The Bipartisan Asbestos Reform Bill: Why It Ought to Be Enacted Into Law
By ANTHONY J. SEBOK
Tuesday, Jun. 07, 2005
Last month, in the midst of the Senate's pitched battle over the filibuster, the Judiciary Committee approved an asbestos reform bill. The bill is laudable; it shows how much good politicians can do when they approach a problem in a bipartisan spirit.
The bill - entitled the "Fairness in Asbestos Injury Resolution Act of 2005" (FAIR) -- has been championed by Senators Arlen Specter (R-PA) and Patrick Leahy (D-VT) against tremendous odds. The legislative proposal, which I have discussed and defended in this column before, is the last, best chance the United States will have to deal with the horrible consequences of asbestos.
FAIR will guarantee that the worst-off will be compensated, and that asbestos litigation does not become a black hole that consumes billions of dollars in wasted transaction costs. The attacks that have been made on this bill cannot obscure a basic truth: It ought to become law.
The Attacks on FAIR, New and Old
For a long time, the smart money was betting against FAIR's ever making it through the Judiciary Committee. Now that it has passed that hurdle, its critics have stepped up their criticisms, in the hope of pulling enough votes away from either the Democratic or Republican side of the Senate to doom the bill before it makes it to the House.
As I will explain in some detail below, many traditional supporters of the Democratic Party, such as the consumer group Public Citizen and the AFL-CIO, have turned against FAIR. The newest and most interesting development, however, is the attack on FAIR from the right.
As Senator Specter noted in a May 16 Op Ed in the New York Times, Dick Armey is now running radio ads on behalf of a group called "FreedomWorks" that accuse FAIR of creating $140 billion in new taxes.
This claim is preposterously false. But far more interesting that what Armey says, is the fact that he has entered the asbestos debate. The Wall Street Journal has also come out swinging against FAIR.
Sen. Specter's response to Armey's attack was to point out that Armey is "just" a lobbyist - one who was paid $1 million by the British insurer Equitas to oppose FAIR, since Equitas is concerned that it would do worse under the government-run plan than it would in the courts of Texas, Ohio, and the rest of the United States.
I sympathize with Sen. Specter's frustration at being attacked from the right on what is, in effect, the largest piece of tort reform ever proposed by the federal government; after all, the right is usually at the head of the tort reform bandwagon. Yet I think it is sad that the debate over FAIR has degenerated to the point where, instead of debating the merits of the bill, critics are trying to uncover who is being paid to speak, and by whom.
For example, Public Citizen, which has an admirable record of defending the interests of consumers and the integrity of the tort system, dedicated the balance of its recent attack on FAIR to pointing out that the companies which would benefit from the plan hired lots of lobbyists to promote it. The rest of the critique noted the ways in which all of the asbestos companies which would be saved from bankruptcy by FAIR would ultimately spend less on compensating victims of their wrongdoing, than if the law was defeated.
Why Asbestos Is the Legal System's "Problem from Hell": No Perfect Solution Exists
In the end, the problem with attacking the motives of the people who have taken positions in the debate over FAIR is that everyone in the asbestos debate has a motive, and no one's motives are pure.
Why? The answer is easy to understand once one realizes that asbestos is the legal system's "problem from hell." The simple truth is that asbestos manufacturing caused vast numbers of injuries and there simply is not enough money to compensate all those victims, even if we could identify them all.
According to studies cited in the RAND Corporation's recent, excellent report, "Asbestos Litigation" (2005), asbestos exposure will have caused between 42,000 and 229,000 "excess deaths" during the period from 1985 to 2009, and untold additional injuries. Meanwhile, with already 700,000 suits filed against 8200 various defendants, the litigation over asbestos has cost over $70 billion, with only $30 billion of this money spent going to victims.
According to RAND, the rate of growth in the number of additional suits for asbestos exposure is increasing, not decreasing, despite the fact that asbestos has not been widely used since the 1970's. And the cost of litigating asbestos cases is crushing, even though few cases ever make it to trial.
According to RAND, despite the huge volume of such cases filed, there have only been 526 reported asbestos trials to date, and these trials disposed of the claims of only 1570 plaintiffs. The rest of the suits have either been settled, or are sitting in limbo due to defendants' bankruptcy or backlogs in the courts.
Using these numbers, RAND tried to estimate how much it would cost to resolve all outstanding and future asbestos suits through the present litigation system, and it came up with a very rough guess: a massive $130 billion to $170 billion.
The Logic of FAIR: Every Asbestos Victim Recovers; Every Asbestos Company Pays
With this background in mind, it is important understand the basic logic of FAIR. Under FAIR, every victim can get something and every company who was ever involved in the old asbestos litigation system (and its insurer) will have to pay something.
