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Week Ending February 10, 2006
S.852 A bill to create a fair and efficient system to resolve claims of victims for bodily injury caused by asbestos exposure, and for other purposes.
Asbestos has been used broadly in domestic, commercial and military applications due to its heat resistant qualities, but has been proven to be cancer causing in many who were exposed to it. Great Britain took action on the adverse health effects of asbestos dust in 1906. US Insurance companies saw the problem in 1918. Massachusetts began paying claimants for exposure in 1926 and despite all of that, US shipbuilders during WW II and a mine in Libby, Montana blatantly exposed workers to asbestos. The US Clean Air Act of 1970 registered it as a hazardous air pollutant, but the sins of the past now come home to roost.
Impacts on human health can take from 10 to 30 years to show up. Now, those exposed are suffering several health conditions that range from benign growths on the skin and lungs to lung and abdominal lining cancer that kills within 14 months of diagnosis. They have looked to the US courts for satisfaction. The report accompanying the bill notes that courts action is inconsistent and unreliable and can result in extreme payment delays or no payment at all due to the absence of evidence to which the average claimant can not get access. The bill has the ability to expedite the claims process, particularly for those in the last year of their lives.
The bill is an attempt to sort out a situation that has not improved over time but rather has escalated in number of cases, corruption and other problems. It addresses not only the enormous number of potential claims but an alleged history of fraudulent claims from claimants who were not ill, and bankruptcy action by defendants leaving complainants with as little as ten cents on the awarded dollar. Seventy defendant companies have sought Chapter 11 bankruptcy protection. Claimants then began suing companies associated with asbestos use and exposure.
The bill would satisfy-outside the court system-the estimated 1.5 million claims for compensation due to workplace exposure to asbestos. It would assess the extent to which claimants have a case and defendants are liable and make payments to claimants from a compensation trust fund of $140 billion paid into by business and insurance defendants. Claimants would not have to prove negligence on behalf of their employer.
The basic premise of the bill is seen by some as an inexpensive fix for US business and insurance companies through lower settlement and / or court costs and award costs.
Claimants would be compensated by a formula based on the extent of their illness modified by some factors like smoking. Defendants would pay into the fund to the extent of their supposed liability. Current court cases in which evidence has not yet been presented would be stayed. Those and all other claims would be handled by the Office of Asbestos Disease Compensation to be established in the Department of Labor. Awards would range from the costs for medical monitoring of some non-malignant claimants to $1.1 million for a Mesothelioma victim. If the Administrator of the fund is unable to process or pay the claim, "the defendants and the claimant must be notified within ten (10) days. Upon notification, the defendants {parens added, Ed.} may make a settlement offer. If the offer is rejected defendants have twenty (20) days to perfect the offer. If the offer is again rejected, or if no offer is made, the claimant's settlement must then be bumped up to 150% of the award value under the trust." If a claim is not processed or fully paid within nine months they may return to the court where they originally filed suit or in a designated state or federal court. If the claim is not addressed in three years a claimant can take the case to federal court.
Bill opponents centered attention on a few areas of concern in particular: The bill, although saving defendants court costs also saves them money by limiting awards to claimants below what they might receive if the cases were heard in court. Opponents also question if the fund, not being a trust fund that self-perpetuates through investments, is the right mechanism for handling the claim money. It could run out of money then requiring the government to borrow money to pay off any additional claims or could be simply shut down leaving claimants to take their case back to court. The $140 billion, they hold, is a number based on how much defendants are willing to pay, not based on how much is needed to pay claimants. Companies would be allowed to deduct from corporate taxes, some funds donated. The lose in tax revenue is calculated around $1 billion.
They raised concern, too, about the accuracy of estimates supporting the funding level: if the speculation that only 15% of non-malignant claimants would qualify for an award was inaccurate, the fund could be shorted as much as $10 billion. They also contend that the fund will not be operational for several years because it takes time to set up a trust fund. Consequently, an early onslaught of cases will require government borrowing in the tens of billions to meet claims before defendants fund the fund.
Two efforts to amend the bill were entertained. One, a solution offered by Senator John Cornyn (R-TX), was an alternative that would ditch the trust fund, move all cases to court and make more challenging the medical criteria that plaintiffs are currently required to provide to make their case for damages. Another was a manager's amendment, a modified version of the bill that included numerous amendments added off the floor. Members unaware of the content of the amendments objected to voting blankly.
The entire program would be established in the Department of Labor and managed by presidential and congressional appointed committees and experts.
Sponsor: Senator Arlen Specter (R-PA)
Vote: The Senate agreed 98 to 1 to continue debate on the bill February 7, 2006. The motion to table the Cornyn amendment succeeded 98 to 1 Feb. 9, 2005 (RV 13). A point of order regarding a violation of the Budget Act was not overcome with the necessary 60 votes. The vote was 58 to 41 February 14, 2005 (RV 21)
Cost to the taxpayers: CBO calculates that the bill will increase the budget deficit by $6.5 billion over the next ten years and as much as $10 billion over the next thirty years, the expected lifespan of the settlement fund. The bill proposes a settlement fund of $140 billion and CBO calculates that will fall $10 billion short by 2036. $90 billion from defendant participants and $46 billion from insurer participants that have been exposed to asbestos claims in the tort system. In addition to the aggregate $136 billion collected from defendant and insurer participants, the Administrator is authorized to collect roughly $4 billion from existing asbestos compensation trusts that have been established to compensate asbestos claims.
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MORE INFORMATION
LEVELS OF COMPENSATION for Claimants
LEVELS OF ASSESSMENT for Defendants
FIVE GOOD THINGS ABOUT THIS BILL
CRITIC'S CONTENTIONS AND REBUTTAL
LEVELS OF COMPENSATION
I Asbestosis/Pleural Disease A Medical Monitoring
II Mixed Disease with Impairment $25,000
III Asbestosis/Pleural Disease B $100,000
IV Severe Asbestosis $400,000
V Disabling Asbestosis $850,000
VI Other Cancer $200,000
VII Lung Cancer with Pleural Disease smokers: $300,000 ex-smokers: $725,000 non-smokers: $800,000
VIII Lung Cancer with Asbestosis smokers: $600,000 ex-smokers: $975,000 non-smokers: $1,100,000
IX Mesothelioma $1,100,000
A claimant filing with the Fund must satisfy the eligibility requirements for one of the following nine (9) disease levels:
Level I (Asbestosis/Pleural Disease A)--These individuals clearly have asbestos-related pleural disease or asbestosis, but their pulmonary function tests are within the normal range. Asbestos-related pleural conditions include discrete plaques on the pleura (the lining of the chest wall) or pleural thickening. Asbestosis involves scarring of the interstitial tissue within the lungs.
Level II (Mixed Disease With Impairment)--Individuals in this group have significant respiratory impairment, as defined by the American Medical Association. They are impaired due to a combination of asbestosis and other causes, typically chronic obstructive pulmonary disease. The requirement for a 1/1 ILO reading on a chest x-ray helps ensure that asbestos exposure is a substantial contributing factor to the lung diseases and impairment.
Level III (Asbestosis/Pleural Disease B)--These individuals have impairment that is primarily due to asbestosis. They develop asbestos-related respiratory disease with increasing losses of pulmonary function, with lung function decreasing to as low as 60 percent of predicted average.
Level IV (Severe Asbestosis)--These individuals have impairment that is primarily due to asbestosis. They experience significant loss of pulmonary function, with lung function between 50 percent and 60 percent of predicted average. Victims with this level of impairment are often disabled and cannot perform some activities of daily living.
Level V (Disabling Asbestosis)--These individuals have impairment that is primarily due to asbestosis. They experience severe loss of pulmonary function, experiencing loss of more than 50 percent of predicted average lung capacity. Victims with this level of impairment will not be able to perform most activities of daily living. Impairment at this level can be fatal.
Level VI (Other Cancers)--Individuals in this group have cancers of the colon, larynx, pharynx, or stomach, the risk of which may be increased by asbestos exposure. The bill commissions the Institute of Medicine to conduct a study on whether these cancers are caused by exposure to asbestos.
Level VII (Lung Cancer With Pleural Disease)--Individuals in this category suffer from lung cancer. Asbestos-relatedness is demonstrated by substantial exposure requirements and the existence of asbestos-related pleural disease.
Level VIII (Lung Cancer With Asbestosis)--These individuals suffer from lung cancer with asbestosis. Asbestos-relatedness is shown by the existence of substantial exposure and asbestosis (scarring within the lung).
Level IX (Mesothelioma)--These individuals suffer from a rare and fatal cancer of the chest lining (the pleura) and abdomen lining. This cancer is usually fatal within 18 months of diagnosis although some victims can survive for years. Mesothelioma is a particularly debilitating disease whose victims typically endure great suffering.
PAYMENTS TO THE TRUST FUND
Tier I: Includes all debtors that, together with all of their direct or indirect majority-owned subsidiaries, have prior asbestos expenditures greater than $1 million. The definition of `debtor' in Sec. 201 includes persons that have a case pending under a chapter of title 11 of the United States Code on the date of enactment of the FAIR Act or at any time during the 1-year period immediately preceding that date, irrespective of whether the debtor's case under that title has been dismissed. Any appeal of determination shall receive an expedited review in the U.S. Circuit Court of Appeals for the circuit in which the bankruptcy is filed.
Other Tiers: Except as otherwise provided, persons or affiliated groups are included in Tier II, III, IV, V, VI or VII according to their prior asbestos expenditures as follows:
Tier II: $75 million or greater.
Tier III: $50 million or greater, but less than $75 million.
Tier IV: $10 million or greater, but less than $50 million.
Tier V: $5 million or greater, but less than $10 million.
Tier VI: $1 million or greater, but less than $5 million.
Tier VII: $5 million or more in FELA liability. (Note: Tier VII is discussed in Sec. 203.)
A defendant participant shall remain in the tier and the subtier that they are assigned to for the life of the Fund, regardless of subsequent events, unless the Administrator finds sufficient evidence to conclude that inclusion within a tier was inaccurate.
FIVE GOOD THINGS ABOUT THIS BILL
1. First--S. 852 compensates legitimate asbestos victims faster and on a `no-fault' basis. Under the FAIR Act, asbestos victims' claims are resolved under specific time limits that enable claims to be processed expeditiously.
2. Second--S. 852 provides certainty to asbestos victims. Claimants currently filing asbestos-related claims face a series of problems preventing them from being assured compensation for their injuries. While some may receive high awards, others receive nothing at all depending on their ability to prove culpability of harm that occurred decades in the past. S. 852 establishes a $140 billion fund that is projected to be more than adequate to compensate all present and future eligible claims
3. Third--S. 852 provides economic stability and preserves jobs and pensions by offering certainty to defendants and insurers. The FAIR Act ensures that the allocation of payments into the Fund will be fair, rational, and predictable.
4. Fourth--S. 852 ensures that the fund will be administered simply, fairly, and efficiently. The current tort system is backlogged and unfair to many of the sickest victims. The flood of lawsuits in the tort system, moreover, has led to unacceptable delays. Some seriously ill plaintiffs even die before their suits are resolved
5. Fifth--S. 852 bans harmful asbestos to help prevent future illnesses. Although the use of asbestos has largely been reduced by federal regulations it has not been eliminated.
OPPOSITION TO THE BILL
S. 852 proposes to replace the current court system with a national Trust Fund that would resolve asbestos civil disputes and compensate those who have been injured by asbestos exposure. Accordingly, it would eliminate the rights of asbestos victims to a jury trial and compel them to seek compensation from the newly created Federal program.
The Trust Fund is to be financed by assessments on corporations and businesses that have had previous asbestos liabilities or have been the subject of asbestos litigation. As it stands, it is unclear who this class of businesses includes. Supporters of the bill claim that it covers as many as 10,000 American businesses, including many small and medium-sized businesses.
The general aim of the Trust Fund is to provide victims fair and timely compensation on a no-fault basis, relieving them of the legal delays and costs associated with the court system, while relieving business firms of greater costs than they would face in the litigation system. The problem with S. 852 is that it fails to meet these goals with respect to victims of asbestos-induced disease, as well as many of the affected business entities. It also likely creates new burdens for Federal taxpayers.
In its current form, S. 852 not only fails to solve the asbestos litigation challenges facing the nation today, but it would exacerbate them for the overwhelming majority of groups that are directly affected by the issue.
The bill artificially caps defendant and insurer liability at levels too low to provide full compensation to victims over the expected life of the Trust Fund, while explicitly excluding tens of thousands of cancer victims from receiving compensation in order to protect the financial interests of participating corporations. We believe this is the wrong approach.
We believe that a Trust Fund paying timely, adequate compensation to all victims would be a good idea. But this asbestos bill is not, strictly speaking, a Trust Fund at all. It is not designed to fully fund payments to all beneficiaries.
Congress has never before acted to limit compensation to victims when the court system was compensating them. S. 852 is unique among the compensation programs Congress has considered, in that for many victims its effect would be to eliminate a right to compensation rather than to create one. Past compensation programs have been designed to ensure that victims receive compensation when the courts have failed to provide relief. In the case of asbestos, Congress is stepping in not to protect victims, who some proponents of S. 852 claim receive too much, but to protect hundreds of companies from having to pay the full costs of the health effects they have caused.
The essential components of such a fair Trust Fund would include:
Adequate funding to fully compensate present and future victims;
Medical criteria which fairly reflect the asbestos-related diseases currently compensated by the court system;
Claims values which reasonably reflect the amount of compensation victims would receive in court; and
A non-adversarial, efficient claims processing system which would speed payment of claims.
