Asbestos Tort Reform - The Recent Developments

A. The Reasons and Background Behind Federal Asbestos Tort Reform

Asbestos litigation has been at the forefront of mass tort litigation since before World War II. Over the past seven decades at least 600,000 claimants have sued more than 8,400 defendants. Steven J. Duffield, “Enacting Meaningful Asbestos Reform” (Oct. 2, 2003). Currently, more than 200,000 claims are “clogging the court system and tens of thousands of new claims are filed each year.” See Testimony of Dennis Archer, ABA President-elect (March 5, 2003). Asbestos litigation has destroyed many industries and forced many corporations into bankruptcy. See RAND Institute for Civil Justice, “Asbestos Litigation Costs and Compensation” (2002). This has caused the loss of an estimated 60,000 jobs to date and a loss of $50,000 per each dislocated worker. See Joseph Stiglitz, et al., “The Impact of Asbestos Liabilities on Workers in Bankrupt Firms” (2002). An estimated 125,000 other jobs will not be created because of the asbestos litigation. See RAND Institute for Civil Justice, “Asbestos Litigation Costs and Compensation” (2002). As poignantly stated in a fairly recent Wall Street Journal editorial, “If the opportunity is missed now, there’s hardly a company in the Fortune 500 not at risk.” Editorial, “Containing the Asbestos Blob,” Wall St. Journal (Jan. 16, 2003).

Due to the aforementioned dramatic statistics, tort reform in the asbestos litigation arena has become an intensely debated issue among the industry, insurance, legislators, lawyers, and judges. The United States Supreme Court, on three separate occasions, clearly set the stage for impending asbestos litigation reform. In Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997), Justice Ginsberg emphasized that the Judicial Conference urged Congress to correct the asbestos situation and that “no Congressional response has emerged.” Similarly, in Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999), Justice Souter, who wrote the Court’s opinion, elaborated “this case is a class action promoted by the elephantine mass of asbestos cases, and our discussion in Amchem will suffice to show how this litigation defies customary judicial administration and calls for national legislation.” Most recently in Norfolk & Western Railway Co. v. Ayers, 123 S. Ct. 1210 (2003), the Court once again reiterated the need for Congressional intervention and called for national legislation.

B. The American Bar Association’s Endorsement of Federal Asbestos Tort Reform

Even the ABA has also stepped onto the battleground by endorsing federal asbestos tort reform. For years the ABA opposed any type of federal legislative bill to rectify the asbestos litigation crisis, but in February 1983, it passed a resolution that it would support “narrowly drawn federal legislation ... for certain occupational diseases such as asbestosis.” See Testimony of Dennis Archer, President-elect American Bar Association, March 5, 2003. In 2002, the ABA created a Commission on Asbestos Litigation to provide a recommendation to the House of Delegates at the February 2003 meeting concerning the long-term problems of asbestos litigation. The ABA’s recommendation focused on two primary concerns: (1) protecting the rights of claimants with impairing asbestos-related diseases and injuries by efficiently compensating them in the tort system, and (2) preventing scarce judicial and party resources from being overwhelmed by a flood of claims by persons who have been exposed to asbestos but have not yet been impaired by such exposure.

The ABA Commission recognized a growing trend in asbestos litigation during the 1990s, i.e., for-profit litigation screenings began generating thousands of new non-malignant claims by persons exposed to some asbestos but did not have and would probably never develop an impairing asbestos-related disease. In general, asbestos can cause mesothelioma, other cancers inside the lung, and non-malignant pulmonary diseases. The ABA referred to a recent RAND study that indicated about two-thirds to 90% of new asbestos-related claims are brought by individuals who have “radiographically detectable changes in their lungs that are ‘consistent with’ asbestos-related disease (and with dozens of other causes), but have no demonstrated functional impairment from those changes.” As a result, the ABA gave its support to federal legislation that addresses the statute of limitations issue and impairment criteria. The ABA recommended that Congress adopt a standard for legislation based on the one developed by the ABA Commission.

