The Downfall of
Dow-Corning
(...with lotsa help from vampire accountants, lawyers & insurance
companies)
Sightings from The Catbird Seat
~ o ~
DOW CORNING CORPORATION
SILICONE BREAST IMPLANT PRODUCT LIABILITY
American Institute of Certified Public Accountants
Kathryn J. Wilkiki, Assistant Professor of Accountancy
Providence College, Providence, Rhode Island
Maureen L. Craig, Corporate Area Controller
Dow Corning Corporation, Midland, Michigan
~ ~ ~
Spencer Tillinghast hung up the phone and sighed. Christmas was only a few weeks away and the winter of 1991 had, so far, been mild. However, his employer, Dow Corning Corporation (DCC), was faced with another disappointment with respect to the silicone breast implant product. The legal department had just informed him that a judge awarded a sizable amount to another woman who had sued for leakage of silicone breast implants. This time, the award was $7.3 million!
Spencer had been a controller at Dow Corning in Midland, Michigan for the past ten years, starting at the company in 1981. As the controller, he had the responsibility to make final decisions about several financial reporting issues to prepare the annual report to the company’s bondholders. In addition, it was his responsibility to work with the external auditors at Price Waterhouse.
Since this last lawsuit had resulted in a adverse verdict against DCC, he anticipated recording a liability and writing a footnote to the financial statements to explain the outcome of the litigation. His more immediate problem was how to report other claims that were already pending, and other unasserted claims that he anticipated might materialize when news of the judgment broke. At this point, the lawyers would be involved with filing appeals. He was not sure whether they would be able to assess possible losses under future claims.
BACKGROUND
Dow Corning Corporation was incorporated in 1943 as a joint venture of Corning Class (now Corning Incorporated) and Dow Chemical to develop, produce and market silicones. Corning, Inc. provided the silicone technology and Dow Chemical provided the manufacturing processes. Silicone is a man-made product that is formed from quartz rock, a form of silica....
In 1991, Dow Corning manufactured an sold more that 4,500 silicone-based products to 45,000 customers worldwide, and was considered a leader in the industry. About 1% of total sales in 1991 came from silicone breast implant product.
Dow Corning’s production facilities are located in several states including Indiana, Kentucky, Michigan, and North Carolina, and several countries around the world.... In 1991, Dow Corning employed 8,300 people.
Dow Corning began production of silicone breast implants during the 1960s. The product was used for cancer patients for reconstructive surgery and for cosmetic purposes for breast augmentation. In 1983, the United States Food and Drug Administration (FDA) recommended further study of the use of implants, and in 1984, Dow Corning lost a $1.5 million judgment to a woman who sued the company for its breast implant product. The court records were sealed.
In 1990, a federal judge criticized Dow Corning for withholding health and safety information about the silicone implants. The FDA held hearings during 1990 and 1991 to gather further information about safety and efficacy of the silicone breast implant product. Dow Corning submitted 30,000 pages of information to the FDA during July 1991 that included 30 years of safety studies. At that time, Dow Corning decided to continue to sell the product to meet market demand.
On January 6, 1992, the FDA asked silicone manufacturers and medical practitioners to halt the sal and use of silicone breast implants, pending further study. Dow Corning voluntarily suspended shipment of the product. Finall, during 1992, the Board of Directors replaced L.A. Reed as President and Chief Executive Officer and appointed Keith McKennon, formerly of Dow Chemical, to the post of Chairman of the Board and CEO. Mr. McKennon took Dow Corning out of the implant business in 1992.
LIABILITY VALUATION AND DISCLOSURE
Year Ended December 31, 1991
For the year ended December 31, 1991, the company reported the $7.3 million judgment in a footnote to the financial statements with accruing any liability for the loss....
A $25 million charge to earnings was recorded in the income statement to cover implant inventories, dedicated equipment and other costs including those associated with confirming safety of the product.... On December 31, 1991, about 125 cases were pending.
