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Reprinted from the April 2006 ABI Journal April 1, 2006

Web posted and Copyright © April 1, 2005, American Bankruptcy Institute.

Long-Term Costs of Federal Liability Defeat Asbestos Reform Legislation; More Bankruptcies Likely

Ann vom Eigen
Deputy Executive Director
and General Counsel

n unlikely alliance of conservative Republicans and liberal Democrats with differing concerns about the asbestos-victim compensation legislation joined together to defeat Senate consideration of S. 852, the "Fairness in Asbestos Injury Resolution Act of 2005 (FAIR)," on Feb. 14. Faced with a tight floor schedule, Senate Majority Leader Bill Frist (R-Tenn.) has given Senator Arlen Specter (R-Pa.), chair of the Senate Judiciary Committee, until mid-April to obtain the votes necessary for passage in the Senate. As the House Judiciary Committee will not take up this issue until the Senate completes action, chances that the bill can become law this election year are fading. According to David Austern, general counsel of the Manville Trust, "if the FAIR Act passed, future liabilities of the companies in bankruptcy and the companies likely to be in bankruptcy due to asbestos liability would, without exception, have their liabilities dramatically reduced." The same result is applicable for most if not all of the insurance companies involved in asbestos litigation. Accordingly, failure to enact legislation will mean that the more than 70 companies that have had to or are likely to declare bankruptcy due to current and future asbestos liability will continue to administer their funds and establish reorganization plans.

S. 852 would create a $140 billion trust fund to pay awards to individuals suffering from asbestos-related diseases. Under the proposal, the administrator of a new Office of Asbestos Injury Claims Resolution in the Department of Labor would administer the Asbestos Fund and manage the collection of federal assessments on companies that have been involved in asbestos-injury litigation prior to enactment. The Asbestos Fund would absorb the estimated $12-$15 billion in assets of existing private asbestos trust funds. A separate insurer's commission would allocate other payment obligations among insurers with asbestos-related obligations in the United States. Essentially, workers claiming asbestos injury would no longer be able to sue their former employer, but would be subject to a no-fault compensation system. Under the bill, individuals claiming to suffer from asbestos-related diseases would be required to submit claims to the federal administrator and would be prohibited from seeking damages in federal or state court.

Although the bill was brought to the Senate floor as a bipartisan effort by Senate Judiciary Chairman Arlen Specter (R-Pa.) and Ranking Judiciary Member Patrick Leahy, factions at both ends of the political spectrum aligned to defeat the bill. Conservative senators, led by Sens. Jon Kyl (R-Ariz.) and John Cornyn (R-Texas), were concerned that the actual cost to the federal government was underestimated by more than $300 billion. Their opposition, in conjunction with trial lawyers' concerns about limitations on claims, will be difficult to overcome.


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