LEGAL REFORM

ASBESTOS LITIGATION REFORM

THE ISSUE IS… Reform of the nation’s asbestos liability system.

IT’S IMPORTANT BECAUSE… Asbestos claims are inundating the United States courts at an alarming rate. To date, the number of asbestos liability claims filed in the U.S. is over 700,000. Recent statistics show that there is an estimated 200,000 asbestos claims now pending before the federal and state courts. With tens of thousands of new claims filed each year, legal experts expect that the total number of lawsuits could eventually exceed 2½ million.

One reason for the drastic increase in asbestos lawsuits is that the scope of defendants has widened to those companies with only peripheral involvement with asbestos. Previously, asbestos cases typically targeted as defendants only those companies that manufactured asbestos-containing materials. However, following the bankruptcy of the original defendants, the current asbestos cases now target those companies that had peripheral involvement with asbestos-containing products and materials. For instance, many of the defendants named in current lawsuits are those companies that shipped and installed (and not manufactured) asbestos-related products.

Another reason for the large amount of asbestos claims is due to the increase in claims by those plaintiffs who are not truly impaired or injured. Today, courts now allow people to sue even though they exhibit no signs of physical injuries or sickness. Instead, the claimants must merely show the existence of the alleged asbestos-containing product and present medical testimony that exposure could cause injury. As much as 90% of the new claims have been brought by asymptomatic or otherwise unimpaired plaintiffs. Settlements and payments to these plaintiffs quickly deplete resources and threaten the ability to adequately compensate those who are truly sick.

Asbestos liability cases are having a serious economic effect on businesses from all industries. For example, asbestos cases have sent more than 75 American companies into bankruptcy, which has led to numerous lost jobs and employee retirement plans. Additionally, because the current lawsuits name as defendants those companies with peripheral involvement in asbestos-containing materials, thousands more companies are now facing potential economic crisis. With over 8,400 American companies named as defendants in asbestos cases, legal experts predict that asbestos liability could ultimately cost the U.S. economy well over $200 billion.

On April 19, 2005, Senate Judiciary Chairman Arlen Specter (R-PA) introduced S. 852, the Fairness in Asbestos Injury Resolution Act. S. 852 would create a privately funded, publicly administered fund to provide resources for an asbestos injury claims resolution program. The total amount of the fund would be $140 billion with the insurance industry responsible for $46.025 billion.

The bill is cosponsored by the following Senators: Patrick Leahy (D-VT); Wayne Allard (R-CO); Richard Burr (R-NC); Pete Domenici (R-NM); Lindsey Graham (R-SC); Orrin Hatch (R-UT); Pat Roberts (R-KS); Ted Stevens (R-AK); David Vitter (R-LA); John Warner (R-VA); Max Baucus (D-MT); Mike DeWine (R-OH); Dianne Feinstein (D-CA); Chuck Grassley (R-IA); Johnny Isakson (R-GA); Richard Lugar (R-IN); Rick Santorum (R-PA); Jim Talent (R-MO); and George Voinovich (R-OH).

On May 26th, after a four-week markup process, the Senate Judiciary Committee passed S. 852 by a vote of 13-5. All Republicans on the committee joined with Ranking Member Patrick Leahy (D-VT), Sens. Dianne Feinstein (D-CA), and Herbert Kohl (D-WI) in voting for the bill. Senators Cornyn (R-TX), Kyl (R-AZ) and Coburn (R-OK) noted for the record that although they would support voting the bill out of Committee, if S. 852 were to go to the floor as currently drafted, they would oppose the bill on the Senate floor. They stated that there were still some very important issues that needed to be addressed prior to floor consideration.

The Senate Judiciary Committee’s approval of S. 852, the FAIR Act, was a small victory for Chairman Arlen Specter (R-PA). However, Senators on both sides of the aisle remain concerned regarding the legislation because of the uncertainty surrounding the number of claimants who would qualify, which defendant companies and insurers would contribute to the fund, and how much each would pay into the fund.

These concerns were heightened by a Congressional Budget Office cost estimate of the bill that shows a wide range of uncertainty about the program’s projected revenues and cost. The estimate, released August 26, stated that the trust fund would collect a maximum of $140 billion in revenues and would face claims of between $120 billion and $150 billion.