Year Ended December 31, 1992
During the first quarter of 1992, twenty class action lawsuits were filed in Federal District Courts for breast implant products liability. By year end, this total reached thirty-six, and nine class action suits were brought in various state courts.... In Dade County, Florida, a state class action claimed $500 million in damages for the class.
At the same time, by the end of 1992, individual lawsuit numbered 3,600. Individual claims ranged from $100,000 to approximately $140,000,000. Plaintiffs claimed specified ailments, including auto-immune disease, joint swelling and chronic fatigue....
The Company believed that insurance would cover a substantial portion of indemnity and defense costs related to the breast implant lawsuits. However, depending on the insurance policy language, and the type of damages (i.e., compensatory or punitive), the damages may or may not have been covered in whole, or in part. As of the end of 1992, the Company had $250 million or more in insurance coverage with respect to lawsuits filed.
The Company decided to report a $69 million charge to income; $24 million related to litigation and $43 million related to discontinued implant products....
At December 31, 1992, the Company had accrued approximately $300 million in anticipated insurance proceeds to offset these breast implant reserves....
~ ~ ~
By Christmas 1993, Spencer felt overwhelmed. He stared at a memo from top management that lay on his desk. although the Company was still expecting many of the costs to be covered by insurance, management wanted his opinion about whether to record additional liabilities and related insurance recoveries. In fact, management thought that it might be appropriate to report the liabilities and receivables on a present-value basis.
Dow Corning had been named in 11,800 individual lawsuits and 41 class action lawsuits for breast implant product liability. According to most recent information from the legal department, more claims were anticipated to be made in the future. In addition, approximately 2,800 women had made use of the $1,200 reimbursement program to have the implants removed. Several companies that were named as defendants in the lawsuits, along with Dow Corning, were considering the establishment of a settlement fund to pay pending and future claims. This fund would total approximately $4 billion with Dow Corning’s share to be approximately half that amount.
~ ~ ~
In 1994, Dow Corning entered into a settlement agreement to contribute $2.02 billion to $4.2 billion pool to cover claims. The company deposited $42.5 million into a trust in 1994, and no further deposits have been made since then.
By December 31, 1994, deferred tax assets reported on the balance sheet reached $435.6 million....
On May 15, 1995, Dow Corning filed for protection under Chapter 11 of the U.S. Bankruptcy Code because it was (a) not satisfied with the rate of progress toward achieving commitments from certain of the Company’s insurers relative to insurance recovery and ( c) was concerned by the uncertainty associated with the Court’s conclusions relative to the 1994 Settlement.
As of December 31, 1995, 19,000 individual lawsuits had been filed along with 46 class action lawsuits. In addition, the Company received $71.4 million in insurance recoveries in 1994 and $163.5 million in 1995....
http://www.kycbs.net/Dow-Corning-Implant-Liability.pdf
February 15, 1996
Dow Corning Wins a Big
Insurance Suit On Implants
By BARRY MEIER
The Dow Corning Corporation won an important legal victory yesterday that could help speed its emergence from bankruptcy, as a Michigan jury found that the company's insurers were liable for covering costs from lawsuits involving its silicone breast implants.
The decision, which followed a three-month trial in Wayne County Circuit Court in Detroit, would require about 30 insurers that had not previously settled with Dow Corning to provide it with about $400 million in product liability coverage. The insurers had refused to pay claims, asserting that Dow Corning had hidden the scope of the implants' liability.
The affected insurers include the Allstate Insurance Company, the Home Insurance Company and Employers Insurance of Wausau. At least one company, Home Insurance, said it planned to appeal the decision.
Previously, Dow Corning had settled out of court with other insurers that agreed to cover roughly $545 million in claims and up to $630 million in future claims.
Dow Corning, which is based in Midland, Mich., is a joint venture between the Dow Chemical Company and Corning Inc.
In May, Dow Corning, citing an avalanche of health claims related to breast implants, filed for Chapter 11 bankruptcy court protection. As a result, said Edward Rich, Dow Corning's treasurer, the insurance proceeds will be used in Federal bankruptcy court to pay costs associated with breast implant claims or other claims against Dow Corning.
