On the surface, A.H. Robins of Richmond would seem to be a thriving company. Its popular products, including Robitussin cough syrup, Chap Stick lip balm and Sergeant's flea and tick collars, last year generated record sales of $632 million. But the 119-year-old pharmaceutical firm is now facing financial ruin because of a $3 item it has not sold in a decade: the Dalkon Shield intrauterine birth control device. Deluged by more than 12,000 lawsuits charging that the Dalkon Shield was responsible for countless serious illnesses and at least 20 deaths among the women who used it, Robins last week filed for protection under Chapter 11 of the Bankruptcy Code. The move could suspend the suits for at least a year while the company tries to work out a plan to pay claims that may amount to $1 billion. E. Claiborne Robins Jr., the firm's president, said that the action was necessary "to protect the company's economic vitality against those who would destroy it for the benefit of a few."
By seeking shelter under the bankruptcy laws, Robins is following a controversial precedent set three years ago by the Manville Corp., which filed under Chapter 11 as a way of temporarily freezing 16,500 suits on behalf of people who claimed to have contracted cancer and other diseases caused by asbestos that the company produced. Manville, an otherwise healthy Denver firm that sells building materials, kept up business as usual. A month ago it offered to set up a $2.5 billion fund for asbestos victims as part of a plan to emerge from bankruptcy proceedings within a year or two.
The disasters at Robins and Manville are only the two biggest cases in an epidemic of product-liability problems that has clogged courts, shaken American companies and raised the costs and risks of doing business. Last year Dow Chemical and other producers of Agent Orange, a defoliant used in Viet Nam, agreed to pay $180 million to veterans who said they developed cancer and other ailments because of exposure to the chemical. The claims were never proved, but the companies settled rather than face an endless siege in court. American Motors has paid out millions of dollars as a result of suits charging that its Jeeps are unsafe, but the company will not reveal the amount.
Pharmaceutical companies have been especially vulnerable. Merrell Dow, a Cincinnati-based subsidiary of Dow Chemical, last year agreed to establish a $120 million fund to satisfy claims that Bendectin, a pill prescribed for morning sickness during pregnancy, caused birth defects. But attorneys for some plaintiffs rejected the settlement, and the debate about Bendectin is back in the courts. Last week Eli Lilly pleaded guilty to criminal charges stemming from injuries caused by its arthritis drug Oraflex (see box).