Revised asbestos legislation to go to full Senate at Wednesday hearing

By Jennifer Lanning Drey

Eugene, Ore., June 6 - Companies facing bankruptcy due to asbestos litigation may have an alternative form of relief if new legislation fares well in a Senate hearing scheduled for Wednesday.

The Fairness in Asbestos Injury Resolution (FAIR) Act of 2006 aims to - among other things - halt the growing number of companies tangled in asbestos litigation.

The legislation (S.3274) will bypass a committee hearing and go straight to the full Senate. Tentative witness at the hearing include John Engler, president of the National Association of Manufacturers; Jim Grogan, general president of the International Heat and Frost Insulators; Peter Ganz, executive vice president and general council for Foster-Wheeler; and Edmund F. Kelley, chairman of Liberty Mutual Insurance Co.

The new legislation was introduced by Sens. Arlen Specter, R.-Pa., and Patrick Leahy, D.-Vt., to expand on and clarify concepts introduced in the Fairness in Asbestos Resolution Injury Resolution (FAIR) Act of 2005.

As proposed in the original act, the revised FAIR Act of 2006 calls for the establishment of a $144 billion trust fund that would compensate victims of asbestos exposure while shielding asbestos manufacturers from future lawsuits.

The privately financed, national no-fault asbestos trust fund would be guaranteed by companies and insurers with proven asbestos liabilities and housed by the Department of Labor, according to a statement made by Specter to Congress on May 25.

"The national trust fund would operate as a surrogate for the tort system, which would by and large cease to operate under enactment," he said in the statement.

Instead of pursuing litigation, asbestos victims would submit their claims to the fund under specific procedures and receive compensation for their injuries by meeting certain medical criteria, which became more stringent in the newer version of the legislation.

The FAIR Act of 2006 calls for the authorization of randomized audits of affidavits and specifies that a "treating" rather than "examining" physician must make a claimant's diagnosis. The new act also calls for requiring claimants to provide more specific proof of exposure to asbestos.

The goal is to eliminate fraudulent claims.

The new legislation also differs from the 2005 version because it would allow existing bankruptcy trusts to retain at least 10% of their assets to continue paying pending impaired claims during the fund's start up period.

The measure would prevent claimants from recovering more than they would receive under the FAIR Act, according to Specter.

Protections for companies

In addition, due to the inherent financial pressures that contributions to the trust fund could impose on manufacturers, the new bill provides for an improved allocation formula for defendant companies who contribute to the fund, he said in his statement.

"The bill...provides a litany of safeguards to ensure that defendant companies do not encounter insolvencies or inequities because of their contributions," he said.

One such safeguard is a hardship amendment that allows companies to annually contribute 1.67% of their gross revenues in lieu of the tiering formula set forth in the bill. The measure would be particularly helpful to smaller to medium-sized companies that are assigned to higher contribution tiers because of their significant asbestos liabilities, said Specter.

Provisions in the new act would allow certain companies to contribute to the fund based on 5% of their adjusted cash flows, rather than the amount specified in their assigned tier.

The new bill would also close loopholes to ensure preemptive claims are not revived and dormant claims are not being filed from the fund.

"Over the coming weeks, I plan on moving ahead with this bill and will do everything in my power to see that the Senate finishes its business on asbestos legislation," Specter said regarding his timeframe for moving forward.

There are currently 200,000 asbestos claims pending in state and federal courts across the country, and a total of 730,000 cases have been filed since asbestos litigation began in the 1980s, according to the Asbestos Alliance, a coalition of companies, trade association and other parties seeking Congressional legislation to solve the asbestos litigation crisis.

Of the 77 companies that have filed for bankruptcy protection due to asbestos litigation since the early 1980s, 41 have done so in the past six years.

Specter's office said the legislation has been placed on the Senate calendar, but it will be up to Senate majority leader Bill Frist to decide when it comes up for vote.

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