"This decision marks a major positive milestone for Dow Corning and will help us move through the Chapter 11 process, as we prepare our financial reorganization plan," Richard Hazelton, the company's chief executive, said in a statement....
Margaret Branch, a plaintiffs' lawyer in Albuquerque, N.M., who is representing breast implant recipients in the bankruptcy proceedings, said that the required insurance coverage, if upheld on appeal, should swell the money available to those recipients.
"It's great for the women," Ms. Branch said. "But it should be earmarked to pay them and not be used to run the company's business."
An insurance trade group expressed disappointment at the jury's verdict. "This decision appears to be a bailout for irresponsible manufacturers," Janet E. Bachman, vice president of the American Insurance Association's claims administration department, said in a statement. "Wrong-headed decisions like this one will shift costs to insurers that should be borne by manufacturers."
Thousands of women have contended that silicone leaking from breast implants have caused a variety of serious health problems, including rheumatoid arthritis and lupus. Dow Corning and other producers of implants dispute such contentions.
Dow Corning sued about 100 of its insurers in 1993 after they refused to defend against or settle breast implant claims. The insurers did not contend that the implants caused serious health risk but they argued that they should not have to pay because Dow Corning had misrepresented the litigation risks posed by the devices.
They also argued that the company had inadequately tested the product before marketing it and had withheld information about the implants, including doubts expressed by doctors about their long-term safety.
Dow Corning said that it had provided its insurers with all the information they had sought and that complications caused by implants, such as hardening of breast tissue and ruptures, were well known long before the insurers balked at paying claims.
Dow Corning, which was the nation's largest producer of breast implants and silicone, stopped making the devices in 1992 shortly after the Food and Drug Adminstration called for a moratorium on their use. Some 18,000 claims have been filed against the company by breast implant recipients.
Prior to the start of a trial last fall in Detroit, the company settled with more half of its insurers. During the trial, at which about $1 billion in coverage was in dispute, it reached agreement with another group of more than 10 companies, including the American International Group.
Mr. Rich, Dow Corning's treasurer, declined to discuss the settlements, but did say they would be submitted shortly to the bankruptcy court for approval.
Mr. Rich said that the company was also seeking to recover several hundred million dollars of coverage from insurers not involved in the Michigan case.
February 6, 1996
Dow Corning, Insurer Settle Implant Lawsuit
By Brian S. Akre, Chicago Sun-Times
DETROIT - The biggest insurance company being sued by Dow Corning Corp. for refusing to pay breast-implant claims settled a large part of the billion-dollar case Monday.
The tentative settlement with American International Group Inc. came after three months of testimony and days before the case was scheduled to go to the jury.
Terms were not disclosed. The settlement involves only some of the policies in dispute between Dow Corning, American International and its subsidiaries, attorneys said.
Robert Marsac, an attorney for Dow Corning, said the settlement represents a significant portion of the case. The company has about $389 million worth of coverage at issue in the trial.
AICPA Case Development Program
DOW CORNING BREAST IMPLANT LAWSUITS
By Attorney Robert J. Fenstersheib
All over the United States and across the world, millions of women have had breast implants. Thus numerous women have experienced many medical complaints. After more than 10 years of lawsuits and a vast public discussion, they are reasonably perplexed after they’ve thought about filing lawsuits regarding their injuries. Some have heard that science has recognized no connection between the symptoms and the implants. Others have heard the claim of further women discounted and dismissed.
The security of silicone or saline-filled breast implants is not a closed chapter, as the concern has become baffling in the public mind since the issue was previously taken over by political forces more involved in an ideological dispute than the protection of women.
Actually, the manufacturers of the breast implants own engineers doubted breast implants safety. As complaints grew, they continuously were sold. In regards to the safety research, the ones that have been done have had many flaws and noe of the studies have ever focused on the real ailments women complained of – ailments that take a few years to build up.
