Rick Farrell and Mary Lyman assess whether US asbestos litigation reform is still a viable prospect

As the 108th Congress gears up for its second session, asbestos litigation reform legislation continues to be a top priority for the Senate leadership. While the proposed Fairness in Asbestos Compensation Act (FAIR Act, S1125) lost a good deal of momentum after its initial consideration by the Senate Judiciary Committee in the summer of 2003, the interest in resolving the asbestos litigation crisis remains strong, and no issue or problem has yet convinced stakeholders to give up the effort. Senate Majority Leader Bill Frist is indicating he will schedule the bill for a Senate vote this Spring and negotiations are taking place in earnest to achieve legislation that can secure the approval, or at least neutrality, of the major interests - manufacturers, insurers and organised labour.The trial lawyers oppose any legislative solution.

Progress and stalemateIn July 2003, the Senate Judiciary Committee completed 'mark-up' of the FAIR Act and voted to report the legislation to the full Senate for consideration.The committee vote was essentially partisan, with only one Democratic Senator voting in favour of the committee version. However, a number of Democratic members of the committee made clear that they did support the effort to develop asbestos litigation reform legislation, but could not agree to the bill in its current form because of concerns over the adequacy of compensation to asbestos victims and the failure to win any level of endorsement from organised labour.Soon after the Judiciary Committee action, various stakeholders began expressing dissatisfaction with the product. Organised labour expressed concerns in a letter sent to Senators by the American Federation of Labor - Congress of Industrial Organisations (AFL-CIO). These concerns included: that the compensation paid was not high enough, particularly for mesothelioma and lung cancer; that up-front funding would not be adequate to cover the influx of pending claims; that back-end funding was also inadequate; that the claims system was too adversarial and should be replaced with an administrative, non-adversarial system; that pending claims "that have already been significantly processed through the judicial system" and existing settlements should be grandfathered; that screening should be provided for high-risk employees; and that Federal Employee Liability Act (FELA) claims should be exempted. The letter mentioned several other technical concerns as well.The insurance industry, extremely unhappy that its total contribution had been raised from $45bn to $52bn, withdrew its support from the bill.Business, while finding many aspects of the bill acceptable, had serious concerns about a start-up provision added to the legislation in committee by Senator Feinstein, which would allow asbestos suits to remain in the tort system for several months until the fund was pronounced operational, and a sunset provision offered by Senator Biden, which would terminate the fund and send claims back to tort if the fund failed to remit payment to 95% of eligible claimants each year.Thus, it was understood by all that the legislation approved by the Judiciary Committee was not the last word. It was expected that a number of substantive changes and technical fixes would be made to the bill via a manager's amendment when it came to the Senate floor.Early in October, the Congressional Budget Office (CBO) issued its cost estimate for the FAIR Act as reported by the Judiciary Committee. It calculated that the proposed Asbestos Injury Claims Resolution Fund would spend about $136bn over a 50-year life, an amount that would not be covered by the base funding and would require use of the contingent call. For the ten-year budget period 2004-2013, Fund expenditures would total about $58bn, while the Fund would collect about $60bn. Counting net cash flows associated with investment of assets, which are estimated as an outgoing of $1.4bn, the net effect would be a deficit reduction of $600m over ten years. In addition, the Court of Claims would require $700m in appropriated funds to process and resolve claims.