C. The Stage for Federal Asbestos Tort Reform – Senate Bill S. 1125

Given that currently both business and individuals appear to be favorably predisposed towards asbestos tort reform based on their respective and very different reasons, the focus has shifted to finding the mutually acceptable solution. The mere mention of “tort reform” causes the drawing of big demarcation lines between business and its insurers on one side and injured individuals/potential claimants on the other side. Any asbestos tort reform is certain to create a similar division. However, in the present situation both sides recognize the problem and a solution must be implemented to benefit everyone. The Senate Judiciary Committee has attempted to answer the call by creating S.1125, to a certain extent following the ABA Commission on Asbestos Litigation’s recommendations.

More specifically, the Senate Judiciary Committee commenced negotiations to respond to the national asbestos litigation crisis. The bill (S. 1125) in its original form attempted to make a compromise between injured plaintiffs and big business and insurance. The bill, called the Fairness in Asbestos Injury Resolution Act of 2003 (“FAIR Act”), provides for a trust fund that will pay out claims to claimants suffering from an asbestos-related disease. The bill has a sweeping effect on litigation, current and future, and, as drafted, would end and finalize all asbestos litigation in the United States. The bill takes away asbestos claims from the court system and creates an administrative procedure for claimants to obtain their remedies.

D. The Fund Contemplated by S. 1125

The FAIR Act establishes a Fund for the payment of asbestos claims and three main sources for the Fund. These sources are asbestos trusts created by bankrupt companies; mandatory annual contributions from defendant companies that have past liabilities; and mandatory funds from those defendants’ insurers. The FAIR Act provides for a tier system to determine the amount that each defendant and its insurer owe to the Fund. See S.1125 § 202. A company is assigned a tier level based on the amount it has expended in asbestos claims and litigation. The reasoning is based on the premise that if a company has paid many claims in the past it will likely be subject to more claims in the future.

The Tier Structure

Section 202 of the FAIR Act, as drafted, creates a tier-based structure for determining the amount each defendant-participant must pay into the Fund. The Act provides for both a Tier and Subtier designation for each defendant participant.

The Tiers are based on the amount a defendant participant has paid in prior asbestos expenditures. The Tiers are as follows:

Tier I: Expenditures greater than $1,000,000 if the company or its directly or indirectly owned subsidiary companies are subject to a case pending under a chapter of Title 11 of the United States Code (bankruptcy reorganization).

Tier II: Expenditures of $75,000,000 or greater.

Tier III: Expenditures greater than $50,000,000 but less than $75,000,000.

Tier IV: Expenditures grater than $10,000,000 but less than $50,000,000.

Tier V: Expenditures greater than $5,000,000 but less than $10,000,000.

Tier VI: Expenditures greater than $1,000,000 but less than $5,000,000.

Tier VII: Notwithstanding any assignment to Tiers I-VI, a person falls within Tier VII if the company is subject to an asbestos claim brought pursuant to the Federal Employers’ Liability Act as a result of operations as a common carrier by railroad, and has paid not less than $5,000,000 in settlement, judgment, defense, or indemnity costs relating to such claims. The amount paid into the Fund under Tier VII is in addition to any other contribution amount the participant owes under Tiers II-VI.

Once a participant’s tier designation is made, the Act then assigns a Subtler category. The Subtler designates the amount of money the participant owes annually to the Fund. Each Subtler is comprised of an equal or close to equal number of persons and groups based on their annual revenues. The Subtler categories and payments are as follows (please note the Tier I Subtiers have not been included since a company must be in bankruptcy for a Tier I designation):

Tier II

Subtler 1: Persons or groups with the highest revenues must pay $25,000,000.

Subtler 2: Persons or groups with the next highest revenues must pay $22,500,000.

Subtler 5: Persons or groups with the lowest revenues must pay $20,000,000.

Subtler 4: Persons or groups with the next lowest revenues must pay $17,500,000.

Subtler 3: Any persons or groups remaining must pay $15,000,000.

Tier III

Subtler 1: Persons or groups with the highest revenues must pay $15,000,000.

Subtler 2: Persons or groups with the next highest revenues must pay $12,500,000.

Subtler 5: Persons or groups with the lowest revenues must pay $5,000,000.

