With asbestos continuing to dominate the balance sheets of many UK and European re/insurers, old world companies are keeping one eye on developments in the US Mary S Lyman, Robert E Carlstrom and Michael Cook review what's happening in the US.
The 108th Congress is in its twilight, bickering and horse-trading its way towards the day when it adjourns sine die and all unenacted legislation and unfinished business disappears into a limbo from which it may or may not be resurrected by the 109th. Prominent among the items of unfinished business is the Fairness in Asbestos Injury Resolution (FAIR) Act, Congress' attempt to deal with the asbestos litigation crisis that has burdened American courts for decades.
Over the course of two years, numerous mark-up sessions, several rewrites, and protracted negotiations, substantial agreement has been reached on the form that solution should take: taking asbestos claims out of the tort system and channelling them to a national, federally administered claims facility; compensation paid from a trust fund jointly financed by defendants and insurers, and replacing the delay and arbitrariness of tort litigation with a fair and rational claims system, and what has been in essence a lottery for claimants, defendants, and insurers alike with certainty and predictability. Claimants desiring compensation would be required to show according to accepted medical criteria that they actually are ill and that the illness was caused by exposure to asbestos - something all too often lacking when claims are settled in the tort system - and in return would be paid a predetermined amount correlating to the seriousness of their condition and the role played by asbestos in causing it.
While the broad outlines came together fairly quickly, the details have proved far more difficult. The two loosely drawn coalitions of business/Republicans and labour/Democrats have had sharp disagreements over: the size of the trust fund; the levels of compensation - particularly for claimants with lung cancer and no concurrent asbestos-related disease; how pending claims should be dealt with, and how to ensure that claimants are not left languishing for months while the fund gets up and running, nor left with no recourse if the fund becomes insolvent.
After the Senate Judiciary Committee's best attempt to resolve these issues failed to win enough support to bring the bill to the Senate floor in April, many gave the effort up for dead. But the will to find a resolution proved to be strong enough to keep the momentum going through the summer and into the autumn. Stakeholders and legislators began a series of protracted negotiations. Over recent weeks, the negotiations have come down to exchanges of offers between the Senate majority and minority leaders, Senator Bill Frist (Representative Tennessee), representing the business/Republican stakeholders, and Tom Daschle (Representative South Dakota), representing labour (at least in the initial phases) and the Democrats. Another group of stakeholders, the trial lawyers, is adamantly opposed to any legislation and thus not a party to the negotiations.
As Congress adjourns on 8 October until 15 November in order for its members to campaign for their re-election on 2 November, the asbestos legislation's future lies largely in the hands of these two men. Majority leader Senator Frist continues to make passage of this legislation a priority 'hope' for the post-election 'lame duck' session of this Congress. Likewise, Senator Daschle has repeatedly stated his strong desire to pass asbestos litigation reform legislation this Congress, and has had to publicly break with the AFL-CIO (American Federation of Labour-Congress of Industrial Organizations) and plaintiff's bar, which have been long-term campaign contributors, in his negotiations with the majority leader.
The majority leader - and the defendant companies and insurers - strongly believe that all pending cases and settlements, unless paid, should be folded into the fund thereby removing all pending tort actions to the new claims compensation programme for disposition. Failing an agreement on this, the majority leader argues that the fund would be fundamentally unworkable, because the payers would face essentially a 'double jeopardy' in costs in the form of having to meet both assessments to the fund and separate and uncertain liability in those cases remaining in tort. The minority leader's offer was an apparent effort to find a 'split the baby' compromise between organised labour's national leaders and the plaintiff's bar on one side and those individual unions (for example, the United Auto Workers) wanting the legislation and defendants on the other. In this connection, the AFL-CIO headquarters' leadership and plaintiff's bar share the same clients - those union members who have sued or joined in the mass tort suits against defendant companies. Consequently, the AFL-CIO has been adamant about a substantially higher fund level - $154bn to $160bn - to ensure even higher levels of recovery for all affected union member claimants, presumably at high levels that would satisfy the workers and, perhaps, even their lawyers, if they are able to retain some type of contingent fees or segment of the litigation.
Where they stand
Here is where the two sides stand on the issues that have been the most difficult, based on their last offers.
- Trust fund: Senators Frist and Daschle have agreed on a $140bn fund - $90bn from defendants, $46bn from insurers, $4bn from the bankruptcy trust. Each side feels that moving towards this figure represents a major concession.
- Start-up: Senator Frist is willing to put $39.6bn into the fund in the first five years, $20.6bn of it from defendants. Senator Daschle wants $42bn within three years.
- Fund insolvency: Senator Frist will accept a reversion of claims to the tort system if the fund becomes insolvent - but only after there has been a programme review, and claims can only go to the federal courts.
Senator Daschle wants an automatic reversion to tort any time the trust runs out of money, with both federal and limited state court jurisdiction (claims may be filed only in the plaintiff's state of residence or the state where he was exposed to asbestos), and also the option to return to tort if the fund isn't up and running in 90 days.
- Pending claims: This is where the two sides remain farthest apart, and its resolution is a critical element in whether a bill will be enacted and if it is, whether it will provide the relief that defendants and insurers are seeking. Labour wants all pending claims to remain in the tort system; Senator Daschle has backed off from this but he still wants several categories of pending claims to be exempted. Senator Frist is firm in the stance that all claims, pending and future, must go into the new system, exempting only claims with a final judgment or fully executed settlement. He would, however, allow those with long-pending claims to go to the head of the line in the fund.
- Lung cancer with no non malignant disease: Both sides agree that 'exposure-only' lung cancer claims, especially those where the claimant is a smoker, must be limited to avoid their swamping the fund with claims for lung cancer for which causation is uncertain at best. The two sides agree that the solution is to send these claimants back to the tort system once they rise beyond a certain projected level; however, they differ on the specifics.
The Frist proposal provides for review and possible reversion, to federal court only, if such claims exceed the projections made by the Congressional Budget Office (CBO), using a three to four year rolling average. Senator Daschle's proposal would return these claims to federal or state court (state of residence or exposure only) if they exceed CBO projections by 33%, with federal or limited state court jurisdiction. Senator Daschle would also pay more to these claimants; the two sides agree on all other claim values.
A long shot
The weeks ahead will define the outcome for the legislation this year.
If negotiations continue between the leaders and their counsels over the next five weeks, with any agreements reached to be announced immediately after the election - a 'safe time' politically for them - a bill could be brought to the Senate floor by the two leaders and pass. If this should occur, we would expect the House leadership to accept the Senate bill, not wishing to get embroiled and suffer with it as the Senate has. If there are no meaningful negotiations during this period, however, it is unlikely that any further action will occur when Congress reconvenes for a short two-week lame duck session. Should the lame duck session run well into December, however, this phoenix could yet rise again. In sum, enactment of this legislation this year is a long shot, but possible - and only if both the majority and minority leaders remain committed to reaching an agreement.
Therefore, as the re/insurance industry consider its reserving positions for this year end, it appears asbestos will still be a major consideration - if not the major consideration - for many companies. The only question that remains is "what will next year bring?"
- Mary S Lyman is an associate director in Navigant Consulting's liability estimation and government affairs practices. Robert E Carlstrom is a director in Navigant Consulting's government affairs practice. Michael Cook is an associate director in Navigant Consulting's London office.