It is not known what the long-term effects are in the body of having silicone implants. In the meantime, while additional research may make it possible for the answer to be known, women who are taking implants into consideration - even if it’s for reconstructive purposes - ought to be familiar with the specifics. A few legal claims remain, even though an enormous majority of breast implant cases have been completed....
BREAST IMPLANT LAWSUIT TIMELINE
(excerpts)
1940s
Japanese prostitutes have their breasts injected with substances such as
paraffin, sponges and non-medical grade silicone to enlarge their breasts,
believing that American servicemen favor women with large breasts.
1960s
The first silicone breast implants are developed by two plastic surgeons
from Texas: Frank Gerow and Thomas Cronin.
1962
Timmie Jean Lindsey becomes the first woman to receive silicone breast
implants.
1977
Richard Mithoff, a Houston attorney, wins the first lawsuit for a Cleveland
woman who claims that her ruptured implants and subsequent operations had
caused pain and suffering. She receives a $170,000 settlement from Dow
Corning. Case receives little publicity.
1980s
Ralph Nader’s Public Citizen Health Research Group, Washington, DC, sends
out warning signals that silicone breast implants cause cancer.
January 1982
FDA proposes to classify silicone breast implants into a Class III category
which would require manufacturers to prove their safety in order to keep
them on the market.
1984
Stern vs Dow Corning, San Francisco. Case wins on many internal Dow
Corning documents that had been discovered in a Dow storage area by
attorney Dan Bolton. Maria Stern’s systemic autoimmune disease is found by
a jury to be caused by her silicone breast implants.... After a month-long
trial, the jury awards Maria Stern $211,000 in compensatory damages and
$1.5 million in punitive damages. The evidence is sealed by a court order.
June 1988
Six years after the 1982 proposal, FDA classifies the implants into Class
III. Premarket Approval Applications from silicone breast implant
manufacturers are due by July 1991. The PMA’s must prove affirmatively,
with valid scientific data evaluated by the FDA, that their devices are safe
and effective. After the PMA’s are submitted by the manufacturers, the
FDA has 180 days to evaluate the safety data.
December 1990
Program on the dangers of silicone breast implants airs on “Face to Face with
Connie Chung.”
December 1990
Congressional hearing headed by Representative Ted Weiss deals with the
safety of silicone breast implants. This hearing also discussed the fact that
not all the information that the manufacturers have are available for
public scrutiny due to a court order from the Stern verdict.
July 1991
Dow Corning releases 329 studies to FDA.
September 1991
FDA concludes that the silicone breast implant manufacturers’ safety data
does not prove the devices are safe–or harmful. Manufacturers are told to
submit further data....
December 1991
Hopkins vs. Dow Corning, San Francisco. The largest award yet, $7.3 million,
is given to Marianne Hopkins whose mixed connective-tissue disease is linked
to her ruptured silicone breast implants. The lawyer for the case, Dan
Bolton, wins the suit with the help of internal memos and studies from the
Stern lawsuit, in addition to new studies he recently obtained from Dow. Mr
Bolton gives several of the internal documents to the FDA which has
never seen the documents before.
January 1992
FDA Commissioner, David Kessler, calls for a voluntary moratorium on the
distribution or implantation of silicone breast implants until the FDA and the
advisory panel have an opportunity to consider newly available information.
The manufacturers agree.
February 1992
The class action lawsuit is filed in Cincinnati by Stan Chesley. The hope is to
compensate women at a faster rate than filing individual lawsuits.
February 1992
Dow Corning CEO, Lawrence Reed, is replaced by Keith McKenon.
February 1992
The General and Plastic Surgery Devices Panel reconvenes to review the new
information regarding the safety of silicone breast implants. The panel
recommends that the further use of implants be limited for reconstruction
only and that women receiving the implants participate in scientific protocols
and that epidemiologic studies be conducted to assess the risk of
autoimmune disease. The panel concludes that no causal link has been
established between autoimmune disease and silicone breast implants.
February 1992
Many of the Dow Corning internal memos are released to the public.