Next stepsFor a period of time, the insurance industry struggled to unite on a compromise position, an essential step for the legislation to advance.At one point the industry was divided three ways, but eventually a consensus was reached: the insurers would contribute a maximum of $28bn, present value (PV), the original $45bn in nominal terms.Senator Frist began meeting with stakeholders in September to try to work out an agreement. In a 9 October meeting, Senator Frist presented a proposed compromise to defendants and insurers: a base fund of $114bn (as opposed to S1125's $108bn) with the proviso that if the Fund approached depletion, then either (a) cases would return to tort, or (b) Congress would take action to address the fiscal needs of the program, as they are determined at that time. The insurers would contribute $30.4bn PV over the first three years, while the defendants would contribute $55.5bn ($35.7bn PV) over 27 years. It was expected that this would amount to $114bn over the life of the Fund. Defendants countered with $53bn and a $20bn contingency split evenly with insurers.On 15 October, defendants and insurers came together on a deal that has been described as follows:- a base fund of $114bn;insurers would pay $30.4bn PV ($46bn nominal) with $14bn paid in the first three years; and- defendants would contribute $57.5bn to the base fund and would provide $10bn for a contingency fund. In addition, defendants expressed willingness to kick in an additional $10bn should it be necessary down the road to satisfy labour and ensure the adequacy of the Fund.The problem with this agreement was that one stakeholder had not been a party to reaching it. The AFL-CIO quickly denounced the funding agreement and sent another letter to the Hill expressing "deep concerns," noting that what it termed "the new agreement of $115bn total funding" provided "far less funding than EUR1125 as reported out of the Judiciary Committee" and calling the proposed funding "grossly inadequate to provide fair compensation for victims or any certainty that claims will be paid." To emphasise this point, the letter cited the CBO estimate that the Fund would spend $136bn during its life. The letter made it clear that labour was not on board with getting legislation passed by the Senate in the current session of Congress.Despite labour's objections, the Frist offer did in fact contain much to reassure them that funding would be adequate. The $114bn figure cited was the base funding; contingency funding offered by the defendants would bring the total up to $134bn. In addition, the Fund would be authorised to borrow against up to seven years of its income stream to meet claims payment needs, and if this still were not enough, there would be a return to the tort system, with the defendants still obligated to contribute to the Fund to pay off the borrowings.The Manville Trust, which settles asbestos personal injury claims resulting from exposure to asbestos-related products mined or manufactured by the Johns-Manville Corp, muddied the waters somewhat during this period by claiming in a letter to the Judiciary Committee that rolling the assets of the existing bankruptcy trusts into the Fund would be an unconstitutional taking. The NGC and Fuller-Austin trusts (also asbestos settlement trusts) submitted a memorandum written by Harvard Law professors Richard Fallon and Elizabeth Warren and Michel Rosenthal of Gibson, Dunn & Crutcher supporting that theory. If this were true, it would remove about $5bn of the expected funding for the Trust. However, Harvard Law professor and Constitutional scholar Laurence Tribe sent the Committee staff a memorandum emphatically rejecting that claim. Prof Tribe's view is the most likely to prevail, and the amounts involved are not large enough to sink the agreement even if they are eliminated.

Labour negotiationsThe Frist agreement, while not the final solution to the issues holding up the asbestos bill, did have the effect of breaking the logjam and getting the process moving again. Once its terms had been clearly communicated to all concerned, several things happened. First, the business community, most notably the National Association of Manufacturers' Asbestos Alliance, decided that things looked promising enough to put a real effort into lobbying the Senate to pass a bill. The Alliance sent letters to all 100 Senators urging that the legislation be resolved before Congress adjourned for the year and had a number of meetings with Democratic Senate offices.Second, several Senate Democrats, including those who had expressed concerns with the Committee bill, made it clear that they wanted a bill to happen and put considerable pressure on organised labour to return to the negotiating table. In response, the AFL-CIO, while continuing to express doubts that the legislation could be repaired enough to satisfy their interests before the end of the year, sent Senator Frist a letter on 27 October outlining its terms and willingness to continue discussion. Its main points were:- claims values based on those put forth by Senators Leahy and Kennedy, without offsets, and sufficient front-end funding to cover the $153.8bn those values are estimated to cost;- joint and several liability as to the allocated amounts for each of the two groups;- a reversion to the tort system if the Fund cannot satisfy its claims obligations, regardless of when that might occur;- no replacement of the current system until and unless the Fund is operational; and- resolution of the other concerns expressed in the 31 July letter.On October 28, Senators Daschle, Leahy and Dodd sent a letter to Senator Frist expressing general concern about claims values (advocating the Leahy-Kennedy values), funding levels, the need for a non-adversarial claims system, and "numerous" other unresolved issues. However, the letter did not take the hard-and-fast positions that characterised the AFL-CIO letter.Indeed, it was very conciliatory, thanked Senator Frist for his work, and expressed support for a speedy resolution. It urged the Senator to "convene a bipartisan process" to resolve the outstanding issues.A process was worked out in which Senators Frist and Daschle and their staffs would meet to work out the financing issues, while structural and procedural issues would be worked out by Senators Hatch, Specter, Leahy and Dodd and their staffs. These meetings began at the beginning of November; however, little progress was made while the stakeholders awaited an expected proposal by organised labour to address one of their major concerns with the legislation: the administrative system. While labour's principal concern was that the system was too adversarial, other problems with the system have been noted as well: the division of responsibility between the US Court of Federal Claims and the Fund is confusing and the powers and responsibilities of those administering the system are not clearly spelled out.The labour proposal was presented on 7 November in meetings with Democratic Judiciary Committee staff. It would create an Office of Asbestos Injury Claims Administration within the Department of Labor, which has traditionally administered workers' compensation programs. A Claims Director, appointed by the President with the advice and consent of the Senate, would manage the asbestos claims process, develop procedures, and hire necessary personnel.The Claims Director would be distinct from the Administrator, who would be responsible for managing the assets in the trust fund.The Claims Director would appoint 15 medical specialists to the Medical Advisory Committee (MAC), with appointment based on recommendations from several health agencies. The MAC would assist the Director in establishing procedures for the medical evaluation of claimants and periodically evaluate the claims process and eligibility criteria.It is presumed that the majority of claims would receive 'scheduled determinations' that a Claims Examiner could process in a matter of weeks. However, the proposal would create a Physicians Panel, appointed by the Secretary of Health and Human Services, to which the Claims Examiner could refer a case to determine the claimant's medical condition or appropriate asbestos disease level.A claimant could appeal a Claims Examiner's determination to a Hearing Officer, who would hold a hearing on the record and issue written findings of facts and conclusions of law to support his or her determination. A claimant could appeal this determination to a panel of Hearing Officers and eventually to the Claims Director. If the Director rejected the review or the claimant failed to appeal, the Hearing Officer's determination would constitute final agency action. Final agency actions could be appealed to the Court of Appeals for the Federal Circuit, which currently hears appeals from administrative rulings and would develop an expertise in the area of asbestos compensation.