Subtler 4: Persons or groups with the next lowest revenues must pay $7,500,000.

Subtler 3: Any persons or groups remaining must pay $10,000,000.

Tier IV

Subtler 1: Persons or groups with the highest revenues must pay $3,500,000.

Subtler 4: Persons or groups with the lowest revenues must pay $500,000.

Subtiers 2, 3: Any persons remaining will be assigned to either Subtler 2 or 3, if assigned to Subtler 2 then must pay $,250,000; if assigned to Subtler 3 then must pay $1,500,000

Tier V

Subtler 1: Persons or groups with the highest revenues must pay $1,000,000.

Subtler 3: Persons or groups with the lowest revenues must pay $200,000.

Subtler 2: Any persons remaining must pay $500,000.

Tier VI

Subtler 1: Persons or groups with the highest revenues must pay $500,000.

Subtler 3: Persons or groups with the lowest revenues must pay $100,000.

Subtler 2: Any persons remaining must pay $250,000.

Most defendants who are non-asbestos producing companies will fall under Tier VI, which includes those defendants that have paid, either directly or indirectly, asbestos expenditures greater than $1,000,000 but less than $5,000,000. See id. Tiers II through VI have ranges of expenditures paid by each defendant. For example, a company that has spent $80,000,000 in prior asbestos expenditures is a Tier II company and would be assigned a Subtler based on its revenues. If the company when compared to all other Tier II companies has the highest revenues, it will be given a Subtler 1 designation. As such, it will have to contribute $25,000,000 annually into the Fund. See id. § 203(c)(1)(A), 2(A).

The FAIR Act requires, over a 27-year period, that defendants and insurers pay a total of $52 billion into the Fund. See id. § 202(a)(2). The initial contributions will be the greatest and will decline over the 27-year schedule. However, if the Administrator of the Fund foresees that insufficient funds exist to pay all the claims he may call for additional funding. This has been designated as the “contingent call” option, which the Administrator can use to maintain the Fund’s solvency. See Duffield, “Enacting Meaningful Asbestos Reform.” Under this procedure the Administrator has the authority to increase the Fund by as much as $31 billion. See FAIR Act § 223(f).

Finally, the FAIR Act provides for penalties assessed against any company or insurer that fails to pay its mandatory contribution. See id. § 223(g)(3). The Administrator also has the authority to extend the life of the Fund past 27 years. Although the Act seems complicated, once enacted the Administrator of the Fund has the duty to give notice to any defendant company and its insurer that must contribute to the Fund. See id. §204(i)(1)(A).

E. The Claims Handling Procedure Contemplated by S. 1125

A person suffering from an asbestos-related injury or disease will submit his claim to the Administrator. This is a no-fault procedure and the amount of compensation depends on the seriousness of the claimant’s injury. See id. § 112. This administrative procedure is supposed to dramatically cut the time period for payment to the claimant when compared to the existing tort system in place.

The FAIR Act, as drafted, has tailored the medical requirements for claims handling to those recommended by the ABA Commission. Section 111(b) provides for detailed information a claimant must give to successfully assert a claim against the Fund. Subtitle C establishes the medical tests required for each claimant. A claimant receives compensation based on the seriousness of his asbestos disease. The largest compensation will go to those claimants with mesothelioma, which is up to $1 million. Of course, a claimant who suffers from “other cancers” may receive only $150,000. A claimant who suffers from no impairment may still claim up to $20,000. In addition, an unimpaired claimant may receive future medical monitoring if they show adequate exposure to asbestos.

The Act establishes a four-year statute of limitations for a claimant to file against the Fund. Similar to many state and federal statutes of limitations, it begins when the claimant either receives a medical diagnosis of an eligible disease or discovers facts that would lead a reasonable person to obtain medical diagnosis of an eligible disease or condition (“discovery” rule). See id. § 111(c)(1)(A) & (B).

One significant and beneficial provision for defendants is Section 111(c)(2). Pursuant to Section 111(c)(2), if an “asbestos claimant has any timely filed claim for an asbestos-related injury that is pending in a Federal or State court ... on the date of enactment of this Act, such claimant shall file an asbestos claim under this section within 4 years after such date of enactment or be barred from receiving any award under this title.” Thus, a claimant must re-file any pending asbestos claims after the date of the Act’s enactment, and presumably would no longer have a viable claim against the defendant(s) he sued.

