usual during the bankruptcy proceedings, saying they need the protection while they figure out how to move forward. Grace officials said the company saw an 81 percent increase in asbestos claims in 2000, for a total of 125,000 pending cases nationally.

Pressure has mounted on Grace because of Chapter 11 filings of other companies with asbestos-related cases, including Owens Corning and Armstrong World Industries Inc. Monday's filing by Grace seeks to lump all those claims, including 125 from Libby, under one umbrella to be sorted out by the bankruptcy court.

"This is a voluntary decision that, although very difficult, was absolutely necessary for us," said Grace Chairman, President and Chief Executive Officer Paul J. Norris. "Under Chapter 11, litigation will be stayed and Grace will be able to address all of the valid claims against it in a fair and consistent manner in one proceeding."

"We believe that the state court system for dealing with asbestos claims is broken, and that Grace cannot effectively defend itself against unmeritorious claims," said Norris.

"The best forum available to Grace to achieve predictability and fairness in the claims settlement process is through a federal courtsupervised Chapter 11 filing." Norris added: "Until recently, Grace was able to settle claims through direct negotiations. Trends in case filings and settlement demands, which show no signs of returning to historic levels, have increase the risk that Grace will not be able top resolve its pending and future asbestos claims under the current system."

The Grace mine, which shut down 10 years ago, has been linked to widespread asbestosis among former workers and other Libby residents. The mine, which Grace operated from 1963 to 1990, produced vermiculite, a naturally occurring substance once commonly used in insulation and potting soils.

As part of processing vermiculite ore, mining operations in Libby discharged dangerous tremolite asbestos into the air.

Libby resident Gayla Benefield, whose parents died of asbestosis, has been a vocal critic of Grace and its operations in northwestern Montana. Just last week, she and her husband found out they both have scar tissue on their lungs.

She called Grace's bankruptcy filing Monday shameful and hypocritical. Benefield said the same company that's complaining about frivolous lawsuits is hiding behind the legal system.

"They've pulled the ultimate punch," Benefield said of W.R. Grace and Co. "They are going to get out of the responsibility for paying for the town they destroyed. If they are allowed to go bankrupt, somebody's going to have to clean this town up, and it's going to be the state or federal government."

Although the number of lawsuits from Libby represents only a small part of litigation against the company, the situation there was the company's most visible problem for the past 18 months. With the bankruptcy filing, all lawsuits are thrown into question, along with the costs of cleanup in Libby and medical care for ailing residents.

But Bill Corcoran, Grace's vice president for public and regulatory affairs, said the company requested in court on Monday that Grace be able to continue its medical program for Libby residents and its annual grants to the local hospital.

Although it got off to a slow start, the Grace health program has now enrolled some 160 Libby residents. Corcoran said company officials are not happy that pending claims from Libby will be dealt with along with thousands of other lawsuits.

"One of the things we regret is there are still people in Libby who haven't had their claims dealt with directly," said Corcoran. The bankruptcy filing came as no surprise to those involved in lawsuits against W.R. Grace and Co.

Allan McGarvey, a Kalispell attorney who represents Libby plaintiffs, said, "It's not the end of the world, but it's certainly bad news." McGarvey said the most damaging aspect of Grace filing for bankruptcy is the delay such proceedings will have on the outcome of Libby-related claims.

He said that lawsuits from Libby are different than the thousands of others filed against Grace nationally for several reasons. Most of the other suits are related to exposure from products that contain asbestos and their damage is not nearly so severe as what has been found in northwestern Montana.

"It's certainly true that people in Libby who have suffered this very serious injury need to be treated in a different category," said McGarvey. He predicted that the bankruptcy court will recognize that and act accordingly, but years will be added to the process. For Benefield, a potential Grace bankruptcy means she and her husband will have to come up with another plan to cover their medical bills.

"Our first thought is how are we going to pay for this," she said. "It never was about getting rich. It was about paying medical bills and holding on to our property."

The company also noted that it had secured $250 million in financing from the Bank of America. If approved by the bankruptcy court, it said that money would be used to vendors and suppliers, among others. Grace's stock closed Monday at $1.52 a share. Friday's closing price was $2.30. The company earlier had reported a fourth-quarter 2000 loss of $107.6 million, of $1.65 a share, mostly because of asbestos litigation.