We do not believe S. 852 meets this test.
Rather, we believe that S. 852 represents a financial windfall for many asbestos defendants and insurers, while providing too little to victims of asbestos exposure. We believe this Trust Fund will leave many victims worse off than they are today. In many respects, S. 852 represents a retreat from the bill reported by the Committee during the last Congress.
A. Inadequate funding
In our view, ensuring full funding for the best estimate of expected claims is a critical precondition before taking away an individual's right to a jury trial. Past efforts to resolve the asbestos litigation dilemma, both private and public, have foundered over the question of whether there would be enough money to pay benefits to future victims. S. 852 suffers from the same limitation because it fails to include adequate funding to ensure future victims will receive compensation.
The proposed total funding of $140 billion over 30 years, and a proposed $42 billion of up-front funding in the first 5 years, while large sums, are almost certainly going to prove inadequate to ensure fair compensation for asbestos victims over the short and long term. Just based on the hundreds of thousands of claims the program will face right away, the proposed $140 billion is insufficient. This insufficiency has resulted from the fact that the figure of $140 billion was determined based on what companies were willing to pay, not how much the Trust Fund is likely to require to fairly compensate individuals.
Funding for the Trust should be tailored to increase or decrease as the needs of the Trust Fund demand. In other compensation programs, such as workers' compensation, payors must increase the amount they contribute when more claims than expected are approved. Under the Trust Fund proposed in S. 852, however, victims are faced with the threat that benefits will be reduced or medical criteria changed if funding for the Trust proves inadequate. Throughout Committee consideration of S. 852, many suggestions for improvements to the proposal were rejected, apparently because of the view that there isn't enough money 7
[Footnote] . We do not believe that is an adequate answer. Congress has an obligation to protect the rights of the claimants to fair compensation--especially if the bill is going to take away their right to proceed in court.
[Footnote 7: See e.g. Oral Statement of Senator Arlen Specter, Senate Committee on the Judiciary, Executive Session, 109th Cong., May 19, 2005, at 48.]
As it stands, the bill does not contain sufficient funding to adequately compensate all victims. The bill lacks transparency regarding what the companies will pay, leaving in great doubt whether the proposed funding will ever be raised. Additionally, it imposes higher costs on thousands of medium and small businesses than they face in the present court system. It also involves Federal outlays of tens of billions of dollars, thereby placing taxpayers at risk of having to absorb these costs without repayment because of the strong possibility of the Trust Fund's failure.
When the Committee considered this issue during the last Congress, the Committee- reported bill, S. 1125, included up to $153 billion in funding. However, corporate defendants and insurers objected to paying that much money. Accordingly, following the Committee's action, S. 1125 was rewritten without the benefit of Committee deliberations, and re-introduced directly on the floor of the Senate as S. 2290.
The revised bill, S. 2290, included only $118 billion in funding, even though the Congressional Budget Office (CBO) estimated that its benefits would cost $139 billion, 8
[Footnote] not counting interest payments on any amounts that the Trust Fund would have to borrow, which have been estimated to be $32 billion or more. 9
[Footnote]
[Footnote 8: See letter from Douglas Holtz-Eakin, Director, Congressional Budget Office, to Senator Don Nickles, April 20, 2004, at 5.]
[Footnote 9: Analysis of Mark Peterson, April 13, 2005, p. 1; see also Statement of Mark A. Peterson Before the Senate Judiciary Committee Hearing of S. 852 `Fairness in Asbestos Injury Resolution Act of 2005,' p. 6. April 26, 2005.]
CBO's cost estimate and analysis assumed that only 10 to 15 percent of non-malignant claims would qualify for payment. 10
[Footnote] Yet, well-qualified outside experts, such as David Austern of the Manville Trust, and Dr. Mark Peterson formerly with the RAND Corporation, predict that at least 55 percent or as high as 75 percent of claimants will qualify for compensation under the Trust Fund. Importantly, CBO admits its estimate is uncertain, and notes that if the expected claims are underestimated by merely 5 percent, the Trust Fund would require an additional $10 billion of funding to operate. 11
[Footnote]
[Footnote 10: See letter from Douglas Holtz-Eakin, Director, Congressional Budget Office, to Senator Don Nickles, April 8, 2005, at 3.]
[Footnote 11: See Nickles letter, April 20, 2004, at 5.]
The funding problem is worse under S. 852. This year's bill includes $140 billion as the cap on funding. While this amount was agreed to outside the Committee's jurisdiction in private negotiations between Senators Frist and Daschle at the end of the last Congress, it was part of a negotiated compromise that they undertook for a different bill, with different medical criteria, and different claims values. According to experts, $140 billion bears no relationship to the amount truly needed to fully fund the benefits provided under S. 852. 12
[Footnote] Indeed, the Committee has repeatedly narrowed the benefits provided to victims to try to ensure that the cost of S. 852 never exceeds $140 billion.
[Footnote 12: See Peterson testimony at 3-5.]
We believe this approach is backwards. The Committee should have retained the same set of medical criteria that were unanimously agreed to in a bipartisan manner by this Committee during the last Congress. This year's bill also should have developed reasonable claims values and insisted on the funding necessary to pay those benefits. Even accepting CBO's unrealistic estimate of a 10 to 15 percent approval rate for filing of non-malignant claims, outside experts believe that S. 852 will cost at least $189 billion. 13
[Footnote]
[Footnote 13: See Nickles letter, April 20, 2005, at 5.]
Moreover, estimates of the number of asbestos claims and the amount necessary to pay those claims have proven woefully understated throughout the history of such predictions. Simply put, if corporate defendants and insurers pay no more than $140 billion, the Trust Fund will not be able to pay the promised benefits to present and future victims. 14
[Footnote]
[Footnote 14: See also Peterson testimony at 3-5.]
CBO has not yet analyzed S. 852. However, it has already prepared cost estimates of previous similar bills, S. 1125 and S. 2290, which can be helpful in evaluating the solvency of the Trust Fund to be created by S. 852. S. 1125, the version approved by the Committee in the last Congress, would have required a maximum of $153 billion from corporate defendants and insurers to pay into the Trust Fund. That bill provided compensation levels which were significantly lower than those contained in S. 852.
That bill, S. 1125, also allowed pending cases with a value of approximately $5 billion to remain in the court system. However, these pending cases have been brought into the Trust Fund by later versions of the bill, thereby creating an additional demand on the Trust Fund. CBO estimated that the cost of paying all the claims covered by S. 1125 at the claims values set in that bill would be $123 billion.
It is worth noting that even with the exclusion of the $5 billion of pending cases and the relatively low claims values in S. 1125, CBO nevertheless found that the amount of money needed to pay all the claims and to fund other operating expenses during the first 10 years would virtually equal the amount collected from corporate defendants and insurers during that period. If the $5 billion pending cases had not been left outside the Trust Fund, the costs would have exceeded revenues. CBO cautioned:
There is a risk that the actual number of claims received could exceed our estimate. There is also a risk that revenues collected could be less than we estimate. If either event were to occur, the amounts collected could be insufficient to pay all claims. 15
[Footnote]
[Footnote 15: CBO Cost Estimates for S. 1125, October 2, 2003, at 2.]
This simply highlights what we all know--the Trust Fund will suffer from serious financial demands during the first decade of operation and we must ensure that the funds will be sufficient to cover those expenses. Otherwise, we are legislating certain failure.
As indicated above, S. 2290 was introduced by Senator Frist to address various dissatisfactions raised by the corporate defendants and insurers with provisions of S. 1125. That revised bill sharply reduced the amount of money available to pay the claims of asbestos victims to a maximum of $118 billion, which was $35 billion less than the amount approved by the Committee.
At the same time, S. 2290 increased the compensation levels for some of the disease categories. CBO's analysis of S. 2290 determined that the Trust Fund would face claims totaling about $140 billion, far more than the total available funding. As a result, CBO concluded that the Fund would need to borrow substantially in its early years of operation and that ultimately, `the sunset provisions * * * would have to be implemented by the Asbestos Fund's administrator.' 16
[Footnote]
[Footnote 16: See Nickles letter, April 20, 2005, at 4.]
The CBO's letter emphasized the uncertainty of projecting Trust Fund finances:
One area in which the potential costs are particularly uncertain is the number of applicants who will present evidence sufficient to obtain a compensation award for nonmalignant injuries. CBO estimates that about 15% of individuals with nonmalignant medical conditions due to asbestos exposure would qualify for awards under the medical criteria and administrative procedures specified in the bill. The remaining 85% of such individuals would receive payments from the Fund to monitor their future medical condition. If that projection were too high or too low by only 5 percentage points, the lifetime cost to the Asbestos Fund could change by $10 billion. 17
[Footnote]
[Footnote 17: See Kickles letter, April 20, 2005, at 6.]
CBO's estimate of the percentage of nonmalignant claims that would qualify for a monetary award is extremely low compared to the experience of the Manville Trust and other studies. This assumption alone could result in a very substantial underestimation of the actual cost of the Trust Fund's financial liability. The $140 billion estimate of S. 2290's cost may well be too low.
CBO's analysis of S. 2290 raises serious doubt about the solvency of S. 852. Many of the claims values in S. 852 have been raised above the levels set in S. 2290. While S. 852 has eliminated one disease category, the overall cost of payments is likely to be higher than under the earlier bill. Interest costs resulting from large scale borrowing by the Trust Fund are also likely to be higher.
S. 852 provides a maximum of only $140 billion in contributions from corporate defendants and insurers, which is exactly the amount CBO estimated to be the cost of the less generous compensation provided for by S. 2290. Yet the current bill, S. 852, provides no cushion at all, and no margin for any financial error. As a result, the probability is more than great that the Trust Fund to be created by S. 852 will be seriously underfunded from the beginning and will remain so throughout its operation.
1. Number of future claims remains impossible to ascertain
The only way to ensure an adequate funding level is to base the total amount of the Trust Fund on some rational estimate of current and future claims activity. However, the bill fails to link the proposed funding to any reasonable estimate of claims. Without this information, or some meaningful mechanism to tailor the funding and assessments to the actual number of claimants, there is no assurance that sufficient funding will be available to adequately compensate victims. That means either the Trust Fund is doomed to fail, or claimants will be shortchanged down the line.
In its analysis of S. 1125, CBO raised several red flags concerning the potential claims and liability costs:
`Estimates of future claims * * * contain a number of potential sources of error in forecasting.'
`Forecasts of asbestos claims * * * have failed to accurately predict the magnitude, scope and evolution of asbestos claims.'
`Projections * * * in recent decades of the number of asbestos claims * * * were, in hindsight, much too low, suggesting that there is a significant risk of underestimating the number of future asbestos claims.'
`Furthermore, there is uncertainty about how claims would qualify under the criteria of the bill.'
`Various projections of the number of nonmalignant cases and their distributions among the categories specified in the bill vary greatly.'
However, neither CBO nor the Asbestos Study Group, the primary proponent of this legislative solution and the likely source of the underlying data that were used in the CBO estimates, has provided evidence of the assumptions they rely upon, that only 15 percent of nonmalignant claims, and fewer than one in four of all claimants would qualify for payment. Instead, past experiences contradict the assumption. Lessons from the Manville Trust, one of the first major asbestos trusts, are revealing. In testifying before the Committee, Manville Trust's general counsel, David Austern warned:
[T]here is almost no likelihood that as many as 85% of the nonmalignant claims filed pursuant to S. 1125 will qualify only for Level I (the non-paying medical monitoring category). Our best estimate * * * is that over two-thirds and as many as three-quarters of the nonmalignant claims filed pursuant to S. 1125 will qualify for compensation at Level II or higher. 18
[Footnote]
[Footnote 18: Letter from David Austern, General Counsel to the Manville Trust, to Rebecca Seidel and J. Edward Pagano, Committee on the Judiciary, October 9, 2003, emphasis added.]
It should be noted that, while the criteria in S. 852 for malignant lung cancer claims has changed from the criteria in S. 1125 and S. 2290, the criteria for non-malignant claims has not been disturbed. Moreover, an insurance study of 225,000 claims filed in the Babcock and Wilcox bankruptcy also contradicts CBO's previous estimates. This study found that 70 percent of nonmalignant claims would qualify for payment under the criteria of S. 852 at Level II or higher. 19
[Footnote]
[Footnote 19: Charles E. Bates, Ph.D., `Expert Report,' Prepared for Babcock & Wilcox Insurers Joint Defense Group, August 18, 2003.]
Additionally, CBO's previous assumptions did not take into account claims that have arisen in 2003 and 2004. 20
[Footnote] CBO assumes that the Trust Fund will receive 300,000 claims arising before 2005, which is the same number of claims that all parties have accepted as pending at the end of 2002 in their analyses made since early 2003. CBO's 2004 forecasts include no new claims filed in 2003 and 2004, even though substantial numbers of claims arose in those years. The Manville Trust alone has received about 120,000 claims in those two years, including over 6,700 new claims for mesothelioma. 21
[Footnote]
[Footnote 20: Letter from Douglas Holtz-Eakin, Director, Congressional Budget Office, to Senator Orrin G. Hatch, April 24, 2004, at 1-2.]
[Footnote 21: Peterson testimony at 4.]
Historically, assumptions regarding future asbestos claims have proven exceedingly inaccurate. For example, during 1986, expert claims forecasters testified in the Manville bankruptcy court that between the late 1980s and 2049, the Manville Trust would receive between 83,000 and 100,000 claims. 22
[Footnote] The Manville Trust began operations in 1988, yet as of today, only 17 years later, the Manville Trust has received over 620,000 claims.