The report stated that although there would be sufficient resources to pay all claims over the next 50 years, it is almost impossible to precisely forecast the fund’s performance. There is little basis for predicting the volume of claims that will be filed, the number of claims that will be approved to be paid, or how fast the claims would be approved.

The American Legislative Exchange Council (ALEC) sponsored a study conducted by Bates White. The study concludes that a $140 billion trust fund would be completely depleted in just one to three years. The study also concludes that it would leave between 383,000 and 913,000 potential future asbestos victims without any compensation.

The Coalition for Asbestos Reform (which includes approximately 15 insurance companies) has also commissioned a study by Lester Brickman regarding the financial impact of S. 852. According to Professor Brickman, the financial impact of S. 852 is not static. Professor Brickman states that the trust fund (as proposed in the legislation) does not take into consideration, several other costs that will be incurred by companies outside of the trust fund such as trial court verdicts, cases where the presentation of evidence has commenced, certain settlements, and silica claims. Therefore, the costs that the participants will incur beyond the trust fund itself will extend well beyond a range of $40-$65 billion. With the added costs to participants, the value could be well beyond $180-205 billion.

On November 17th, the Senate Judiciary Committee held a hearing to question the authors of the CBO and Bates White studies that reached vastly different conclusions about the viability of S. 852. According to testimony by the witnesses, the differences arise from the fact that Bates White based its estimates on epidemiological incidence of lung cancer that could be related to asbestos exposure in the workplace, while CBO bases its estimates on the current experience of the Manville Trust and on the number of asbestos claims currently pending in the tort system.

Senate Majority Leader Bill Frist (R-TN) stated that the asbestos bill would be one of the first major pieces of legislation on the Senate floor in 2006. On February 6, the Senate began debate on S. 852. Senate Majority Leader Frist filed a motion to invoke cloture which would limit debate on the bill and end Senate Minority Leader Harry Reid’s (D-NV) attempt to filibuster the legislation. The next day, the Senate voted 98-1 to move forward with consideration of the FAIR Act. Sen. Jim Inhofe (R-OK) was the sole dissenter and Sen. Tom Coburn (R-OK) was not present at the time of the vote.

February 9, the Senate failed to pass the medical criteria amendment to S. 852, the FAIR Act, as proposed by Sen. John Cornyn, R-Texas. The Cornyn amendment would have been a complete substitute for S. 852. The final vote was 70 to 27.

The amendment, the Asbestos and Silica Claims Priorities Act of 2006, would have kept asbestos claims in the tort system but would force claimants to meet more stringent medical criteria than currently required to pursue damage, ensuring those who are truly sick from exposure to asbestos or silica would receive prompt, fair and efficient adjudication of their claims. The amendment would have also ensured that presently unimpaired claimants would not lose their right to have their claims heard in the tort system. Other terms of the amendment were: 1) limit filings to individual claims and to the proper forum; 2) require physicians and experts to comply with strict requirements; and 3) ensure proportionate responsibility.

Co-sponsors of Sen. Cornyn’s amendment included Sens. Tom Coburn, R-Okla., Lindsey Graham, R-SC, John Ensign, R-Nev., Mike Crapo, R-ID, Jim Inhofe, R-Okla., Mel Martinez, R-Fla., Jim DeMint, R-SC, John Thune, R-SD, Robert Bennett, R-Utah, Gordon Smith, R-Ore., Larry Craig, R-ID, and John Sununu, R-NH, Saxby Chambliss, R-Ga., Michael Enzi, R-Wyo., Chuck Hagel, R-Neb.

The next big test for the Specter-Leahy $140 billion asbestos trust fund bill came on February 14 when Senator John Ensign (R-NV) raised the budget point of order (budget-related objection). In order to waive the objection, Sen. Specter needed 60 votes and the vote tally was 58-41. Senator Frist changed his vote to a nay so that he could reschedule another vote at a later time due to the fact that Senator Daniel Inouye (D-HI) was absent during the vote.

