The Downfall of A.h. Robins

By 1985, Robins and its insurer, Aetna Life & Casualty Company, had already paid out $380 million in Shield-related lawsuits, the number of complaints and actions being filed were steadily increasing, and a class-action lawsuit was filed on behalf of nearly two thousand Shield users. Even with Robins reporting its highest-ever operations earnings of $128 million in 1984 (up 21 percent from the previous year) and its stock holding reasonably well, the Shield-related litigations proved to be too costly for the company. In March 1985, Robins announced that it was setting up a reserve fund to pay out Shield claims totaling $615 million, yielding a nearly $1 billion payout level for the company thus far. Creating the fund, however, left Robins with an over $4 million net loss for the year. In addition, records were being set on the amount of damages being awarded to Shield litigants, with a May 1985 decision awarding Loretta Tetuan, a Shield-user who had lost her uterus and ovaries, $7.5 million in punitive damages and $1.1 million in compensatory damages. In an attempt to protect the company and those who had a vested interest from the potentially devastating cost of more multimilliondollar Shield-related awards, Robins filed to seek reorganization under Chapter 11 of the Bankruptcy Code in August 1985.

This froze all monetary claims against the company and caused the company’s stock to plummet to a third of its value. In 1989, The American Home Products Corporation acquired A. H. Robins as part of the reorganization plan from bankruptcy. The consummation of the bankruptcy reorganization made it so that Robins had immunity from any further Shield-related civil litigation. Instead, as part of the deal, American Home agreed to finance a court-ordered trust to fund Shield claimants, putting $2.3 billion into the trust and additional moneys to the company’s shareholders.

The trust was responsible for paying claimants against the Shield for the following 20 years. Those persons who claimed injury from the Shield submitted the claim to the Trust, who then decided the amount to be settled based on adjusted historic settlement values. The reorganization also meant that Robins’s shareholders received American Home Products stock, resulting in large financial gains, since the American Home Products stock was worth four times the price of the Robins stock before bankruptcy was settled.