Solution to Growing Asbestos Crisis may be on the Way

The ‘elephantine mass of asbestos cases’ lodged in state and federal courts, we again recognize, ‘defies customary judicial administration and calls for national legislation,'” wrote Justice Ruth Bader Ginsburg in the U.S. Supreme Court’s recent decision in the case of Norfolk v. Ayers. That makes the third time that the court has urged Congress to do something about asbestos litigation. Perhaps this time it will.

Congressman Chris Cannon (R-Utah) introduced HR 1586 “The Asbestos Compensation Fairness Act of 2003,” on April 4 to provide a system to “fairly compensate victims with asbestos-related illnesses,” and to address “this national problem in a comprehensive manner,” according to an announcement on his Web site.

“Congress must act now in a thoughtful way to end this litigation nightmare,” Cannon said. “With over 200,000 asbestos liability cases still pending, people who are sick right now are not getting the help they need. When victims or their families finally get compensated, they only receive about the same amount as people who might become sick sometime in the future. Our primary goal is to help those who are actually ill right now and preserve resources for those who will become ill in the future. Clear, objective medical criteria will do that.”

A previous article in the Insurance Journal (July 2001) called asbestos “the shroud over the industry,” and unfortunately since that was written it’s only gotten worse.

Companies only marginally involved with asbestos have been hit. Goodyear Tire & Rubber in its annual report said that it spent $19.3 million, before reimbursement from its insurance carriers, defending around 97,000 civil actions relating to alleged exposure to asbestos in its products and plants.

In many instances the insurance carrier becomes the payer of last resort. Equitas, the Lloyd’s runoff vehicle established to handle claims prior to 1992, and Honeywell International recently announced that they had “reached a comprehensive policy buy-back settlement of all insurance claims by Honeywell against the Lloyd’s of London names reinsured into Equitas, for $472 million in cash.”

ACE Limited took a $354 million fourth quarter after tax charge to strengthen its reserves due to asbestos and environmental claims, but the gross reserve increase was actually $2.178 billion. It was offset by $1.860 billion of reinsurance, including $533 million from its reinsurance agreement from National Indemnity.

ACE is exposed to business it didn’t even write, but that it acquired when it bought Cigna’s P/C business, particularly its Brandywine operations, in 1999 for $3.54 billion. CEO Brian Duperreault remarked, “the charge for prior years asbestos exposure overshadowed what was actually a very good year for ACE.” That statement, coming from an ex-AIG executive who’s built ACE into a global powerhouse, and is considered one of the world’s savviest managers, evinces the depth of the problem. Almost all P/C insurers and reinsurers, even the best-run companies, are facing a rising and seemingly endless tide of asbestos claims.

Furthermore, a study commissioned by the Asbestos Alliance, a coalition of companies and trade associations, chaired jointly by the American Insurance Association and the National Association of Manufacturers, found that the burden of asbestos claims has had a negative effect on the entire U.S. economy.

Prepared by Nobel Prize laureate Joseph Stiglitz, Professor of Economics at Columbia University, Jonathan Orszag, Managing Director of Sebago Associates and Peter Orszag the Joseph A. Pechman Senior Fellow in Economic Studies at the Brookings Institution, the study estimated that “61 companies have filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code as a result of asbestos liabilities. These companies are spread across the nation, with 47 states having at least one asbestos-related bankruptcy.” According to the report, 204,868 people were employed by these companies before they declared bankruptcy. It also noted the following as further evidence of the negative economic impact:

• Bankruptcies led to a loss of an estimated 52,000 to 60,000 jobs;

• Each displaced worker at the bankrupt firms will lose, on average, an estimated $25,000 to $50,000 in wages over his or her career because of periods of unemployment and the likelihood of having to take a new job paying a lower salary;

•The average worker at an asbestos-related bankrupt firm with a 401(k) plan suffered roughly $8,300 in pension losses, which represented, on average, a roughly 25-percent reduction in the value of the 401(k) account.

While the Stiglitz’ study focuses mainly on the deleterious effects caused by bankruptcies, it also concluded: “The dramatic acceleration in claims does not appear to be associated with an acceleration in the number of severely affected people. Indeed, the American Academy of Actuaries has concluded that about 2,000 new mesothelioma cases are filed each year, a flow which is largely unchanged over the past decade, and that the annual number of other cancer cases at least partly related to asbestos exposure amounts to between 2,000 and 3,000. Such cases cannot come close to explaining the increase in asbestos claims being filed, which increased by almost 60,000 between 1999 and 2001.”

It cited a study by the RAND Institute for Civil Justice that concluded, “it is clear that the growth in the annual number of claims observed…is entirely due to increases in the numbers of nonmalignant claims entering the system.” According to the Asbestos Alliance, “Ninety percent of the 200,000 cases still pending were filed by persons who are not now sick and are unlikely to become sick in the future.”