FAIR is designed to supplant virtually all of the current 700,000 lawsuits that have not yet been settled and all future lawsuits. FAIR establishes a claim facility where an administrator works off of a damages schedule (that is, a chart matching plaintiffs' injuries to the damages to which they are entitled) and decides whether claimants qualify for those damages.
FAIR forces victims to give up their right to court trial and (if they were to win) potentially larger damages. And by making payments to claimants who make claims through the facility, the corporations get the promise of a guaranteed ceiling for their asbestos exposure. (The insurance companies, which, after all, are exposed to asbestos liability just as much as the corporations, also are guaranteed an upward ceiling.)
FAIR's Drafters Had to Balance the Interests of Various Groups
Senators Specter and Leahy had to play a careful game with many different constituencies when they finally put together their plan. That is, in part, because the victims of asbestos can be viewed as three separate interest groups.
First, there are those who are suffering from some sort of asbestos-related injury today, and have filed suits or plan to file suits. Second, there are those who will suffer an asbestos-related injury in the future. Third, there are the lawyers who earn a living helping those who suffer injuries get compensation.
The current victims would like to get as much compensation as they can now. The future victims have an interest in making sure that any program established by the government retains enough money to pay them when they get sick - even after paying off current victims. And the lawyers don't want to lose their income.
On the defendants' side, the Senators had to balance competing interests too. First of all, the corporations who are currently defendants in asbestos suits would not want to give up the tort system if that meant that their insurers would not longer be responsible for bearing the costs of compensating victims; that would mean paying money the corporations otherwise would not have had to pay, for it would have been covered by insurance. But on the other side, the insurance industry would not want to fund a new government program unless it relieved them of their liability obligations to their clients, the asbestos defendants; the insurers did not want to have to pay twice, funding the government program and making good on their clients' policies.
Finally, the corporate defendants themselves have an intergenerational conflict: companies that had already been sued (and placed into bankruptcy) might be more interested in eliminating their current liabilities, than companies for whom the risk of asbestos liability is still in the future.
The Key Question Should Be: Will Victims Do Better Under FAIR?
Given all these considerations, Public Citizen should know better than to attack FAIR simply because it will make certain corporations better off than they would have been under the current tort system. (For example, Public Citizen is very disturbed that the largest bankrupt asbestos companies would see their payments to victims decline tremendously, thus allowing them to get out of bankruptcy.)
Whether companies like Owens Corning or W.R. Grace will profit handsomely as a result of leaving bankruptcy should not be the test of whether FAIR is a good idea. The test should be whether the people hurt by Owens Corning or W.R. Grace will do better under FAIR than under the status quo. And, as I will explain, they will.
For example, someone with mesothelioma--the most horrible form of asbestos-related illnesses--would receive $1.1 million under FAIR's claim system. Granted, this is not as much as the $3.7 million that RAND estimates is received at trial for a mesothelioma plaintiff. But no one who is suing a bankrupt corporation receives their entire award. Far from it: Some bankrupt asbestos companies, such as Manville, are giving as little as 5 cents on the dollar to victims.
Furthermore, because litigation is so expensive and rare, very few of the tens of thousands of mesothelioma victims can actually go to trial. So, without FAIR, they might not get any money at all, or they might settle for much less than they could get under FAIR's claims system.
Furthermore, under the status quo, victims typically have to pay their lawyers up to 40% of their compensation. Under FAIR, lawyers who assist a victim in filing a claim can receive no more than 5% of the award.
But the real test of FAIR's value is not so much how it treats current victims, although I think it does pretty well on that score. The ultimate test is how it will treat future victims. In this regard, it does a very good job. By spreading the cost of compensating asbestos victims across over 8200 corporations and their insurers, FAIR ensures that there will be money for the new waves of asbestos victims that RAND assures us will come.
The most difficult issues of fairness, in my opinion, arise among the various corporations who will pay for FAIR. This is why people like Dick Armey have been hired to kill the bill. Their sponsors, understandably, would rather take their chances in the tort system, in the hope that someone else will bear the brunt of current and future liability demands.
They hope to win the lottery - with some other corporation suffering the multi-million dollar verdicts, while they manage to get modest settlements. That's a very dangerous gamble, however, and sensible companies ought to prefer not to gamble.
Enacting FAIR Into Law Should Please Both Moralists and Pragmatists
Of course, there is a moral case to be made that asbestos should be viewed as a national problem that should be solved through a broad-based national corporate program of compensation.
But one does not have to be so high-minded to defend FAIR against its corporate critics. Instead, all one needs to remember is that the victims of asbestos are not going to go away.
Asbestos touched an incredibly broad range of companies and their insurers. It is shortsighted for any corporation to think that it can stay safe forever from the wave of lawsuits that will follow each new wave of victims. The more prudent strategy would be to support FAIR, and to stop this problem from hell.