[Footnote 22: Letter from Robert A. Falise, Chairman and Managing Trustee, Manville Personal Injury Settlement Trust, October 21, 2003.]
During 2001, the Manville Trust commissioned the fourth future claims forecast it has undertaken during its history. That forecast predicted that by 2049 the Manville Trust would receive between 750,000 and 2.7 million claims, in addition to the nearly 620,000 claims it had already received.
Likewise, S. 852 is predicated on calculations from numbers that are literally impossible to ascertain. The actuarial estimates are educated guesses, at best, and thus now provide broad ranges of potential future claims. Currently the Manville Trust is paying mesothelioma victims only $17,500, instead of the $1,050,000 it predicted at its inception. It is now apparent that the guessing game of 1988 did not work. What, if anything, will prevent the program envisioned in S. 852 from becoming another Manville debacle when the methods used by the actuaries to calculate the Trust Fund has not changed?
The CBO's 2004 letter noted that if the number of non-malignant claims qualifying for payment at Level II or higher exceeds their projections by only five percent, it could increase costs by $10 billion. CBO also stated: `Small changes in other assumptions--including such routine variables as the future inflation rate--could also have a significant impact on long-term costs.' 23
[Footnote] Unfortunately, future claimants will suffer greatly if the current calculations again prove inaccurate. Since the bill has no provisions to increase the total amount of funding for the Trust Fund, future claimants are likely to face decreased benefits or a bankrupt Trust Fund. Congress should not knowingly enact bill with so many uncertainties.
[Footnote 23: Nickles letter, April 20, 2004, at 5.]
Finally, we note that asbestos is still not banned in the United States. This means that today, many more thousands of workers and others continue to be exposed to this deadly substance. According to the Occupational Safety and Health Administration, 1.3 million workers are currently being exposed to asbestos. Consequently, there is major uncertainty as to how many victims there will be in the future and whether the Trust Fund will be able to compensate them.
Moreover, the Trust Fund has a proposed life of only 30 years. Thus, it is a cruel reality that people who are being exposed today and in the future will have no source of compensation for asbestos-related injuries they suffer after the Trust Fund's demise in 30 years, or perhaps even sooner.
2. Up-front funding is inadequate
As noted, S. 852 contemplates up-front funding of approximately $42 billion in the first five years. According to the testimony of Dr. Peterson before this Committee, 24
[Footnote] the Trust Fund will face between 15,000 and 19,000 mesothelioma claims at its inception. Based on the proposed awards values in the bill, these claimants alone will be entitled to approximately $20 billion of the up-front funding at inception. Simply put, the monies will not be there. Dr. Peterson also estimates it will take at least two years to establish the bureaucracy required to administer the Trust Fund, and that it will not contain sufficient assets to pay the pending claims until 2011 or 2012 at the earliest. 25
[Footnote]
[Footnote 24: Dr. Peterson was a founding member of the RAND Corporation's Institute for Civil Justice, has worked for four District and Bankruptcy Courts as an expert, and has served as `Special Advisor to the Courts' for the Manville Trust for over 14 years.]
[Footnote 25: Peterson testimony at 3.]
Dr. Peterson testified that the Trust Fund will have to pay tens of billions of dollars of interest under every set of assumptions. 26
[Footnote] He stated that:
[Footnote 26: Statement of Mark A. Peterson Before the Senate Judiciary Committee Hearing of S. 852 `Fairness in Asbestos Injury Resolution Act of 2005,' p. 6. April 26, 2005. See Table 3.]
The Fund's interest costs exceed $57 billion for all models except CBO's original, optimistic forecast when it is coupled with the assumption that revenues will arrive precisely on time and in the amounts specified in the Act. Except for this single, extremely optimistic model, over 40% of the $140 billion that is supposed to be paid asbestos claimants would instead go to service the Trust Fund's enormous indebtedness. For seven of the fifteen simulations, half or more of the $140 billion will be spent on interest. 27
[Footnote]
[Footnote 27: Statement of Mark A. Peterson Before the Senate Judiciary Committee Hearing of S. 852 `Fairness in Asbestos Injury Resolution Act of 2005,' p. 6. April 26, 2005.]
Dr. Peterson concluded his testimony by warning that:
[U]nder the assumptions of both supporters and opponents, using realistic and rosy assumptions, the FAIR Act will fail. In failing the Act will impose great risks and costs on taxpayers, it will exacerbate the circumstances for asbestos defendants and insurers and will provide no compensation for the vast majority of asbestos victims. The Act is an empty promise to both sides of the asbestos litigation and it is fiscally irresponsible. 28
[Footnote]
[Footnote 28: Statement of Mark A. Peterson Before the Senate Judiciary Committee Hearing of S. 852 `Fairness in Asbestos Injury Resolution Act of 2005,' p. 6. April 26, 2005.]
A lack of necessary up-front funding from the corporate defendants and insurers will necessitate massive borrowing by the Trust Fund to pay pending claims. Using CBO's model for up-front funding needs, it appears that interest payments alone could equal $49 billion, which is 35 percent of the total amount of the Trust Fund. 29
[Footnote] Yet, Dr. Peterson testified that $49 billion in interest is a best case scenario. He believes interest payments will certainly exceed $57 billion and could exceed $76 billion, under 15 different models which simulate claims filings under the Trust Fund. 30
[Footnote] The reality is that more money could go to interest payments than to victims. Why would Congress create such a poorly-designed program that is sure to fail?
[Footnote 29: Peterson testimony at 3.]
[Footnote 30: Peterson testimony at 3.]
3. Resulting additions to the budget deficit and taxpayer burden
Notwithstanding any assurances by the bill's sponsors, it seems clear that S. 852 will require major Federal financial assistance. The bill already allows for massive borrowing from the Federal government, including over $40 billion in the early years. Many observers are skeptical that private borrowers will lend this money to the Trust Fund, and expect that Federal Government will become the principal lender to the Trust Fund.
The borrowing allowed by the bill includes generous terms, including allowing repayment to be made decades later. Yet, because of the unstable funding mechanisms in the bill, there is a strong potential that these funds borrowed from the U.S. government or elsewhere will never be repaid. Moreover, given the strong likelihood of the program's failure--which even the bill's supporters acknowledge is a possibility--Federal taxpayers may absorb costs much higher than even the borrowed amounts.
Congress' recent experience with another national compensation fund is an example of what could go wrong. The Black Lung Fund was designed to compensate coal miners with pneumoconiosis on a no-fault basis. Within a few years, however, the Department of Labor was granting awards in only 8 percent of cases while the Social Security Administration paid 70 percent. Despite the large number of denials, $8 billion in claims was paid during the first five years. Yet, prior predictions had pegged the total cost of the fund between $1.5 and $3 billion. 31
[Footnote] The real number of claims necessitated a massive government bailout of tens of billions of dollars.
[Footnote 31: Peter S. Barth, Professor Emeritus, The University of Connecticut, `Commentary on the Creation of a Fund for Victims of Asbestos Caused Diseases', February 15, 2005. Available at www.usaction.org]
One of the reasons for this massive failure is that the corporate interests who sought the legislative solution relied upon the Federal program to substantially reduce their own costs, not just to settle claims and to seek finality. This is the same scenario we are facing with asbestos corporate defendants and insurers who are advocating for S. 852.
B. Unanimously adopted medical criteria abandoned
In the many years that this Committee has deliberated on creating an asbestos Trust Fund, no single provision received more broad bipartisan support than the medical criteria agreed upon by this Committee in 2003. These criteria were carefully worked out by Senators Hatch and Leahy with the help from expert medical advisors provided by both businesses and labor unions. When presented to the Committee during its consideration of S. 1125, this bipartisan medical criteria amendment was approved unanimously and hailed by all sides as a major constructive step. This bipartisan criteria amendment became the bedrock of the bill, and in all of the legislative proposals put forth since, the criteria remained unchanged, until now. S. 852 for the first time abandons the bipartisan consensus on medical criteria, leaving these lung cancer victims with no remedy.
1. Exclusion of lung cancer victims with substantial asbestos exposure
While S. 852 purports to establish a compensation fund for all victims of asbestos- induced disease, it excludes tens of thousands of lung cancer victims who have had more than fifteen years of substantial occupational exposure to asbestos. These severely ill individuals were included in previous versions of the trust fund bills, S. 1125, and S. 2290, from the last Congress. Under S. 852, they are denied any compensation from the Trust Fund and barred from pursuing their claims in court.
The consensus medical criteria in S. 1125 recognized three categories of lung cancer victims, all of whom would have been eligible for compensation from the Trust Fund:
1. Malignant Level VII--lung cancer victims who had 15 or more weighted years of exposure to asbestos;
2. Malignant Level VIII--lung cancer victims who had 12 or more weighted years of exposure to asbestos and evidence of bilateral pleural plaques, or bilateral pleural thickening or bilateral pleural calcification; and
3. Malignant Level IX--lung cancer victims who had 10 or more weighted years of exposure to asbestos and evidence of asbestosis.
Asbestos exposure is a probable cause of the lung cancers in all three categories. Each category required evidence of a causal link, with more extensive evidence required at higher levels. Those lung cancer victims in Malignant Level VII were required to show a greater number of years of weighted exposure to asbestos since they could not show scarring from non- malignant asbestos disease on their lungs. They were also required to go through an individual case review before a panel of physicians to verify that asbestos was a contributing factor to their disease. Those victims qualifying under Level VII would have received a lower level of compensation than those who could demonstrate either pleural thickening or asbestosis. That was a reasonable way to proceed.
Unfortunately, S. 852 rejects the consensus medical criteria and completely eliminates compensation for the lung cancer victims in the original Malignant Level VII. (S. 852 renumbers the original Level VIII as Level VII, and the original Level IX as Level VIII.) It denies these victims all relief despite the fact that they had very extensive occupational exposure to asbestos over a long period of time. They are excluded despite the testimony of two distinguished medical experts--Dr. Laura Welsh and Dr. Philip Landrigan--that prolonged exposure to asbestos can cause lung cancer even if the victim does not also have markers of nonmalignant asbestos disease. In their testimony, 32
[Footnote] they cited numerous medical authorities supporting their position. They even described their experience treating lung cancer victims whose disease was caused by asbestos but who had neither pleural thickening nor asbestosis.
[Footnote 32: Testimony of Dr. Philip J. Landrigan, MD, Professor of Occupational and Environmental Medicine, The Mount Sinai School of Medicine, Before the Senate Committee on the Judiciary, `Hearing on a Bill to Create a Fiar and Efficient System to Resolve Claims of Victims for Bodily Injury Caused By Asbestos Exposure, and for Other Purposes,' 109th Cong., April 26, 2005; See also Testimony of Dr. Laura Welch, Medical Director, Center to Protect Worker Rights, Before the Senate Committee on the Judiciary, `Asbestos: The Mixed Dust and FELA Issues,' 109th Cong. February 2, 2005, at 8.]
Dr. Landrigan, a nationally recognized expert in this highly specialized field of occupational medicine, testified at the Committee's April 26, 2005 hearing:
Fibrosis is not on the critical pathway to the development of lung cancer. Or to say that in plain English, a person does not need to have asbestosis, who has been exposed to asbestos, to develop lung cancer. The development of fibrosis is one pathological process; the development of a cancer is a second pathological process. The occurrence of asbestosis, either parenchymal or pleural, is most certainly a marker of exposure but it is not an inevitable precursor of the development of cancer * * *
I am very much concerned by the elimination of what was previously called Category VII, the person who had lung cancer without fibrosis. I feel that setting aside the estimated 40,000 people that fall into that category is going to result in people who truly have lung cancer that was caused by asbestos being denied compensation * * * 33
[Footnote]
[Footnote 33: Landrigan testimony at 117-119.]
At a later point in the hearing, he reemphasized this point:
In our very large occupational medicine practice at Mount Sinai, we have seen cases * * * of lung cancer in asbestos workers with many years of substantive exposure to asbestos, as defined in the bill here, who have developed lung cancer who had no asbestosis visible on x-ray. I edit the American Journal of Industrial Medicine. I have for more than 15 years been editor-in-chief, and we have published cases of lung cancer in asbestos workers who had no radiographic evidence of asbestosis.
Going beyond our own experience at Mount Sinai, I refer you to the Scandinavian Journal of Work, Environment, and Health, arguably one of the three or four best journals internationally in the field of occupational medicine * * * It says right in here, a direct quote from page 6 of this article, `Heavy exposure (to asbestos), in the absence of radiological-diagnosed asbestosis, is sufficient to increase the risk of lung cancer,' a direct quote. 34
[Footnote]
[Footnote 34: Landrigan testimony at 177.]
While there are some doctors who hold a contrary view, we believe that the clear weight of the evidence supports the conclusion that asbestos can be a substantial contributing factor to lung cancer in persons who were exposed to high levels of asbestos over long periods of time, even if they do not also have visible markings from nonmalignant asbestos disease on their lungs. Certainly, all of those lung cancer victims should not be categorically excluded from seeking compensation under the Trust Fund as a matter of law. The Trust Fund should be authorized to consider their claims for relief and provide appropriate compensation, as it was under S. 1125. In a situation where people are undeniably severely ill and undeniably had 15 or more years of weighted exposure to asbestos, it is terribly unjust to legislatively deny them all opportunity for compensation.
One of the arguments we hear most frequently in favor of creating a Trust Fund is that in the current system, too much money goes to people who are not really sick and too little goes to those who are seriously ill. Lung cancer victims who have years of exposure to asbestos are the ones who are seriously ill. They are the ones this bill is supposed to be helping. Yet, they are being completely excluded.