A study conducted by Tillinghast-Towers Perrin, almost two years ago, estimated that “settlements to individuals exposed to asbestos in the U.S. and related expenses will ultimately reach $200 billion.” Thirty percent of that amount, around $60 billion, “will be borne by the U.S. insurance industry.” According to the Asbestos Alliance the litigation has “cost insurers as much as $70 billion in claims so far, and are expected to have a total price tag to the economy of up to $275 billion before all is said and done.” Thus, from everyone’s viewpoint, even the American Bar Association, there is an urgent need for comprehensive reform of the way asbestos claims are handled, that can only come from federal legislation.

“The asbestos litigation nightmare has savaged our manufacturers without even helping those who are ill and need it,” Cannon said. “Victims and their families need fair compensation and this legislation will do just that.” Will it succeed? “Well, a lot can happen between now and when it hits the president’s desk,” said Gary Karr, the AIA’s Media Relations director.

Cannon’s proposed law is a well-researched and broadly conceived attempt to address most of the concerns that have been raised. After citing the history of asbestos litigation, and the problems it has caused, the bill proposes changes in existing laws and court decisions dealing with each one. They can be summarized as follows:

*”Physical impairment of the exposed person, to which asbestos exposure was a substantial contributing factor, shall be an essential element of an asbestos claim.” The bill would require “Prima facie evidence of physical impairment for nonmalignant asbestos claims,” based on examinations and reports by qualified physicians. No claims could be brought unless such a finding has been made.

*It establishes certain minimum criteria for workers who claim exposure to asbestos caused their condition; for example, “5 exposure years for insulators, shipyard workers, workers in manufacturing plants handling raw asbestos, boilermakers, shipfitters, steamfitters, or other trades performing similar functions.”

*The requirement to produce prima facie evidence would not apply to cases of mesothelioma.

*At any trial the prima facie showing would neither create a presumption that the claimant suffers from an asbestos related disease, nor be “conclusive as to the liability of any defendant,” nor would it in fact be admissible.

*Courts would be given broader powers to consolidate cases if all parties agreed, but could not do so beyond the claimant and his immediate family, if any party objects.

*”A civil action alleging an asbestos claim may only be brought in the State of plaintiff’s domicile or a State in which there occurred exposure to asbestos that is a substantial contributing factor to the physical impairment on which the claim is based.”

*The jurisdiction must be proven, and if state courts do not apply the rules, any party can ask that the case be removed to the federal courts.

*It revises the Statute of Limitations to provide that no claim is barred “until the exposed person discovers, or through the exercise of reasonable diligence should have discovered, that he or she is physically impaired by an asbestos-related condition.”

*The bill imposes a “Two Disease rule,” namely that “An asbestos claim arising out of a nonmalignant condition shall be a distinct cause of action from an asbestos claim relating to the same exposed person arising out of asbestos-related cancer.”

*It would also bar the award of damages arising from “fear or risk of cancer.”

*Releases in settlement agreements involving nonmalignant asbestos claims could not bar future claims for asbestos related cancers.

*”A defendant against whom a final judgment is entered in a civil action alleging an asbestos claim shall be liable only for that portion of the judgment that corresponds to the percentage of responsibility of such defendant. The ‘trier of fact’ would determine the percentages.

*”The total amount of damages that may be awarded for non-economic loss shall not exceed $250,000 or three times economic loss, whichever is greater, regardless of the number of parties against whom the action is brought.” In mesothelioma cases the damage limit is $500,000.

* No punitive damages can be awarded on an asbestos claim.

*A claimant would be required to disclose any “collateral source payments” relating to the claim, including any future payments they may receive.

*Strict new rules would be imposed to show a direct relation between injury and the liability of “product sellers, rentors and lessors.”

“We think a lot of this legislation,” said Karr, “while much will change, we need to pass a bill this year, and I think the political will is there to do it.” He emphasized that any bill would have to have bipartisan support, and this one apparently does. Unlike measures that have passed the House but failed in the Senate, there are now some strong supporters for asbestos reform in the upper chamber as well, led by Orrin Hatch (R-Utah). In March he called for “quick action on [asbestos] legislation” at a Senate Judiciary Committee hearing, and gave industry and labor representatives two weeks to come up with proposals that would establish medical standards and funding for asbestos claims. Except for the proposal to fund payments, which, although requiring congressional approval, would be privately administered and paid for, Representative Cannon’s bill addresses those demands.

Nor are Senator Hatch and his Republican colleagues alone in pushing the legislation. Some prominent Democrats are on board as well. Patrick Leahy (D-Vt.) favors asbestos reforms, as does another Democratic Senator, Connecticut’s Christopher Dodd, who was recently named by the IIABA as the recipient of its 2002 Gerald Solomon Legislator of the Year Award. He recently held meetings with representatives of all sides that were generally considered to have been very positive.

Karr is optimistic, but “we have to get it done this year,” he said. For the first time since the asbestos crisis began there appears to be a good chance that a solution will be reached. As Leigh Ann Pusey, the AIA’s senior vice president for federal affairs, observed, “This legislation, along with the ongoing bipartisan reform effort in the Senate led by Judiciary Committee Chairman Orrin Hatch (R-Utah), is a clear and most welcome demonstration of Capitol Hill’s commitment to achieving asbestos reform this year.”

A lot of people are hoping she’s right.

Topics USA Legislation Claims Reinsurance