Year-end and current statusIf matters had reached this stage at some other point in the year, negotiations might have continued and the remaining issues been resolved. However, Congress was in its end-of-year push to finish appropriations and other critical items of business, which included Medicare and the energy bill.Moreover, in mid-November, Judiciary Committee members and staff were distracted from other tasks by a 39-hour filibuster conducted by Republican Senators to protest the Democratic Senators' filibuster of Bush's judicial nominees. The Senate adjourned on 21 November with plans to come back only long enough to finish a continuing appropriations resolution, and without having had the time to resolve the asbestos legislation.Shortly before the Senate adjourned for Thanksgiving, Senator Frist indicated more time would be required to achieve consensus on asbestos legislation and that a vote would not be scheduled this year. He announced that the Senate would commence floor action on an asbestos bill by the end of March 2004.Senator Frist made a lengthy floor statement outlining the current state of the asbestos discussions and the remaining issues as he saw them. He described himself as deeply involved in the post-Judiciary Committee negotiations and stated that resolving the asbestos issue is a personal priority. He characterised progress so far as "very good".He also made a point of stressing the economic reality of the asbestos crisis, citing lost jobs, income and retirement savings. The Senator further outlined the positive impact of the legislation, stating: "Passing this bill will create enormous economic benefits. I say that because the certainty that flows from the bill will stimulate capital investment. It will also preserve existing jobs and create new jobs as well."His assessment of the legislation suggested that most of the major issues had been resolved and that the few remaining differences could be bridged in the projected time frame. With respect to the push by Democrats and labour for further increases in claims values, Senator Frist stated that he was prepared to consider further modest increases in claims awards in an effort to forge a bipartisan consensus, provided they were targeted at categories uniquely caused by asbestos exposure. (Concerns have been voiced that lung cancer claims not related to asbestos exposure could overwhelm the Fund.)Senator Leahy, ranking Democrat on the Judiciary Committee, responded by agreeing on the need for reform and committing to continue to work for a bipartisan solution. He acknowledged the problems asbestos litigation pose for victims and for business. Leahy was positive in tone, stating "a solution has never been closer than it is today," but went on to warn that a solution to the asbestos crisis can only be achieved through consensus.While a number of issues still remain to be resolved, Senator Frist still plans to take the bill up in the Spring.At this juncture, labour remains the chief impediment to forward progress on the legislation, but it appears that they are making a good faith effort to resolve the outstanding issues. The unions are concerned that their members who have worked or would like to work for companies that have a real or potential asbestos liability problem will be left out of the economic recovery unless the issue is resolved. They may also be concerned that the best deal they are going to get will be with this Congress, because after the Fall elections it is likely that the Republicans will have even larger majorities in the House and Senate. With all parties other than the trial lawyers (who have a dwindling number of Congressional allies on this issue) having apparently decided that their self-interest lies in enacting an asbestos bill this year, the prospects are promising that a bill will make it through the Senate and go on to passage by the House of Representatives and the President's signature.Rick Farrell is a Principal in the Washington, DC office of Navigant Consulting, where he manages the Government Affairs practice. He is a former Assistant Administrator of the US Environmental Protection Agency and Secretary of the Florida Department of Business and Professional Regulation.Mary Lyman is a Senior Engagement Manager in Navigant's Washington, DC office, where she provides research and analysis of legal and legislative issues for the firm's product liability practice.