The rationale given by those who oppose inclusion of the Level VII lung cancer victims is that their disease is more likely to have been caused by smoking than by asbestos exposure. This argument does not withstand scrutiny.
First, all Level VII lung cancer victims are removed from eligibility under the Trust Fund, even those who were nonsmokers. Victims with 15 or more weighted years of exposure to asbestos who had never smoked are denied compensation by S. 852. Their ineligibility obviously cannot be justified based on the relationship between asbestos and smoking.
Second, Dr. Landrigan testified that smokers who have substantial exposure to asbestos have 55 times the background risk of developing lung cancer, while smokers who were not exposed to asbestos have 10 times the background risk of developing lung cancer. 35
[Footnote] This relationship is well-established. Similar findings are documented in the Surgeon General's 1986 Report on Cancer in the Workplace, which determined that smokers with asbestos exposure have a 50-fold increased risk of developing lung cancer, while the risk from smoking alone was only ten times. 36
[Footnote] Clearly, the asbestos exposure makes a huge difference.
[Footnote 35: Statement of Dr. Philip J. Landrigan, Before the Senate Committee on the Judiciary, `Hearing on a Bill to Create a Fair and Efficient System to Resolve Claims of Victims for Bodily Injury Caused by Asbestos Exposure, and for Other Purposes,' 109th Cong., April 26, 2005, at 2.]
[Footnote 36: `The Health Consequences of Smoking: Cancer and Chronic Lung Disease in the Workplace,' Report of the Surgeon General, U.S. Department of Health and Human Services, at x. (1985)]
There is a powerful synergistic effect between asbestos and tobacco in the causation of lung cancer. Both are substantial contributing factors to the disease. We agree that a lung cancer victim with substantial asbestos exposure who smoked should receive less compensation from the Trust Fund than a nonsmoker with lung cancer. That principle appears throughout the bill. But smoking is not a valid reason to exclude the victim from all compensation, when he or she also had substantial asbestos exposure.
Asbestos and tobacco companies are analogous to joint tortfeasors. Each is partly responsible and each should pay a proportionate share of the compensation. The involvement of one tortfeasor does not absolve the other tortfeasor from all responsibility. Without prolonged exposure to asbestos, the smoker would have been far less likely to contract lung cancer.
The real reason for eliminating the Level VII lung cancer victims was not medical science, it was money. Precisely because there are tens of thousands of lung cancer victims in this category, the cost of compensating them is high. The inadequate scope of this bill was dictated by how much money the corporate defendants and insurers were willing to pay. Instead of first determining the cost of fairly compensating all the seriously ill victims of asbestos-induced disease and then setting the size of the Trust Fund at a level that would meet the need, the reverse was done. The $140 billion size of the Trust Fund was negotiated with the business community first, and then the medical criteria were narrowed to fit within the available funding. The result is that many deserving victims--including tens of thousands of lung cancer victims--are denied compensation.
During Committee consideration, Senator Kennedy offered three amendments to address this glaring deficiency in the bill. The first would have restored the eligibility for compensation of lung cancer victims with fifteen or more weighted years of exposure to asbestos.
When that proposal was rejected, Senator Kennedy offered a second amendment that would have provided for a study by the Institute of Medicine `to determine whether there is a causal link between asbestos exposure and lung cancer for individuals who have had substantial exposure to asbestos but have no evidence of bilateral pleural disease or of asbestosis.' If the IOM report determined there was substantial scientific evidence demonstrating a causal relationship between asbestos exposure and these lung cancers, the Administrator of the Trust Fund was directed to establish an additional eligible disease category to compensate them.
The Committee also rejected the proposal for an IOM study, vividly illustrating that the reason for excluding the lung cancer victims in the original Malignant Level VII from the Trust Fund was not medical but monetary. If the majority of the Committee really wanted the best scientific determination of whether a causal link exists between asbestos exposure and these lung cancers, they certainly would have approved this amendment. The amendment's defeat shows that the prime motivation of the supporters is to keep the cost of claims against the Trust Fund below the arbitrary financial ceiling that had already been negotiated with the corporate defendant and insurers who want this bill.
Senator Kennedy's third amendment would have preserved the right of these lung cancer victims to seek compensation through the judicial system since they were being excluded from the Trust Fund. This, too, was rejected. In essence, these severely ill victims who have had very substantial exposure to asbestos are being told to suffer in a legally imposed silence with no recourse whatsoever.
If S. 852 is not going to provide compensation for these lung cancer victims under the Trust Fund; justice requires, at the very least, that the bill not foreclose their right to seek compensation in the courts. They have that right today, and their cases have real value.
When the victim has had substantial asbestos exposure and was not a smoker, the likelihood that the lung cancer was caused by asbestos is very high. When the victim has had substantial asbestos exposure and also smoked, the likelihood is that both contributed to the lung cancer. The interaction of asbestos exposure and smoking greatly increases the probability of lung cancer beyond the risk posed by either substance individually.
As noted earlier, a smoker who was never exposed to asbestos has 10 times the background risk of developing lung cancer. A smoker who had substantial exposure to asbestos has 55 times the background risk of developing lung cancer. 37
[Footnote] Clearly, asbestos exposure makes a very substantial difference. The two substances are, in essence, joint tortfeasors in causing the disease. Those responsible for the asbestos exposure are partially liable for the lung cancer, and are obligated to compensate the victim accordingly.
[Footnote 37: Landrigan testimony at 2.]
S. 852 as written would take away the right of those victims to bring their cases to court, while providing them no right to recover from the Trust Fund. Congress has the right to substitute one remedy for another. But, it does not have the right to arbitrarily foreclose the existing remedy and provide no new remedy in exchange. To do so violates fundamental principles of due process. It is not only morally wrong, it is legally wrong.
If the Trust Fund does not provide a remedy for a certain class of asbestos victims, then it cannot be the exclusive remedy for that category of claim. Victims who are categorically excluded from compensation under the Trust Fund cannot be precluded from seeking compensation in the judicial system. That principle is well established.
Similar issues have arisen in a number of states regarding the scope of their workers' compensation statutes. Two recent state supreme court decisions illustrate this principle. The Oregon Supreme Court addressed this issue in the case of Smothers v. Gresham Transfer, Inc., 332 Ore. 83 (2001). The court ruled that a person with work-related injuries that were not compensable under the state's workers' compensation laws had a right to bring a civil action in the courts. Even though the statute provided that the workers compensation system was to be the exclusive remedy for work-related injuries, it could not deprive an injured worker of his remedy in court when it was not providing an alternative remedy for that worker in the administrative system.
The Virginia Supreme Court came to a similar conclusion in Adams v. Alliant Techsystems Inc., 261 Va 594 (2001). It held that the Virginia Workers' Compensation Act does not bar a plaintiff from bringing a common-law cause of action against his employer to recover damages for hearing loss resulting from cumulative trauma when such a hearing loss was not a compensable injury or disease under the Act.
The same principle applies here. Lung cancer victims with substantial exposure to asbestos who are categorically ineligible for compensation under the Trust Fund should not be precluded from seeking a remedy in the courts. If these victims can prove a causal link between asbestos exposure and their disease, they should be able to receive compensation through the courts in the future, just as they can today. That is only fair. Due process and fundamental principles of justice require nothing less.
Raising standard to `substantial contributing factor'
A second major change in the consensus medical criteria made by this bill relates to the standard of proof which victims must meet to receive any compensation. Each of the medical criteria has been changed from S. 1125 to require the worker to prove that asbestos was a `substantial contributing factor' to his disease, rather than `a contributing factor.' This will raise the bar even higher for injured workers.
It is a significant increase in the burden they must overcome to qualify under the Trust Fund. There is no question that the change was made to make it harder for victims to receive compensation. Rather than having to show that asbestos exposure was `a contributing factor' to their illness, victims will now have to address the relative impact of asbestos and other potential factors. That hurdle will be difficult for many of them.
The original standard requiring that asbestos be `a contributing factor' has a history. It is the proof standard used in most state worker compensation laws involving exposure to toxic substances. `Workers' Compensation Policy Review,' a respected journal in this area of law, stated in an article examining statutory compensability standards:
Under traditional standards, for either an accidental injury or an occupational disease, a workers' compensation claim is compensable if the work contributed to or aggravated a preexisting condition. That is, the general rule has been that the work does not have to be the sole, major, or primary cause of a disability in order for the worker to receive workers' compensation benefits. 38
[Footnote]
[Footnote 38: Sara T. Harmon, `Statutory Compensability Standards.' Workers' Compensation Policy Review, 1, 2 (2001): 15-28, at 15.]
That is still the majority rule in state workers' compensation laws and it is the standard we should enact for the Trust Fund in S. 852.
Even in litigation, the victim only needs to prove that asbestos was a contributing factor to his disease. In a unanimous decision rendered just last year, the Georgia Supreme Court spoke to exactly this issue. The court considered and rejected the concept of elevating the standard of proof in asbestos litigation from `contributing factor' to `substantial contributing factor.' The court stated:
It would be a departure from (tort law) analysis to add the requirement that the causal connection must be substantial * * * Once the term `substantial factor' is employed in the general negligence law vocabulary, there is the danger that it will be used not only to describe a general approach to the legal cause issue, but will turn into a separate and independent hurdle that the plaintiff will have to overcome in addition to the standard elements of a claim of negligence. So, too, has there been great difficulty and disparity in courts' definition of `substantial factor * * *
Thus, refusing to endorse the additional hurdle that each individual tortfeasor's conduct must constitute a `substantial' contributing factor in the plaintiff's injury in order to be considered a proximate cause thereof will neither subject defendants like John Crane to unjust liability nor open the floodgates of asbestos litigation. 39
[Footnote]
[Footnote 39: John Crane, Inc. v. Jones, 604 SE 2d 822, 825 (2004).]
By adding `substantial,' the current language in S. 852 goes beyond what would be required to establish proximate cause in a court case. It would create, in the court's words, `a separate and independent hurdle' that victims of asbestos-induced disease would have to overcome. Certainly, it should not be harder for a victim to receive compensation from the Trust Fund in a supposedly no-fault system than it currently is in an adversarial court system. That is exactly what this bill will do--set a more burdensome standard to recover from the Trust Fund than to recover in the courts. That would go against the entire concept of a Trust Fund. It is unfair and unreasonable.
The bill should not be erecting additional barriers to compensation under the Trust Fund. This is supposed to be a no-fault system. It is supposedly minimizing the need for each claimant to have an attorney, making the system non-adversarial. This language change--requiring proof of `substantiality'--will make the process of qualifying for compensation much more complex than it should. It will create serious proof problems in many cases. Many victims will need to obtain legal representation to overcome this additional burden.
The medical criteria in this bill retain the requirement from S. 1125 that there be proof that the asbestos exposure was substantial. Many of the disease categories require a minimum number of weighted years of exposure before the worker can even apply for compensation. But requiring substantial exposure is not the same as requiring that the exposure be a substantial contributing factor.
Under the terms of the Trust Fund, the Administrator will know the victim is seriously ill, he had substantial exposure to asbestos, and his medical condition is consistent with asbestos- induced disease. That should be sufficient. Creating an additional hurdle for seriously ill workers to jump is inconsistent with the stated goals of the bill.
During Committee consideration, Senator Kennedy offered an amendment to restore the `contributing factor' standard of proof contained in the consensus medical criteria unanimously adopted by the Committee in 2003. Unfortunately, it was defeated. The supporters of this bill seem intent on erecting new and difficult hurdles for injured claimants. That is wrong.
3. Requirement for bilateral impairment not based on science
In another example of how S. 852 is not based on sound medical science but rather on economic expediency, the bill's medical criteria include a requirement of `bilateralism' that makes no sense.
The bill is replete with references to the need for `bilateral' pleural plaques, `bilateral' thickening, `bilateral' calcification, and `both lower lung zones' but nowhere in the bill is there an explanation for why both lungs of a victim need to be affected with asbestos-related injury. Neither can the sponsors of S. 852 explain why such a requirement is in the bill.
On the contrary, medical experts have indicated that there is no medical or scientific basis for requiring both lungs to be impaired before a claimant can qualify under this bill. For example, Dr. Philip Landrigan of the Mount Sinai School of Medicine who testified before the Committee on April 26, 2005, stated:
The requirement that pleural disease be bilateral to be considered the consequence of exposure to asbestos is not warranted by medical evidence. Asbestos-related scarring often develops unevenly and almost always begins unilaterally. Miller and Lilis showed a clear relationship between degree of pleural scarring and loss of FVC independent of whether the pleural changes were bilateral. 40
[Footnote]
[Footnote 40: Dr. Philip J. Landrigan, April 26, 2005 testimony before the United States Senate Committee on the Judiciary, pp. 3-4.]
Dr. Landrigan also testified that `requiring that the damage be bilateral, has no basis in biology or medicine.' 41
[Footnote] The only possible reason for including this is to make the medical criteria as tough as possible in order to limit the number of claimants who may qualify under the bill.
[Footnote 41: Id at p. 4.]
On numerous occasions throughout the hearing and Committee consideration of the bill, Senator Durbin pointed out this illogical requirement, yet the language of the bill as passed by the Committee still contains this flaw.
4. Other problems
Under the revised medical criteria, asbestos-related cancers of the larynx, esophagus, stomach and colon may also receive no compensation. Each claim for such cancers must be reviewed by a physician's panel which may deny compensation. Based on a future report of the Institute of Medicine, compensation for these cancers may be completely eliminated.