NAMIC, as well as the American Insurance Association (AIA), the Property Casualty Insurers Association (PCI) and the Reinsurance Association of America (RAA), sent letters to Senate Majority Leader Frist indicating that the industry could not support the legislation as it was reported out of the Judiciary Committee because the legislation still does not ensure the certainty and finality needed to garner the insurance industry’s support.

On May 26, 2006, Sen. Specter introduced S. 3274, the Fairness in Asbestos Injury Resolution (FAIR) Act of 2006. The legislation is an amended version to S. 852. Among some of the key revisions are: First, the changes seek to strengthen the medical criteria that claimants must meet by establishing random audits of medical and exposure evidence submitted by claimants. In addition, claimants would be required to submit detailed and specific affidavits attesting to their exposure. Second, the start-up process would ensure that exigent claims would proceed through the trust fund rather than remaining in the tort system. Third, the changes would prevent “dormant” (inactive) claims in the tort system that are still listed on court dockets from being filed with the trust fund.

Senate Judiciary Chairman Specter held a hearing on June 7 regarding S. 3274. The committee heard testimony from the following witnesses: Gov. John Engler (President-National Association of Manufacturers), Peter Ganz (Executive Vice President and General Counsel for Foster-Wheeler), Eric Green (Founder-Principal Resolutions, LLC., and Professor-Boston University), Flora Greene (National Spokesperson-Seniors Coalition), Jim Grogan (General President-International Assoc. of Heat and Frost Insulators and Asbestos Workers), Douglas Holt-Eakin (Director-Council on Foreign Relations), Edmund F. Kelly (Chairman-Liberty Mutual Insurance Company), and Bob Wallace (Executive Director-Veterans of Foreign Wars).

In the House of Representatives, Rep. Mark Kirk (R-IL) introduced H.R. 1360, which would create an Office of Asbestos Disease Compensation within the U.S. Department of Labor and charged with administering the fund. The bill calls for establishing a series of medical criteria and a compensation schedule for claimants seeking to prove they suffer form eligible diseases or conditions caused by exposure to asbestos.

Also, Rep. Chris Cannon (R-UT), along with 54 cosponsors, introduced H.R. 1957, the Asbestos Compensation Fairness Act. The bill would mandate that plaintiffs seeking damages for asbestos or silica exposure within the tort system must demonstrate physical impairment consistent with more stringent medical criteria based on the American Medical Association's Guides to the Evaluation of Physical Impairment, Fifth edition. The bill also allows the courts to grant priority status to those claims where victims have met all of the medical screening tests, as well as extending the statute of limitations for those seeking to file such claims. There are caps on non-economic losses. For an asbestos or silica claim, the total amount of damages may not exceed $250,000 and claims based upon mesothelioma shall be capped at $500,000. Also, no punitive damages shall be awarded in any civil action alleging an asbestos or silica claim. Rep. Cannon introduced similar legislation (H.R. 1586) during the 108th Congress.

NAMIC POSITION… NAMIC believes that Congress must address the current asbestos liability crisis. In order to garner the support of NAMIC, as well as the property/casualty industry, Congress must craft legislation to ensure certainty and finality, affordability, and effectiveness and efficiency. There are people that have been physically injured or have died from exposure to asbestos, and the legal system should fairly and adequately compensate these innocent victims. However, today’s system instead targets and punishes those companies who had only peripheral or no involvement with asbestos-containing materials, and it allows some individuals to sue and obtain compensation when they are not injured. Wrongly punishing innocent companies while awarding damages to unimpaired plaintiffs only serves to prevent the truly injured from obtaining just compensation.

Posted: Wednesday, March 01, 2006 12:00:00 AM. Modified: Monday, June 12, 2006 3:41:32 PM.

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We are 1,400 property/casualty insurance companies serving more than 135 million auto, home and business policyholders, with more than $196 billion in premiums accounting for 50 percent of the automobile/homeowners market and 31 percent of the business insurance market. We are the largest and most diverse property/casualty trade association in the country, with regional and local mutual insurance companies on main streets across America joining many of the country’s largest national insurers who also call NAMIC their home. More than 200,000 people are employed by NAMIC members.