March 1992
Dow Corning leaves the silicone breast implant business as do Bristol-Myers
Squibb and Bioplasty. McGhan and Mentor will still manufacture breast
implants. Dow sets up a fund for further research into the safety of breast
implants.
April 1992
Dr. Kessler lifts the moratorium on silicone breast implants. The only women
allowed to receive implant surgery are those undergoing breast
reconstruction. All of the implant recipients must become part of a
scientific protocol.
May 1992
First woman gets implants under new rules.
December 1992
Johnson vs. Bristol-Myers Squibb, Houston. Pamela Jean Johnson wins $25
million, $5 million actual damages and $20 million punitive damages in a case
argued by Texas attorney John O’Quinn. A jury finds Ms. Johnson’s
ruptured silicone implants were linked to her mixed connective tissue
disease, auto-immune responses, chronic fatigue, muscle pain, joint pain,
headache, and dizziness. Expert witnesses and lawyers admit her symptoms
amount to “a bad flu.”
December 1992
To date 3,558 individual lawsuits have been filed against Dow Corning.
December 1993
By years end 12,359 individual lawsuits have been filed against Dow Corning.
March 1994
A Houston jury awards three women a total of $27.9 million against 3M, $15
million in punitive, $12 million in compensatory damages for illness...
March 1994
The class action suit if finalized by manufacturers with Dow Corning being
the largest contributor. The other contributors include Baxter, Bristol-Myers Squibb/MEC, 3M. It is the largest class action settlement in
history. Manufacturers claim there is no scientific evidence linking silicone
breast implants with autoimmune diseases....
December 1994
By this date 19,092 individual lawsuits have been filed against Dow Corning.
May 1995
Dow Corning files for Chapter 11 bankruptcy. Dow is facing 20,000 lawsuits,
some with multiple plaintiffs and about 410,00 potential claims that have
been filed in the global settlement. The bankruptcy essentially halts all
litigation.
August 1997
The New York Times reports that implant manufacturers have been winning
80% of cases against them. Nevertheless, a state jury in the first class-action suit finds that Dow Chemical (which owns half of Dow Corning)
knowingly deceived women by hiding safety information about the silicone
in their implants.
November 1998
Dow Corning files for bankruptcy reorganization, which includes the $3.2
billion previously agreed-to settlement and offers claimants several payout
options....
December 1998
After two years and $800,000, a panel of four independent experts
appointed by Judge Sam C. Pointer, overseer of implant lawsuits in Federal
courts, concluded that scientific evidence so far has failed to show that
silicone breast implants cause disease. Nevada Supreme Court upholds a
compensatory damage award of $41 million against Dow Chemical to
Charlotte Mahlum for her multiple-sclerosis-like symptoms. Dow Chemical
was earlier found liable for helping Dow Corning conceal evidence about the
harmful effects of silicone....
Spring 1999
Silicone-gel-filled implants remain off the market in the U.S. pending
manufacturer safety studies....
June 1999
The Institute of Medicine releases a 400-page report prepared by an
independent committee of 13 scientists. They conclude that although
silicone breast implants may be responsible for localized problems such as
hardening or scarring of breast tissue, implants do not cause any major
diseases such as lupus or rheumatoid arthritis. ... Congress had asked the
Institute to set up the committee. The committee did not conduct any
original research; they examined past research and other materials, and
conducted public hearings to hear all sides of the issue....
http://www.breastimplantlawsuits.com/
February 15, 1996
Dow Corning Wins a Big
Insurance Suit On Implants
By BARRY MEIER
The Dow Corning Corporation won an important legal victory yesterday that could help speed its emergence from bankruptcy, as a Michigan jury found that the company's insurers were liable for covering costs from lawsuits involving its silicone breast implants.
The decision, which followed a three-month trial in Wayne County Circuit Court in Detroit, would require about 30 insurers that had not previously settled with Dow Corning to provide it with about $400 million in product liability coverage. The insurers had refused to pay claims, asserting that Dow Corning had hidden the scope of the implants' liability.