Although the Committee has narrowed the medical criteria to prevent victims from receiving compensation, where the medical criteria are outdated and the scientific consensus of the American Thoracic Society suggests the criteria should be broadened, the Committee refused to do so. Currently, the criteria require 5 years of occupational exposure to qualify for non- malignant compensation. American Thoracic Society's guidelines currently provide that 5 years occupational exposure is not necessary for a diagnosis of non-malignant asbestos disease. 42
[Footnote] In this regard, the medical criteria are too stringent and should be loosened.
[Footnote 42: `Diagnosis and Initial Management of Non-malignant Diseases Related to Asbestos,' American Thoracic Society, published in American Journal of Respiratory Critical Care Medicine, Vol. 170, pp. 691-715, 2004.]
Another problem with the medical criteria is that some years of exposure are discounted and count for less than other years of exposure. Workers exposed after 1986 are required, as a practical matter, to have decades of exposure to asbestos before they can qualify for any compensation. For instance, `a person with lung cancer and pleural plaques who began occupational exposure to asbestos in 1974 would need 52 years of work exposure (through 2025, or `until' 2026) to meet the 12-year weighted exposure in the bill.' 43
[Footnote] Few workers will be able to show such long exposure, and this `discounting' of `weighted years' again seems an effort simply to restrict compensation to individuals, rather than rely on hard science. 44
[Footnote]
[Footnote 43: Landrigan testimony at 3.]
[Footnote 44: Landrigan testimony at 3.]
C. Requirement of occupational exposure
Initially, S. 852 was crafted to compensate only those individuals who were clearly exposed to asbestos in the workplace. Reluctantly, the spouses and children of these workers, if they could prove a link to occupational exposure, were given some limited rights of recovery under the bill if they become ill. Then, the residents of Libby, Montana, were afforded special provisions under this bill. But, unfortunately, thousands of others who may develop asbestos-related diseases have only been provided a weak study which will determine whether they can recover under S. 852. Again, the financial concerns of the defendants are overriding common sense and fairness.
Why should people who have resided near asbestos processing plants for decades, and who have reported clouds of asbestos dust in their neighborhoods, or the use of donated asbestos- laden products in their yards or schools, be denied any right of recovery under the Trust Fund or through court? We believe that is unjust.
These are individuals who may not have worked at these plants, but who lived near places that received 10,000 tons or more of asbestos materials from the Libby, Montana, mine over the past few decades. Now, they have been told they will only be able to pursue a claim against this criminally-indicted corporation if future air sampling shows asbestos exposure levels equal to those in Libby, Montana. In other words, Congress is seeking to set up an impossible standard--especially since most of these plants have been closed for a decade or more, and the Libby contamination level is far above the level that can cause asbestos diseases. Some individuals in these communities have already developed asbestos-related diseases without working in these plants, and they are barred by this bill from seeking redress in court.
We believe fairness dictates that the residents of these other communities, which received 10,000 tons or more of asbestos or more of asbestos-containing material from Libby, Montana, should be afforded the same rights as those residing in Libby.
The bill provides no rational basis for making the distinction between the residents of the following communities and residents of Libby: Beltsville, MD; Dallas, TX; Dearborn, MI; Denver, CO; Easthampton, MA; Edgewater, NJ; Ellwood City, PA; Glendale, AZ; Honolulu, HI; Los Angeles, CA; Marysville, OH; Minneapolis, MN; Minot, ND; New Castle, PA; New Orleans, LA; Newark, CA; Omaha, NE; Phoenix, AZ; Portland, OR; Portland, OR; Santa Ana, CA; Spokane, WA; St. Louis, MO; Tampa, FL; Trenton, NJ; Weedsport, NY; West Chicago, IL; Wilder, KY. 45
[Footnote]
[Footnote 45: See Environmental working group, `Asbestos Hot Sports,' April 26, 2005, available at www/ewg.org/issues/asbestos/20050426/hotspots.php.]
D. Fairness among contributors
Limiting funding to $140 billion creates a financial windfall for those corporations most vocally advocating for the Trust Fund. For example, Tier 1 defendants with pending bankruptcies would pay $25.9 billion to asbestos victims if their bankruptcies were completed; yet, under S. 852 they will pay only $5.6 billion. Similarly, a handful of Fortune 500 corporations will save billions under the Trust Fund, while many small businesses and others with limited asbestos liability exposure will pay more than their fair share. 46
[Footnote]
[Footnote 46: As a matter of simple mathematics and the definitions in S. 852, every company in Tiers 3-6 would be required to pay more over the next 30 years (and without the benefit of insurance to cover the claims) than each such company has paid over its entire history in asbestos litigation. Some Tier 3 and Tier 4 companies will pay into the proposed National Fund more than six times their historical expenditures in asbestos litigation, while many Tier 1 and Tier 2 companies who have much greater historical liability for asbestos claims will pay only a fraction of their historical expenditures. See Sections 201-203.]
One reason these lower tiers are paying more into the Fund than they (or their insurers on their behalf) have paid historically is because other, mostly larger corporations are paying less. Many of the Tier 2 companies have historic asbestos expenditure in excess of $100 million per year. These companies are reducing their liability from paying out $50-$200 million (or more) per company per year in the court system to no more than $27.5 million per year under the Trust.
Based on the proposed payment Tiers in the bill, many medium and small businesses already have determined that the bill will impose higher costs on them than what they currently endure in the court system. Many of these businesses had adequately insured themselves against any asbestos liabilities. However, S. 852 will not allow the crediting of such insurance. Consequently, these entities will lose their insurance coverage under the bill without any compensation from the government, and in turn, will have to meet the assessments that will be imposed on them to finance the Trust Fund.
The constitutionality of this approach is expected to be a heavily litigated issue that may take years to resolve. Many of these businesses perceive the evisceration of their insurance premiums without due compensation as a Fifth Amendment Property Takings violation, and the new assessments as a tax on their businesses.
In addition, S. 852 lumps asbestos `premises' defendants into the same contribution tiers and subtiers as asbestos `products' defendants. These two groups are treated as if there were no difference between them, even though the level of culpability for a company that manufactured asbestos is clearly higher than for one that, for example, merely had a boiler wrapped in asbestos on its premises.
The Coalition for Asbestos Reform is a broad coalition of businesses and insurers who oppose S. 852. This group, which includes many small and medium businesses, has written to Chairman Specter on several occasions expressing their concerns about the bill. In a letter dated January 3, 2005, the group focused on two key weaknesses of the bill:
The Allocation of Payment Obligations on Defendant Participants: As presently drafted, the Trust funding arrangement would impose payment obligations on our companies that would substantially exceed the asbestos-related costs we reasonably anticipate under the existing tort system, while simultaneously stripping many of us of our insurance coverage. Each of us can demonstrate that we would fare better under the existing tort and judicial system than under the proposed funding mechanism. Indeed, the proposed arrangement would impose inequitably large obligations on companies with limited asbestos-related liabilities. For some smaller companies, such obligations would mean bankruptcy.
The Separation of Companies From Their Insurance Coverage: The proposed Trust funding arrangement would eliminate many companies' rights to access long-held insurance assets; in some cases such rights would be eliminated even though the companies have insurance sufficient to address their current and projected asbestos liabilities. The abrogation of these insurance contracts for which premiums have been paid--and the transfer of those assets to the Trust--may well represent an unconstitutional taking. 47
[Footnote]
[Footnote 47: Letter from Coalition for Asbestos Reform to Senator Arlen Specter, January 3, 2005, at 1 (emphasis added).]
In an April 6, 2005, letter to Chairman Specter, the group reiterated its concerns about the cost burdens on small and medium-sized businesses:
Manifestly Unfair Allocation Formula: The formula for assigning mandatory payments is almost certain to be the direct cause of a number of bankruptcy filings for otherwise financially sound companies. Each version of the FAIR Act has increased the payment burden on defendant companies, and has based each company's ability to pay on its historic asbestos defense costs. These allocations--across all tiers of the FAIR Act--fail to recognize that many defendant companies have paid only insurance premiums related to asbestos defense, and would be obligated to make payments to the Trust Fund that far exceed their anticipated liabilities under the current tort system. By shifting the burden of paying for asbestos claims from the companies with the greatest asbestos exposure to a host of other businesses--including many small and medium sized entities--the bill creates a substantial likelihood that a cascading series of defaults will rapidly lead to the insolvency of the Trust Fund * * * 48
[Footnote]
[Footnote 48: Letter from Coalition for Asbestos Reform to Senator Arlen Specter, April 6, 2005, at 1.]
Moreover, if the Trust Fund does become insolvent as many believe it will, 49
[Footnote] employers will face a return to the court system without the benefit of their insurance coverage. Under the bill, they must continue to make contributions to the Trust Fund for the final twenty-plus years to pay off the bonds. Since the post-sunset court claims will be paid out of pocket, a torrent of bankruptcies will surely follow.
[Footnote 49: See Peterson testimony at 3, 5.]
E. A risky startup
The funding shortfall is most acute in the early years of the Trust Fund when the 400,000 to 500,000 pending claims will be immediately transferred to the Trust Fund for payment. 50
[Footnote] Rather than make defendants and insurers actually pay the costs of the Trust Funds' early years, S. 852 relies on borrowing against the Trust Fund's future assets to pay present claims. Interest costs generated by this early borrowing will be huge, representing a significant reduction in the monies available to pay claims. 51
[Footnote] We are skeptical that private borrowers will lend this money to the Trust Fund, and expect the Federal government will become the principal lender to the Trust Fund.
[Footnote 50: See Peterson testimony at 3, 5. Note: On October 2, 2003, the Congressional Budget Office estimated there were 300,000 claims pending, without counting claims arising in 2003 and 2004.]
[Footnote 51: See Peterson testimony at 3, 5.]
This concern about the Trust Fund's viability during the start up was raised at the Committee's April 26, 2005, hearing by Professor Eric Green of Boston University Law School, who serves as a court-appointed Legal Representative for future asbestos claimants in four asbestos-related bankruptcy proceedings and as a Special Master in several major state and federal court asbestos cases:
The delays that are all but built into the Bill are especially troublesome because the Fund will face a tremendous backlog of claims and a correspondingly burdensome payment obligation in its early years * * * Given the number of estimated pending claims against all companies, by its fourth year the Fund would need to borrow $50 billion to meet its liabilities--an amount that is approximately $10 billion more than the maximum permitted under the Bill. Such a loan would cause all future contributions--assuming they are timely made--to go to debt service. The Fund's liabilities will outstrip its revenues from the beginning.
For the Fund to be economically feasible, the precise contributions must be determined before its enactment, and binding commitments must be obtained from the contributing firms. Currently, these do not exist. A substantial number of expected contributors from industry and insurance are on public record as rejecting any commitment to Fund the bill. Their resistance will result in years of post-enactment rancor, controversy, and litigation. The delay and uncertainty that will dog the Fund under the current Bill should not be accepted, since the intended beneficiaries of the Bill, asbestos victims, will be made to wait still longer for compensation, while their conditions worsen, their medical costs increase, and their number escalates.
Absent a federal guarantee, the Bill's uncertain funding and weak enforcement provisions shift onto the backs of the sick and needy asbestos victims, especially those in the future, the risk of delay and failure. 52
[Footnote]
[Footnote 52: Testimony of Eric Green, Before the Senate Committee on the Judiciary, `Hearing on a Bill to Create a Fair and Efficient System to Resolve Claims of Victims for Bodily Injury Caused by Asbestos Exposure, and for Other Purposes,' 109th Cong., April 26, 2005, at 9-10.]
F. Lack of transparency
S. 852 continues to lack transparency regarding who the participants will be and what they will be required to contribute. While this bill, in some areas, such as the medical criteria and the claims values, is very specific, in other areas, such as funding requirements, it remains frustratingly vague. In fact, the bill does not require a specific determination of the amounts to be paid, by whom, or when, until after the Trust Fund is up and running.
This order of events is clearly backward. As Senators charged with understanding and voting on this bill, we need to know--not just estimate, assume, or guess--that this Trust Fund will have the assets to work before it forcibly removes people from the courts where they currently have the right to seek compensation.
Because asbestos victims will be losing their common law right to a trial by their peers, they at least deserve to know that the Trust Fund will have adequate funds to compensate them. How can we even begin to assure them of this fact if we do not even know how much various companies are really going to pay into the Trust Fund?
When we repeatedly asked for this crucial information, we did not receive it. For this reason, Senator Biden offered an amendment in Committee to require the application of the transparency provisions already in the bill--which determine who is paying how much, and therefore whether there really will be as much money as is currently assumed--before the Trust Fund goes into effect.
The amendment would have ensured that there is a responsible, viable funding plan in place and that the Trust Fund will really work. After all, who would start a $140 billion business without a specific, viable financial plan? Unfortunately, proponents of the bill refused to acknowledge this weakness in the bill, and defeated the amendment.
The bill would bring within its ambit thousands of small companies that are not even aware they will be expected to pay into the Trust Fund. A number of companies have already announced their plans to sue to prevent any assessments or taking of their property and resources. The challenges by these businesses alone could keep the program mired in litigation for several years.
Unfortunately, the proposed formulas for determining the amounts that defendant corporations and insurance companies will pay provide no guarantee that the payments will produce the proposed $140 billion in overall funding, or the annual contributions of $5 billion. In fact, the payment formulas for insurance companies will not even be determined until after enactment of the bill. Nor are there sufficient enforcement provisions in the Act to ensure the parties contribute their required sums.
