By Ruskin, William A.
Management Review , Vol. 79, No. 6
You are a manager at a manufacturing company. While driving to work one morning, you hear on the radio that a large chemical spill at the company's key production facility has leaked hazardous chemicals into the ground. You arrive before 8:00 a.m. to find a note on your desk requesting your immediate presence in the CEO's office. Me executive suite bustles with activity. A camera crew from a local television station is camped outside the CEO's door. Inside the boardroom, the general counsel, the vice president of production, and the directors of government, public relations, and safety and health are huddled in an emergency meeting.
Because the middle-class community surrounding the plant has always been outspoken on environmental issues, numerous politicians-including the governor have already registered their alarm by telephone and fax.
Nonetheless, the situation could be worse. Preliminary reports indicate that the contamination has been confined within the facility's fence line. No personal injuries have been reported. The community draws its drinking water from municipal wells several miles away; there does not appear to be any imminent risk of harm to residents living near the plant. Still, angry local home owners are already demanding assurances that neither their property nor their health has been jeopardized.
Taking you aside, the CEO expresses his first concern: what to tell the governor. The CEO's second worry is what to tell the press. His third concern: what to tell his wife, who is planning a cocktail party for local civic leaders that evening. The ever-present threat of litigation is not at the top of his list of concerns because in confronting an environmental crisis, the consideration of potential legal liabilities is only one issue among many. The very integrity of the company's name is at stake and its value cannot be assessed in legal terms. Clearly, the primary constituencies to address are the community, the media and the politicians.
DON'T OVERLOOK THE OBVIOUS
But legal dilemmas should not be overlooked. Indeed, they need to be prepared for in advance. Your CEO should have begun to prepare for this disaster about one year before it happened.
The toxic tort cases facing industry today present complex factual and legal issues. Often the claimants are people who live close to industrial facilities and waste sites. These residents may seek recovery for personal injury, fear of cancer and birth defects, trespass, nuisance and property damage. Liability analysis alone is a monumental task for defense counsel. The vast number of prospective claims facing a company can daunt even the most stouthearted CEO, in-house counsel or company spokesperson.
Property damage claimants usually outnumber personal injury claimants, although the two groups are by no means mutually exclusive. With growing frequency, attorneys are pleading personal injury complaints on behalf of residents who have no discernible injury and bear only a remote or fleeting connection to the site. This variety of personal injury suit may be successfully defended because these claimants rarely substantiate their cases with cal proof of exposure, duration and proximate cause.
As a rule of thumb, a damage exposure in an environmental property damage claim is less than in a personal injury suit. However, the sheer volume of property damage claims can pose a much greater financial threat to the company. During settlement negotiations, several hundred or several thousand pending claims may be sufficient to compel a company to ante up millions of dollars.
The magnitude of these cases often results in a windfall to claimants who may not have provable claims. In mass tort cases, the plaintiffs' attorney determines how much money each settling plaintiff receives. The defendant rarely learns how much money went to an individual plaintiff. More to the point, the defendant never learns what the claimant might have accepted in a more traditional settlement of his or her claim, in which the plaintiff negotiates individually. …