The affected insurers include the Allstate Insurance Company, the Home Insurance Company and Employers Insurance of Wausau. At least one company, Home Insurance, said it planned to appeal the decision.
Previously, Dow Corning had settled out of court with other insurers that agreed to cover roughly $545 million in claims and up to $630 million in future claims.
Dow Corning, which is based in Midland, Mich., is a joint venture between the Dow Chemical Company and Corning Inc.
In May, Dow Corning, citing an avalanche of health claims related to breast implants, filed for Chapter 11 bankruptcy court protection. As a result, said Edward Rich, Dow Corning's treasurer, the insurance proceeds will be used in Federal bankruptcy court to pay costs associated with breast implant claims or other claims against Dow Corning.
"This decision marks a major positive milestone for Dow Corning and will help us move through the Chapter 11 process, as we prepare our financial reorganization plan," Richard Hazelton, the company's chief executive, said in a statement....
Margaret Branch, a plaintiffs' lawyer in Albuquerque, N.M., who is representing breast implant recipients in the bankruptcy proceedings, said that the required insurance coverage, if upheld on appeal, should swell the money available to those recipients.
"It's great for the women," Ms. Branch said. "But it should be earmarked to pay them and not be used to run the company's business."
An insurance trade group expressed disappointment at the jury's verdict. "This decision appears to be a bailout for irresponsible manufacturers," Janet E. Bachman, vice president of the American Insurance Association's claims administration department, said in a statement. "Wrong-headed decisions like this one will shift costs to insurers that should be borne by manufacturers."
Thousands of women have contended that silicone leaking from breast implants have caused a variety of serious health problems, including rheumatoid arthritis and lupus. Dow Corning and other producers of implants dispute such contentions.
Dow Corning sued about 100 of its insurers in 1993 after they refused to defend against or settle breast implant claims. The insurers did not contend that the implants caused serious health risk but they argued that they should not have to pay because Dow Corning had misrepresented the litigation risks posed by the devices.
They also argued that the company had inadequately tested the product before marketing it and had withheld information about the implants, including doubts expressed by doctors about their long-term safety.
Dow Corning said that it had provided its insurers with all the information they had sought and that complications caused by implants, such as hardening of breast tissue and ruptures, were well known long before the insurers balked at paying claims.
Dow Corning, which was the nation's largest producer of breast implants and silicone, stopped making the devices in 1992 shortly after the Food and Drug Adminstration called for a moratorium on their use. Some 18,000 claims have been filed against the company by breast implant recipients.
Prior to the start of a trial last fall in Detroit, the company settled with more half of its insurers. During the trial, at which about $1 billion in coverage was in dispute, it reached agreement with another group of more than 10 companies, including the American International Group.
Mr. Rich, Dow Corning's treasurer, declined to discuss the settlements, but did say they would be submitted shortly to the bankruptcy court for approval.
Mr. Rich said that the company was also seeking to recover several hundred million dollars of coverage from insurers not involved in the Michigan case.
February 6, 1996
Dow Corning, Insurer Settle Implant Lawsuit
By Brian S. Akre, Chicago Sun-Times
DETROIT - The biggest insurance company being sued by Dow Corning Corp. for refusing to pay breast-implant claims settled a large part of the billion-dollar case Monday.
The tentative settlement with American International Group Inc. came after three months of testimony and days before the case was scheduled to go to the jury.
Terms were not disclosed. The settlement involves only some of the policies in dispute between Dow Corning, American International and its subsidiaries, attorneys said.
Robert Marsac, an attorney for Dow Corning, said the settlement represents a significant portion of the case. The company has about $389 million worth of coverage at issue in the trial.
For more, GO TO > > >
AIG: The Un-American Insurance Group
Confessions of a Whistleblower
Marsh & McLennan: The Marsh Birds
Nests of the Insurance Vampires
~ o ~
MORE OF THE CATBIRD’S FAVORITE LINKS
~ o ~
FAIR USE NOTICE. This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.
For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml . If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.
Last update January 10, 2008 by The Catbird