G. A sunset in name only
A guiding principle for us in considering asbestos litigation reform bill has always been to make sure that victims are treated as well as possible given the constraints of a Trust Fund system. A second guiding principle has been that, if the Trust Fund fails to operate as promised, the victims' rights should be restored to their status under the common law system; they should exit a failed system no worse off than they entered it.
Supporters of this bill have recited the `need for certainty,' that is, the need to know that (1) they will pay a set amount of money into the Trust Fund, and (2) they will not be subject to the vagaries of litigation down the road. We believe that asbestos victims are entitled to the same certainty as corporations and insurers.
It is for this reason that Senator Biden offered an amendment during the Committee's deliberation of S. 1125 in the last Congress to create a sunset of the Trust Fund if it ran out of money. That amendment, which passed the Committee with the largest bipartisan majority of any amendment during that markup session, provided that if the Trust Fund ever failed to pay 95 percent of its claims value, or 95 percent of its claimants, the Trust Fund would sunset and victims would return to the court system from which they had been removed.
S. 852 includes a `sunset' provision, but it is a sunset in name only. Under the new provision, if the Administrator of the Trust Fund thinks that there will be a shortfall of monies in the Trust Fund, he--an individual with a vested interested in maintaining the solvency of Trust Fund--can recommend any number of measures to salvage the Trust Fund. These include lowering the award values or making the medical criteria even more stringent. Under either scenario, victims of asbestos disease would do even worse under the revised Trust Fund than they would under the law as enacted.
During this year's consideration in Committee, Senator Biden offered an amendment to ensure that the Administrator could not save the solvency of the Trust Fund on the backs of the victims. Specifically, the Administrator would have been limited to two options: (1) sunsetting the Trust Fund to permit victims to return to court; or (2) raising more money from those making contributions to the Trust Fund, so the program could remain operational.
In addition, the Biden amendment would have required not merely a vague analysis of the Trust Fund by the Administrator; it would have required the Administrator to certify his findings, not unlike the requirements of corporate executives under the Sarbanes-Oxley corporate accountability law and similar laws.
Also, while the sunset in the bill would return cases only to federal court, the state court where the exposure occurred, or the state court where the claimant resides--a provision far more restrictive than the current laws allow, Senator Biden's amendment would have permitted a return to the state court where the defendant is headquartered or has its principal place of business, or the state court of any state where the defendant has at least 10 percent of its employees or conducts 10 percent of its sales.
Thus, this year's Biden sunset amendment was a far cry from what this Committee adopted two years ago. It was significantly weaker, a compromise. Yet, it was still defeated.
The key concept adopted by the Committee in the last Congress--that the Trust Fund must terminate and permit victims to return to court if it does not pay substantially all of its claims--has been abandoned. We believe Chairman Specter was correct two years ago, when he spoke forcefully in favor of a mandatory, self-executing sunset:
We are taking away a right to jury trial, which is very substantial, it is a fundamental right, and I think in the interest of the workers who are injured and not being compensated that it is a tough balancing act * * * But I want to be sure, Mr. Chairman, that if the companies do not put up the money or whatever point the Trust is out of money and there is no more money to be collected by injured people, at least at that stage, they have access to the courts.
Unfortunately, under the current sunset formula, claimants are likely to be stuck in a faltering system while the Administrator seeks to stiffen the medical criteria and/or reduce the compensation for claimants. Since Congress will have to approve these recommendations, we had better be prepared to re-open this debate in the next several years. Maybe then my colleagues will see the wisdom of encouraging increased contributions to the Fund by including a real sunset provision in the Act. 53
[Footnote]
[Footnote 53: S. Rep. No. 109-118, at 198 (2003)]
In addition, the chaos that would result if there was, in fact, a sunset and assets had to be redistributed back to the current bankruptcy trusts is not addressed by the bill. Given that these existing trusts would have been completely shutdown (assuming the bill survived constitutional challenge) it would take years to reconstitute them.
As Professor Green testified:
In its current form, the Bill requires that all the monies now held in Trust for current and future claimants be transferred to the national fund. This transfer would cause the existing Trusts, with assets in the billions, to be shut down. The hundreds of skilled employees around the country who have been processing claims would be fired. In some cases, those Trusts and their claims processing units have been adjusting claims for nearly twenty years with considerable expertise. For the sake of efficiency and economies of scale, many of the Trusts have combined facilities * * *
If the national fund's projected shortfall becomes a reality, then the Trusts that exist today are to be revived. But it will take tens of millions of dollars to recreate what already exists in the private sector today. The Trusts' claims adjustment facilities will have been dismantled, their claims adjusters fired, their Trustees discharged, and their final tax returns filed. The Bill provides no practical transition plan to enable claimants to go back to the tort system or to the Trusts. 54
[Footnote]
[Footnote 54: Statement of Eric Green, Before the Senate Committee on the Judiciary, `Hearing on a Bill to Create a Fair and Efficient System to Resolve Claims of Victims for Bodily Injury Caused by Asbestos Exposure, and for Other Purposes,' 109th Cong., April 26, 2005, at 11-12.]
H. Inadequate claims values
The principal argument of supporters, that S. 852 represents an improvement over S. 1125, rests on the idea that claims values have been increased and subrogation has been prohibited to preserve the value of awards for the victims. These are certainly positive steps. However, many of the compensation values, especially for the most seriously ill victims, are still too low. The victims in many cases will receive less than they would get in court today, even after attorney's fees are deducted. 55
[Footnote]
[Footnote 55: It bears noting, however, that not all values have increased. The consensus value included in draft bill for Category II with $35,000 but was inexplicitly lowered to $25,000 in S. 852. In addition, while the claims value for mesothelioma victims has been increased by a meager $25,000 from S. 2290, in real terms, that is a reduction in value. See http://www.aier.org/cgi-aier/colcalculator.cgi. Thus, the lowest and highest categories of claims values have been reduced by S. 852 as compared to earlier versions of this bill, and they are far below what victims would receive in the court system.]
Further, new medical treatments for mesothelioma are now being implemented. These treatments are very expensive. As medical costs for mesothelioma victims increase, their awards under the Trust Fund have not risen proportionately. An amendment to provide medical benefits to mesothelioma victims, similar to the medical benefits provided to successful claimants under the Energy Employees Occupational Illness Compensation Program Act (`EEOICPA'), to ensure that treatment expenses would not reduce their awards, was not acted on by the Committee.
Other efforts to allow for extraordinary medical or family expenses to be considered, were also rejected. The only concession has been to authorize the Administrator to consider increasing compensation to younger mesothelioma victims with dependants, but at the expense of older victims. But even this is not guaranteed under S. 852, nor are there additional funds provided for to make such payments.
In addition, the court system currently compensates workers with substantial asbestos exposure and lung cancer regardless of whether the patient also has nonmalignant disease. The Trust Fund will not. Our efforts to reinstate compensation for this group of asbestos victims were rejected in Committee. Since one of the major justifications for asbestos reform is to provide more money to those who are truly sick, we believe there is no justification for denying compensation to victims with lung cancer or other diseases currently being compensated through the courts.
I. Replacing one adversarial process with another
S. 1125 and S. 2290 from the last Congress aimed to streamline the administrative process, in order for victims to recover compensation more easily. Both bills relied on medical presumptions and simplified proof of exposure to facilitate recovery. However, S. 852 reintroduces an adversarial environment by making proof of claims more difficult and by removing some presumptions favoring compensation.
As discussed above, whereas previous bill required victims to prove that asbestos was a `contributing factor' to their disease, under S. 852 victims are now required to prove that asbestos was a `substantial contributing factor' to their disease. In many instances, however, it is not possible to gauge the relative contribution of different environmental factors. This is a much higher burden than victims have to meet in court.
On top of the new and difficult burden, S. 852 requires claimants to, among other things, demonstrate substantial occupational exposure and employment history; catalog all collateral source payments; set forth evidence to support an assertion of non-smoking, and even in the case of exigent claimants, identify each appropriate defendant as if the claim could be heard in court, consistent with Rule 11 standards for attorneys under the Federal Rules of Civil Procedure.
One of the justifications for setting up an administrative system has been to simplify and ease the burden of proof for victims, as a tradeoff for giving up their common law rights. As the administrative burden rises for victims, the tradeoff becomes less fair.
While S. 852 has made the claims process more adversarial and has layered on more review by the Physician's Panel than previous iterations, it has simultaneously made it more difficult for victims to engage professional advocates to plead their case. The bill imposes a severe cap on fees for victims' attorneys, 5 percent of the amount awarded to claimants. This will complicate, if not make it impossible, for many victims to engage quality attorneys to aid them in presenting complex claims both before the Administrator and before the Physician's Panel, and challenging adverse decisions, including low awards or total rejections.
Even United States District Judge Edward Becker--the chief architect of the bill--in his January 11, 2005, testimony before the Judiciary Committee, warned against severe attorneys' fee caps, on the grounds that Congress would hinder the ability of persons to obtain effective legal counsel. 56
[Footnote]
[Footnote 56: Testimony of Judge Edward Becker, Before the Senate Committee on the Judiciary, In the Matter of: Fairness in Asbestos Injury Resolution Act, 109th Cong., January 11, 2004, at 14-15.]
In contrast, the bill contains no caps on the attorneys for the corporate defendants or insurers. Thus, these entities will be free to challenge any adverse decisions and the constitutionality of the program without such restrictions.
J. Collateral source rule not fair to victims
S. 852 requires any payment made to a claimant from the Trust Fund be reduced by the amount of any `collateral source' compensation the claimant may have received from previous court proceedings or settlements relating to asbestos injuries. It is fair and reasonable to offset the sum that a claimant has actually received from other sources for asbestos injury, in order to avoid a situation of `double dipping' with the Trust Fund. But it is completely unfair to offset from the claimant money that never ended up in the claimant's pocket.
It is a standard practice in litigation for jury awards or settlements to often include costs and expenses in addition to attorney's fees as part of the total amount of money awarded to the plaintiff. However, these extra costs, fees, and expenses are not for the victim but for his legal representatives. If such items are included under the bill's collateral source rule, then it has the effect of reducing the amount of payment provided by the Trust Fund to the victim dollar for dollar for amounts that the victim never received.
During Committee consideration, Senator Durbin offered an amendment that would have corrected this problem by amending the definition of collateral source compensation in the bill to make it clear that the calculation of collateral source offset is based on `net' compensation, not `gross.' That way, an asbestos victim who loses his right to a jury trial and is forced into making a claim with the Trust Fund is not penalized further by having additional amounts offset from a claim payment that he never received.
Unfortunately, in another example where the interests of the corporate defendants trumped the interests of asbestos victims, the Committee rejected this amendment. Senator Durbin argued that `if we are going to have a fair set-off, it would be a set-off of the money actually received by the victim * * * as opposed to the gross amount which was subject to attorneys' fees and costs.' But Chairman Specter asserted that, `there is really the companion issue of how much the defendants ought to be credited.' 57
[Footnote]
[Footnote 57: Executive Business Meeting, Senate Committee on the Judiciary, May 25, 2005, pp 8-9.]
K. Unfair treatment of asbestos victims with pending or settled cases
Under S. 852, the victims of asbestos disease are asked to bear the burden of the multi-year delay anticipated before the Trust Fund becomes operational and ready to pay victims. It will take time to promulgate rules and to set up the elaborate bureaucratic structure created by the bill. It will take time to determine which companies are obligated to pay into the Trust Fund and how much each one must contribute. It will take time for the insurance industry to develop a formula apportioning its funding obligation amongst the individual insurers. Finally, it will take a great deal of time to resolve the myriad of legal challenges that will inevitably confront this bill should it be enacted.
Rather than permitting asbestos claims to continue to be adjudicated in the courts until the Trust Fund is able to process and pay them, the bill imposes an immediate two year stay on nearly all asbestos personal injury cases. According to CBO estimates, at least 60,000 to 80,000 claimants with serious asbestos disease will be subject to this two-year stay. 58
[Footnote] This will create an extreme hardship on many seriously ill victims with cases already pending in the courts. With their health deteriorating and unable to work, medical bills and other expenses are steadily mounting. It is wrong to put them into a two-year legal limbo.
[Footnote 58: Statement of Margaret Seminario, Director, Safety and Health Department, American Federation Labor and Congress of Industrial Organizations, Before the Senate Committee on the Judiciary, `Hearing on a Bill to Create a Fair and Efficient System to Resolve Claims of Victims for Bodily Injury Caused by Asbestos Exposure, and for Other Purposes,' 109th Cong., April 26, 2005, at 3.]
Even the sickest victims--those with less than a year to live--will see their cases halted should S. 852 become law. While the stay imposed on them is for nine months, rather than two years, it can still have a devastating impact.
There is no compelling reason why all asbestos cases should be stayed as soon as the bill passes. The provision is the result of the insistent demands of corporate defendants and insurers who want a two year payment holiday. Yet, S. 1125, the bill approved by the Committee in the last Congress, did not give in to this unreasonable demand by the business community. It recognized the principle that the courts should remain available to asbestos victims until another system of compensation is in place and ready to process claims. It expressly provided that cases in the court system could continue uninterrupted until the Administrator certified that the Trust Fund was operational. That is the right standard, and the Committee was wrong to abandon it in S. 852.
1. Even exigent cases are subject to a stay
Under the bill as drafted, even exigent health claims currently pending in the courts will be automatically stayed for nine months as of the date of enactment. An exigent health claim is one in which the victim has been diagnosed `as being terminally ill from an asbestos-related illness and having a life expectancy of less than one year.'