F. The Biden “Sunset” Amendment – The Potential Derailment of the Entire Act

In the last markups made by the Judiciary Committee, the Committee approved the Biden “Sunset” Amendment by a vote of 14-5. See Duffield, “Enacting Meaningful Asbestos Reform.” Under this Amendment, the Fund would shut down if the Administrator cannot certify that 95% of claim obligations are paid from the Fund. See id. This raises potential concerns to those defendants and their insurers who pay heavily up front and then have no guarantee that the Fund will not be shut down later and that the claimants will rush again to the courts. This amendment may sink the entire Act’s passage.

G. The Uncertain Future of Senate Bill S. 1125

Based on available research materials and commentary, it is highly unlikely S.1125 will pass and become law without more reform. Trial lawyers, businesses, and insurers have recently launched a concerted and multi-faceted attack against S.1125, albeit for different reasons.

Trial lawyers argue they are primarily concerned for their clients’ interests. They believe that S.1125 will undercompensate sufferers of serious asbestos-related diseases, such as mesothelioma. The trial lawyers’ underlying arguments are focused on inadequate compensation to claimants and insufficient medical criteria for determining who has suffered from asbestos-related diseases or exposure. Their primary argument lies in the fact that the total compensation will do little to address future mesothelioma victims who have yet to be diagnosed with the deadly disease. GOTOBUTTON BM_1_ In addition, trial lawyers argue that the bill unfairly and arbitrarily defines the occupational exposure levels a claimant must suffer before being granted compensation.

On the other side of the spectrum are the businesses and insurers who have to contribute to the Fund. Because of the Biden “Sunset” Amendment and the “contingent call” provision there is no security or finality guaranteed as to the handling and disposal of asbestos claims. As mentioned earlier, if businesses and their insurers are required to pay tremendous amounts of money up front but with no guaranties that the litigation will end, the incentives to support a system that eliminates litigation are minimized. Furthermore, one commentator has noted that trial lawyers could encourage claimants to swamp the Fund at its inception, forcing the Administrator to invoke the Biden Amendment. See Duffield, “Enacting Meaningful Asbestos Reform.” Currently, most people settle out of court for a lot less and with the well-known litigation delays, it could be years before a company and/or its insurer actually have to pay a judgment against them. With the Amendment and “contingent call” option, businesses and their insurers may have to pay twice, once into the Fund and then again, if the Fund is shut down and the claimant sues them, in court.

Regardless of which side is right or wrong, the truth is that something must be done. Senate Bill S.1125 is a step toward proper asbestos litigation reform but the Biden “Sunset” Amendment needs to be eliminated for the Act to gain any support from companies and insurers. The compensation ranges, whether or not one sides with the trial lawyers, does provide fairly rapidly something tangible for claimants, i.e., compensation. Many asbestos victims will never see a penny or, even worse, a claimant who actually suffers from mesothelioma may receive less compensation than a supposed “exposure only” victim under the current tort system.

No matter where the line is drawn, one truth currently stands out, attorneys on both sides of the bar accumulate more than 55% of the money paid out in asbestos litigation. Because of the threat of bankruptcy that companies may face from asbestos litigation, they fight hard and long. As such, defense counsel have received 25% of the costs in asbestos litigation. On the other side, plaintiffs’ attorneys take their 35-40% cut in the recovery. See RAND. Ultimately, it is undeniable that the asbestos victim is the party that loses. The Fund could potentially resolve this problem by allowing companies to exist without fear of future claims and compensating all victims of asbestos-related diseases in an equitable manner.

Currently, S.1125 is set on the Senate Legislative calendar under General Orders. It passed the Judiciary Committee by a 10-8 vote, with only one Democrat supporting it. For S. 1125 to successfully proceed through the full Senate and the House of Representatives, a meaningful compromise will be required before S. 1125 can become the law that will really reform the way asbestos is handled in our Nation.