February 08, 2006, 11:29 a.m.
The Worst Bill Money Can Buy
Revisiting asbestos — again.

EDITOR'S NOTE: This piece appears in the (upcoming) February 27, 2006, issue of National Review.

Claims to compensation for alleged asbestos-related illnesses prompted the Supreme Court to call for congressional action to deal with the “elephantine mass” of litigation. Six years later, Republicans are poised to pass an elephantine mess of legislation. Many Republican senators don’t wish to see this bill — which they have roundly criticized — become law. But the need they feel to “move the process along,” an intense multi-million-dollar lobbying campaign, a desire to help victims and corporate defendants while reining in plaintiffs’ attorneys, and widespread misinformation may cause them to vote for the bill anyway. The result could be a costly asbestos-liability reform that leaves taxpayers holding the bag for tens of thousands of dubious claims.

Asbestos litigation over the past 20 years has been abusive to both victims and businesses. Lawmakers recognize the significant drain on the economy, and the hindrance to American competitiveness, when scores of corporations face unlimited liability to questionable claims arising from asbestos exposure. Corporate defendants have already paid out $70 billion, and 80 companies have gone into bankruptcy. Plaintiffs with no asbestos-related illnesses have won compensation, and trial attorneys’ fees have eaten up as much as 40 percent of recoveries while worthy plaintiffs wait years and collect only pennies on every dollar awarded. Although state reforms have ended some of the abuse, and investigations of doctors who have allegedly made thousands of fraudulent diagnoses are underway, there is still no clear end in sight. Cancer rates from asbestos exposure are down, but there were still 100,000 new claims last year. Over 600,000 claims are currently pending. Congressional action in behalf of deserving plaintiffs and beleaguered defendants would be appropriate.

Sen. Arlen Specter took it upon himself to design the solution that had eluded Congress. Previous efforts had failed to satisfy the competing demands of plaintiffs, defendants, and trial lawyers. As chairman of the Judiciary Committee, Specter had a choice. The bill could be a GOP product in need of a handful of Democratic supporters, or a collaborative effort with the ranking Democrat on his committee. He chose the second option, and the result is the Specter-Leahy reform, “anchored on the left” by its Democratic cosponsor, as one Senate critic of the legislation puts it. Even so, its passage has been a top priority for majority leader Bill Frist because it’s on his “to do” list, and both Senate Republicans and the White House are wary of crossing Specter, whose cooperation is crucial in judicial-confirmation battles.

The Specter-Leahy bill — the Fairness in Asbestos Injury Resolution (FAIR) Act — has been no more successful than previous efforts to meet the different players’ demands. With the insurance industry largely opposed to the bill, the business community divided, and the plaintiffs’ bar against it (in the name of helping the victims who have proved so lucrative), the FAIR Act has produced the richest lobbying contracts in recent Washington memory. It is also, unfortunately, just about the worst bill money can buy.

“It seems [the parties] fighting over the asbestos legislation have hired every lobbyist in town. It’s all the senators are hearing about,” explains a Senate aide. The fight is over the creation of a $140 billion federal trust fund, administered by the Department of Labor, to which business and insurers would make payments in exchange for being shielded from liability for asbestos claims in the courts. Claimants would then be compensated with money from the trust fund. Defendant corporations would pay about $90 billion, and insurers about $46 billion, over the next 30 years. Another $4 billion would come from other trust funds already created to pay the claims of bankrupt companies. Many pending court claims would remain outside the new trust fund’s compensation system. Should the trust fund run out of money, the claims within its framework would revert to the courts.

Critics in the insurance industry point out that the eligibility criteria adopted in the bill are weaker than the criteria established by many state reforms. The bill creates payment amounts for victims based on nine claim levels. Because some claimants could establish their eligibility simply by showing that they had undergone occupational exposure to asbestos, critics fear that thousands of people with the most dubious claims would seek payments. The Congressional Budget Office (CBO) allows that “there is a significant likelihood that the fund’s revenues would fall short of the amount needed to pay valid claims, debt service, and administrative costs,” and concludes that “the final outcome cannot be predicted with great certainty.” The CBO also estimates that the trust fund will require a staff of 700, costing nearly $1 billion over ten years, to administer the program. Experience suggests that actual costs will end up being higher than the projections. When the Black Lung Disability Trust Fund was established in 1969, its total cost was estimated to be $3 billion. By 1976, when the program was to end, it had cost $4.5 billion. Did I say end? The program lives on — through 2004, its total cost had been $41 billion.

Large businesses with deep pockets, the favorite targets of plaintiffs’ attorneys, back the bill because they are desperate for relief. The Asbestos Study Group, whose members include GE, Honeywell, Dow Chemical, and General Motors, has spent $23 million on lobbying contracts with one Democratic firm alone, in the futile hope of winning Democratic support for a bill that trial lawyers, the party’s most loyal and generous contributors, vehemently oppose. (Harry Reid has threatened to block Senate action on the bill.)

Under the FAIR Act, trial lawyers would have their fees capped, and would receive only about $7 billion through the trust fund’s no-fault system, a fraction of the take they could expect from tort litigation. Large corporations, on the other hand, stand to save plenty. GE, for example, which has spent hundreds of millions on past expenses related to asbestos litigation, would pay $27.5 million a year to the trust fund.

Smaller corporations, many of them well insured against asbestos claims and subject to liabilities as small as $75 million (“small,” that is, by asbestos standards), oppose the bill because they could wind up paying about the same yearly amount as GE. The bill would abrogate their insurance agreements, and would require them to make payments far larger than they would with the benefit of their insurance. These smaller companies have their own army of lobbyists deployed to argue about the unfair cost-shifting they believe the bill represents.

Insurers opposed to the bill, also well represented by K Street, note that the cost of the $140 billion trust fund has “skyrocketed” from the Rand Corporation’s estimate that $75–80 billion would be sufficient to compensate seriously injured claimants once litigation costs and uninjured claimants were removed from the compensation equation. Because many claimants will remain in the current tort system, insurers object to being held liable under the FAIR Act’s parallel compensation scheme. The bill also doesn’t provide the finality insurers seek. The number of claimants who would be eligible for money from the trust fund is unknown, and the payment criteria could expand over time. Given the rich compensation benefits and weak eligibility requirements, insurers anticipate a reversion to the tort system, which could expose them to additional liability with no credit for the payments they had already made to the trust fund. (Others argue that Congress would never permit a reversion to the abusive, dysfunctional tort system, and so anticipate a taxpayer bailout.)

When the Specter-Leahy bill was approved by the Judiciary Committee last spring, Republicans who voted for it in order “to move the process along” raised all of these concerns. They said that the bill would have to be fundamentally revised before it was considered by the full Senate. It hasn’t been. Now they are again being urged by Senators Frist and Specter to approve the fatally flawed legislation. If they remain willing to vote for bills they don’t want to see become law, this complicated, expensive, unsustainable new entitlement is likely to move right into the statute books.

— Kate O'Beirne is the author of Women Who Make the World Worse: and How Their Radical Feminist Assault Is Ruining Our Schools, Families, Military, and Sports.