By definition, these cases all involve people who have less than a year to live due to mesothelioma or some other disease caused by asbestos exposure. Their cases would all be stayed for nine months. Nine months is an eternity for someone with less than a year to live.
The stay language is written so broadly that it would stop all forward movement of a case in the court system. A trial about to begin would be halted. An appellate ruling about to be issued would be barred. Even the deposition of a dying witness could not be taken to preserve his testimony. The stay would deprive victims with less than a year to live of their last chance at a day in court. We cannot believe that the authors of this bill intended such a harsh result. At the markup, several members expressed deep concern about this provision.
The bill does contain language allowing an `offer of judgment' to be made during the period of the stay in the hope of producing a settlement. However, this provision is unlikely to resolve many cases because it requires the agreement of the defendants. There is little incentive for defendants to agree to a settlement when the case has been stayed. Those who have tried cases know that it is only the imminence of judicial action which produces a settlement in most cases. Delay is the asbestos defendant's best ally; and under this bill, the case is delayed for at least nine months and may never be allowed to resume if the Trust Fund becomes operational. If, however, these exigent cases were not stayed, and judicial proceedings could continue, there would be far more likelihood of cases settling under the offer of judgment process.
We strongly believe that, at a minimum, all exigent cases should be exempted from the automatic stay in the bill. Victims with less than a year to live certainly should be allowed to continue their cases in court uninterrupted until the Trust Fund becomes operational. Their ability to recover compensation in court should not be halted until they are able to receive compensation from the Trust Fund. It is particularly unfair to leave these dying victims in a legal limbo. For them, the old adage is especially true--justice delayed is justice denied.
Under the bill, defendants would receive a credit against what they must contribute to the Trust Fund for whatever payments they make to these dying victims; so they would not be `paying twice,' as some have claimed.
Allowing the exigent cases to go forward in the courts without interruption is a matter of simple fairness. Staying the cases of victims who have less than a year to live is bureaucratic insensitivity at its worst. Most of these victims will not live to see the doors of the Trust Fund open. At the markup, an amendment was offered by Senator Kennedy to strike the provision staying exigent cases, but it was defeated.
We should not deprive these dying victims of their last chance--their only chance--to receive some measure of justice before asbestos-induced disease silences them. They should be allowed to receive compensation in their final months to ease their suffering. They should be allowed to die knowing that their families are financially provided for. S. 852 in its current form takes that last chance away from them.
Incidentally, S. 852, as introduced, did not specify whether the benefits of an exigent claimant who pass away while awaiting such benefits under the Trust Fund could be passed on to the surviving widow or children. Senator Durbin offered an amendment, which the Committee adopted unanimously, that would provide such benefits to the surviving family members. Yet even such a non-controversial change to the bill set off an active round of deliberations among the corporate defendants supporting the bill, which forced the Chairman to revisit the issue in two additional sessions of Committee consideration. The language that survived in S. 852 is not as clean as the original Durbin amendment, but it nevertheless addresses the core concerns raised by Senator Durbin, to provide compassionate benefits to the surviving family members of asbestos victims.
2. Impact of multiple stays and venue rules
Other aspects of the treatment of pending cases are also troublesome. If the Trust Fund is not operational after two years, the stay is lifted for all claimants. However, asbestos victims cannot necessarily return to the courts where their cases were pending. New, restrictive venue provisions are put in place by S. 852 which will require some of these seriously ill victims to start their cases from scratch in a new court. This will further postpone, in some cases by years, the day when they finally receive compensation for their injuries.
Finally, even if the stay is lifted and court proceedings resume, the cases will be halted again if and when the Trust Fund finally becomes operational, forcing victims to play an absurd game of `red light-green light' with their right to a day in court. Imagine the frustration of an asbestos victim whose case is stayed on the verge of trial by the enactment of S. 852. For two years, he has nowhere to go for financial relief while his health steadily worsens. After two years, the Trust Fund is still not up and running, so he can finally return to court.
However, because of the new venue rules, he cannot return to the same court that was ready to hold his trial. Instead, he must refile in a new court and begin the litigation process anew. After spending a year pursuing this new court case, it is stayed because the Trust Fund is finally ready to process claims, three years after passage of the bill. Of course, the Trust Fund will be swamped with claims the day its doors open, so that unfortunate victim may wait another year or more before his claim is reached. It is difficult to imagine a more arbitrary and unfair system. Yet, that is the system which S. 852, if enacted, will impose on thousands of seriously ill asbestos victims.
3. Abrogating existing settlements
S. 852 also abrogates many existing asbestos settlement agreements. A number of victims have settled claims with defendants in the court system and are counting on those settlements to pay their medical bills and take care of their families. Although the bill's proponents suggest that final settlements in which the only remaining act is payment will be honored, the proposed language actually excludes many such settlements.
The language in the current bill requires that a written settlement agreement be signed directly by the defendant or the insurer, as well as the individual plaintiff. 59
[Footnote] As permitted by state agency and contract law, most settlements are finalized either orally or by a confirming letter from counsel and require a release that is signed by the plaintiff but not the companies or insurers. This new requirement is likely to delay many pending settlements, thereby adding further to the large number of cases that will have to be adjudicated when the Trust Fund becomes operational.
[Footnote 59: The only circumstance in which a representative of the plaintiff is permitted to sign on his or her behalf in where the plaintiff is `incapacitated.' See section 403(c)(3)(A)(i)(II)(bb).]
The bill would also overturn settlement agreements awaiting court approval. In situations where the parties have agreed to a settlement but are awaiting court approval, the settlement will be voided. The bill also includes a complicated and ambiguous provision that may void settlements entered into by companies that later filed for bankruptcy but that would likely emerge from bankruptcy if the bill passes.
Under S. 852, a victim, having assumed his or her case was settled, will suddenly have to start all over in the new Trust Fund system, without any compensation for the cost and hardship of having his or her settlement superceded by the terms of the Act. Victims who have already settled their cases but have yet to receive payments will be compelled to relinquish the money that defendants have agreed to pay.
Victims have a vested property right in these settlement contracts, and this bill would unconstitutionally deprive them of that property right without due process of law. Many of these cases have been entirely resolved, yet the victims will be forced to surrender the unpaid dollars to the wrongdoers who injured them. We cannot support these policies, which clearly favor the defendants over the injured parties.
The purported purpose of the bill is to quickly and efficiently resolve claims. Instead, the bill will reopen old cases that all parties agreed were fairly and entirely resolved. Many of these people have passed up their day in court to reach a settlement and were counting on receiving those promised dollars quickly. Now that settlement will be taken away as well as their right to a trial.
Processing claims for thousands of victims with settlement agreements will put an enormous burden on the Trust Fund. It is likely to delay compensation for all victims. We believe this is unnecessary and that existing settlements should be honored.
In Committee, Senator Biden attempted to address some of these shortcomings by offering an amendment providing that a settlement agreement or confirmation of settlement would suffice to be considered final if it `was authorized by the settling defendant or the settling insurer, and confirmed by, or with, counsel for the settling defendant or settling insurer.'
Moreover, to address the criticism that his amendment would have opened the door to permitting so-called inventory settlement agreements--agreements that settle claims for future, or even hypothetical claimants, in advance--he included a provision in the amendment that would have required that the specific asbestos claim be settled for a specific sum with a specific named plaintiff. It simply aimed to recognize in the bill settlement agreements that are universally recognized in the courts as legitimate and enforceable. The amendment was rejected.
L. Labor department delays in administering the trust fund
Despite repeatedly seeking assurances that the Department of Labor (`DOL') can administer S. 852, we have received no such assurances. There is reason to believe DOL cannot have the Trust Fund up and running as quickly as S. 852 contemplates.
For example, S. 852 calls for regulations governing the Trust Fund to be issued within 90 days, but courts are unlikely to enforce such a deadline, and the bill provides no penalty if the goal is not met. The Office of Management and Budget also has a right to review and revise the regulations under the Executive Order. In past compensation programs, much simpler to administer than the Asbestos Trust, DOL has taken longer than 90 days to develop implementing regulations.
Disease compensation has consistently proven to be extremely difficult to administer. Other compensation programs adopted by Congress and administered by DOL have each cost more, faced a higher volume of claims, and faced greater claims processing delays than proponents of the program acknowledged during Congressional consideration.
Though supporters of the Black Lung law argued that there would be several thousand claimants in total, in fact, in the first two years of the program, 350,000 claims were submitted. 60
[Footnote] In the case of EEOICPA, approximately 3,000 successful claimants were forecast when the law was advocated in 2000. 61
[Footnote] Yet, by December 31, 2004, over 60,000 claims had been submitted to DOL, almost 13,000 claims had been paid, and many others were in the process of adjudication. 62
[Footnote] Clearly the advocates of these programs greatly underestimated the number of individuals who would file valid claims.
[Footnote 60: Peter S. Barth, Professor Emeritus, University of Connecticut, February 15, 2005, `Commentary on the Creation of a Fund for Victims of Asbestos Caused Diseases,' at 5. Available at www.usaction.org.]
[Footnote 61: Barth at 13.]
[Footnote 62: Barth at 11.]
A consequence of this massive underestimating of potential claims was that the forecasted costs by the proponents proved exceedingly low--including the federal government's compensation costs for each program. For example, at the time of enactment, supporters of the Black Lung program estimated the maximum annual costs would be approximately $100 million. 63
[Footnote] Yet, in the first 10 years of the program, the Social Security Administration alone had expended $8 billion. 64
[Footnote] Moreover, a Trust Fund to pay DOL's share has a debt to the U.S. Treasury that currently exceeds $8 billion. 65
[Footnote] Clearly, the actual costs have far exceeded the expected future costs. We believe the same is likely to happen with this proposed Trust Fund.
[Footnote 63: Barth at 8-9.]
[Footnote 64: Barth at 9.]
[Footnote 65: Barth at 9.]
In addition, the initial underestimation of the actual number of claims contributed greatly to the delays in providing compensation to claimants. Moreover, in some cases, it resulted in payments being received after the applicant had died from the relevant disease. Other delays were the result of more time being needed to develop appropriate regulations, and to evaluate the evidence submitted by claimants or their survivors.
M. Litigation delays
If S. 852 is enacted into law, the program contemplated by this legislation will surely face numerous immediate court challenges from a variety of interested parties, including defendants, insurers and victims' groups. Over 8,500 defendants, insurers, and private trusts are currently involved in the asbestos litigation. Several of these entities, including the Manville Trust, have indicated they may challenge the bill as a `taking' of their property without due process of law.
This concern about delay due to protracted legal challenges was discussed at length at the Committee's April 26, 2005, hearing by Professor Green:
My greatest concern about the bill is its lack of certainty and clarity regarding whether, and when, the necessary contributions will be made by industry and insurers. In its current form, the Bill sets forth total contribution amounts but fails to address the resistance that will stand in the way of ever collecting those amounts. Based on statements that persons in the industry and insurance sectors have already made with respect to this Bill and prior versions, the resistance to collection will be as stubborn and as time-consuming to overcome as possible.
It is wishful thinking and a major mistake to underestimate this problem. In the entire history of asbestos litigation, only a handful of industrial firms and even fewer insurers have ever voluntarily faced up to the cost of resolving their full asbestos liabilities. The rest of the firms and insurers that are being counted on under this Bill to pay their allocated contributions have by and large fought and resisted every attempt to hold them accountable. What makes anyone think they will now accept their allocated responsibilities and pay up their shares on time and without a fuss?' 66
[Footnote]
[Footnote 66: Green statement at 6-7.]
The following are among the other expected constitutional challenges to S. 852:
Cancellation of Businesses' Insurance Contracts. In an April 20, 2005 letter to the Committee, Professor David Strauss of the University of Chicago law school contends the taking of a defendant's insurance proceeds, combined with a required contribution to the Trust Fund, could prove to be unconstitutional. 67
[Footnote] The medium and small-sized businesses that would be adversely affected by the bill include entities that have sufficiently insured themselves against future asbestos liabilities. However, S. 852 will not allow the crediting of such insurance. Consequently, these entities will lose their insurance coverage under the bill without any compensation from the government, and in turn, will have to meet the assessments that would be imposed on them to finance the national Trust Fund independently. This is expected to be a heavily litigated issue that may take years to resolve, as many perceive the evisceration of premiums they have paid without due compensation as a Fifth Amendment Property Takings violation, and the additional assessments as a tax.
[Footnote 67: Letter from Professor Davis Strauss to the Honorable Arlen Specter, April 20, 2005.]
Confiscation of Assets of Settled Trusts. According to an April 18, 2005, letter from former Solicitor General Ted Olson to Senator Cornyn, the taking of the assets of the bankruptcy Trusts is also unconstitutional. In his letter, Mr. Olson indicated that his firm represents such Trusts and plans to file suit to protect their assets if the bill continues to allow for the confiscation of those Trusts. 68
[Footnote] The bill's supporters, however, are relying on the $7.4 billion from those Trusts to meet the Trust Fund's initial funding needs. If a court rules for Trusts in this challenge, the Trust Fund will be short $7.4 billion of the $42 to $60 billion required for an effective startup period. On the other hand, if the bankruptcy Trusts' funds are allowed to be transferred to the new Trust Fund, and the funds are paid to claimants, then the U.S. Treasury could be responsible for reimbursing these Bankruptcy Trusts, with interest.
[Footnote 68: Letter from Theodore B. Olson to the Honorable John Cornyn, April 18, 2005.]
Suits by Businesses over the Allocation Formulas. The Coalition for Asbestos Reform has already advised Congress that its members will challenge the proposed assessments on them as well as the cancellation of their insurance coverage. And it is likely that even some of the companies advocating for the bill will challenge their particular assessments as unfair to them.
Legal Challenges by Victims' Groups. Court challenges are also expected by victims who are not covered by the Trust Fund but who, nevertheless, will have their rights to a jury trial eviscerated. This will surely include some lung cancer victims with substantial asbestos exposure who have been excluded from the Trust Fund and others who have suffered environmental or community-based exposure to asbestos. Individuals residing outside Libby, Montana, but similarly affected by environmental exposure to asbestos, are likely to have strong claims based on the Fourteenth Amendment's Equal Protection clause. And individuals with enforceable settlement agreements may challenge the bill's voicing of those agreements.
S. 852 borrows the procedures for expedited judicial review from the Bipartisan Campaign Reform Act of 2001 (McCain-Feingold). The constitutional challenge under that law took 20 months before the Supreme Court's final resolution. McCain-Feingold's expedited review provision is similar to the provision in the Cable Television Consumer Protection and Competition Act of 1992, amending the Communications Act of 1934. The constitutional challenge to that law took four and a half years to resolve. Clearly, the proposed `expedited review' standard is no guarantee of quick resolution of these likely multiple legal claims against S. 852.
During the course of Committee consideration, a question arose as to what would happen if this bill were enacted and subsequently stayed by a court reviewing its constitutionality. Specifically, is it possible that victims, who will have been pulled out of court by the new law, will then neither be able to sue for damages nor pursue a claim against the Trust Fund for a period of years while the constitutional challenges are pending? The answer to that question is almost certainly yes--in the event of a judicial stay of S. 852, victims will be stuck in litigation `no man's land.' That is patently unfair to these seriously ill claimants.
For these reasons, Senator Biden offered an amendment to guarantee that, in the event of a judicial stay of this law, victims would be permitted to continue to pursue their claims in court until the challenge is resolved. That amendment, like so many others that sought to provide some basic fairness for claimants, was defeated.
N. Unfair restrictions placed on victims of silica disease
This bill has provisions that impose arbitrary conditions for the filing of silica claims in court. It seriously restricts the legal rights of individuals who are suffering from diseases caused by exposure to silica dust even though it offers those victims no compensation whatsoever under the Trust Fund. That is not fair.
The rationale is to prevent asbestos claims from being recycled as silica claims. The sponsors fear that lawyers will try to turn asbestos claims into silica claims. These fears are greatly exaggerated. Medical experts from both businesses and labor unions testified before the Committee that disease caused by exposure to silica is easily distinguishable from disease caused by exposure to asbestos. While someone whose lung disease was actually caused by asbestos may file a silica claim, there is very little likelihood of the case succeeding. The real cause of their illness would become apparent as soon as the defendant's doctors reviewed the medical evidence.
While it is reasonable to establish a procedure to identify prior asbestos claims brought by persons filing silica lawsuits, the current provision goes too far. There are serious problems with the way the bill currently handles this issue. It severely limits the rights of some people who are suffering with real silica disease, preventing them from going to court and obtaining the compensation they deserve.
One major problem is that the bill creates an entirely new medical criterion for filing a silica claim. It requires that someone who has both silica disease and asbestos disease must have functional impairment from their silica disease before they can go to court. This bill is not supposed to be a medical criteria bill for diseases in the court system. But that is what this does to silica cases. It dramatically raises the evidentiary bar that a victim of silica disease must clear in order to recover in court. Such a provision has no place in an Asbestos Trust Fund bill.
O. Special interest provisions and changes during markup
S. 852 contains several provisions that appear vague and ambiguous, yet probably will tremendously benefit certain `stakeholders.' These special interest provisions include financial exemptions for foreign and off-shore insurers, a significant offset credit for certain insurers, exemption for the largest companies from having to disclose prior asbestos expense history, exemption for a certain transaction involving the sale of friction products, and perhaps others we have yet to identify.
Because these provisions are drafted in generic language, it is difficult to determine which corporate defendants and insurers would benefit financially or be harmed in comparison to other similarly situated entities.
In addition, during the Committee consideration of S. 852, there were a myriad of major provisions added in a series of hastily drafted managers' amendments, and substantial substantive changes made to the bill that have not received careful examination. We hope the full Senate pays particular attention to these provisions, should the bill move forward.
S. 852 will provide a huge financial windfall to a few large corporations that have substantial asbestos liabilities and those that failed to adequately insure for their liabilities. These include the companies that are largely responsible for the asbestos health and litigation problem that the country faces today.
Included among these entities is the W.R. Grace Company, which is now under a federal criminal indictment for its asbestos actions. S. 852, if enacted, will relieve the costs and liabilities of these firms in two ways: (1) by significantly reducing the amount of compensation asbestos victims receive--in many instances the proposed compensation will not even equal cancer victims' medical and economic losses; and (2) by imposing greater costs on many small and medium-sized businesses, and American taxpayers, than they would be responsible for under the present system.
The groups that will be most adversely impacted by the bill include:
Millions of victims of these horrible diseases caused by asbestos, including deadly lung cancers such as mesothelioma, who will be under-compensated by the Trust Fund;
Thousands of lung cancer victims and community exposure victims who will have no means of recovery once this bill is enacted;
Thousands of small and medium-sized businesses, including many that are unaware that they will be compelled to finance the program out of their own pockets and without any acceptance of liability insurance coverage or credit; and
American taxpayers, who also will likely be compelled to subsidize the program at a cost of tens of billions of dollars.
For the reasons stated above, we
believe that this bill is not the proper solution to the asbestos health and
litigation problem. In its present form, the bill would be unfair to victims,
small and medium-sized businesses and taxpayers. The advantages of the bill
would flow to the corporations that have been most responsible for causing the
problem that we face today. Congress should not be supporting such a one-sided
bill.
Edward M. Kennedy.
Joseph R. Biden, Jr.
Russell D. Feingold.
Richard J. Durbin.
CRITICS CONTENTIONS AND REBUTTAL
Critics' Contention No. 1: Critics contend that the funding provided for in S. 852 is inadequate to pay all asbestos victims.
Response: S. 852 as amended obligates defendant and insurer participants to contribute an aggregate of $136 billion to the Asbestos Injury Claims Resolution Fund (hereinafter `Fund'). In addition, at least another $4 billion would be contributed to the Fund from confirmed bankruptcy and other asbestos compensation trusts, bringing the total level of mandatory contributions to the Fund to at least $140 billion. The size of the Fund is based on sound statistical data and economic models, and is more than adequate to compensate all victims of asbestos-related disease. Indeed, a leading actuary with Tillinghast-Towers Perrin, testified convincingly before the Committee on June 4, 2003 that `$108 billion appears to be more than adequate * * *' 44
[Footnote]
[Footnote 44: Statement of Jennifer L. Biggs, FCAS, MAAA, Tillinghast-Towers Perrin, Hearing Before the Senate Committee on the Judiciary, `Solving the Asbestos Litigation Crisis: S. 1125, the Fairness in Asbestos Injury Resolution Act of 2003,' 108th Cong., June 4, 2003, at 7.]
The total estimated cost of ultimate asbestos loss and expense, which includes both past payments and projected future payments, is $200 billion. 45
[Footnote] The RAND Institute for Civil Justice estimated that $70 billion has already been paid through year-end 2002. 46
[Footnote] By reducing the total estimated cost of asbestos-related loss and expense by the $70 billion already paid out through 2002, the remaining future cost of asbestos-related loss and expense is an estimated $130 billion.
[Footnote 45: Id. at 1.]
[Footnote 46: Steve Caroll, RAND Institute for Civil Justice, `The Dimensions of Asbestos Litigation' presentation at the Spring Meeting of the Casualty Actuarial Society, May 19, 2003.]
One of the most beneficial features of the FAIR Act is that it will significantly reduce the substantial transaction costs of the current tort system--amounts which most experts agree currently consume more than half of the total costs. 47
[Footnote] By substituting the tort system for an administrative no-fault system for compensation, the FAIR Act will wring out these transaction costs and further reduce the future projected costs. Of the $130 billion of asbestos-related spending remaining outstanding, Tillinghast-Towers Perrin estimates that approximately $28 billion (or 21.5%) is attributable to defense costs. Of the remaining $102 billion, Tillinghast estimates that approximately $41 billion (or 40%) will go to plaintiffs' attorneys. In the current system, as a result of these transaction costs, only $61 billion of the $130 billion estimate of future asbestos-related loss and expense, or less than half, is expected to be paid to asbestos victims. 48
[Footnote] Moreover, the FAIR Act will correct the current misallocation of payments being made to unimpaired claimants who are flooding the court system today. Therefore, the $140 billion to be contributed to the Fund by defendant and insurer participants will be more than double the $61 billion, thus giving victims the certainty that they will receive compensation under the new system.
[Footnote 47: See id; see also Biggs, supra Note 1 at 2-3.]
[Footnote 48: See Biggs, supra Note 1 at 2.]
Finally, as an added protection against the unlikely risk of insufficient funding, the FAIR Act gives the Administrator authority to borrow from commercial and government lending institutions amounts to offset short term losses.
Critics' Contention No. 2: Critics contend that given the significant amount of time that will be involved in establishing the Fund and getting it funded and fully operational, asbestos victims may have to wait years before they receive any compensation.
Response: Currently, when cases enter the tort system many individuals are forced to wait significant periods of time before their case is brought before a judge or jury. Some states, however, have enacted expedited procedures to address cases of terminal individuals in an expedited timeframe. In these states, cases are filed and either settled or heard within 6 months. In addition, these cases are often paid within 30 days to 6 months.
Given the expedited processes available in many states, provisions were added during Committee consideration of the FAIR Act to establish several safeguards to ensure that terminal individuals have their claims paid as quickly as or quicker than the current system.
A process was created whereby exigent claimants, individuals who have mesothelioma or have been diagnosed with less than one year to live, may have their claims resolved in as little as sixty (60) days and receive their first payment in thirty (30) days.
The process created under the bill allows exigent claimants to immediately file their claim with the Fund or with the claims facility, or they may file a notice of intent to seek a settlement. In either case the exigent claimant must provide the necessary information to the Administrator. The Administrator then has up to sixty (60) days to make a determination if the claim qualifies for payment. Upon approval the Administrator must pay the claim on an expedited basis.
In addition, there are several additional provisions to ensure exigent claimants are paid quickly. If for whatever reason the Administrator or claims facility is unable to process or pay the claim, the defendants and the claimant must be notified within ten (10) days. Upon notification, the defendants may make a settlement offer. If the offer is rejected defendants have twenty (20) days to perfect the offer. If the offer is again rejected, or if no offer is made, the claimant's settlement must then be bumped up to 150% of the award value under the trust. If after nine (9) months the exigent claimant has not had their claim processed or fully paid, then they may return to court where their case was originally filed, or if their claim arose after enactment they may file their case in the appropriate state or federal court.
This process ensures that terminal individuals receive fair and timely payment as quickly as possible, and in many cases in a timelier manner than if they proceeded in the courts.
Critics' Contention No. 3: Critics contend that if the Fund runs out of money, asbestos victims will have no place to turn for compensation.
Response: As explained in detail in response to Critics' Contention No. 1, based on all reasonable estimates, the Fund will not run out of funds or be unable to meet all of its obligations to all claimants. But in the event the FAIR Act does not ultimately provide adequate funding to compensate all asbestos victims deemed entitled to compensation, S. 852 provides victims the right to pursue their claims in the tort system.
Critics' Contention No. 4: Critics contend that victims will be paid less under the FAIR Act than they could get in the tort system.
Response: The Committee has approved S. 852 in recognition that the tort system is broken and the status quo cannot be sustained for either victims or defendants. Under the bill, claimants will receive fair, consistent and equitable compensation without the delays inherent in litigation. Moreover, most appropriately, those that are most seriously ill and whose diseases have the most direct causal link to asbestos will receive the most compensation under the legislation, including up to $1.1 million for Level IX, Mesothelioma. Those individuals who have been exposed to asbestos but are not impaired will be eligible for medical monitoring, and their claims will be preserved should they later develop impairment.
In sharp contrast to the bill, the current tort system is unfair to asbestos victims and plagued with uncertainty. Whether asbestos victims receive compensation at all, and, if so, how much they might receive, depends on where and when they file claims, who the defendants happen to be, whether those defendants are solvent, and the leverage and skill of their trial lawyers. The amount of compensation victims receive diverges widely, with some victims receiving very large amounts, and others receiving little or nothing. And sadly, some victims die before their cases can be heard in court. These distortions in the current tort system are further exacerbated by jurisdictional idiosyncrasies. Only five states had two-thirds of all asbestos case filings between 1998 and 2000. The concentration of an overwhelming number of filings in a small number of jurisdictions only increases the delays and inequities inherent in the current system.
While the tort system bestows large awards for some victims, it all too often leaves the unfortunate without fair compensation, and the system is only getting worse with time. In order for victims to be compensated, they need to be able to look to solvent companies for resources. However, to date, at least 73 companies have declared bankruptcy because of asbestos claims. While bankruptcy trust funds can be an efficient way of compensating victims, a study of a number of major asbestos defendant bankruptcies showed that the average time from petition to confirmation of a reorganization plan was six years. During these proceedings, claimants are not paid. Even worse, after a company declares bankruptcy, it has very limited resources with which to compensate victims. The Manville Trust, for example, can only pay victims 5 percent of the value of their claims. Moreover, not one single existing asbestos trust or any of the 20 or more trusts currently pending in bankruptcy court can or will be able to pay any more than a fraction of the value of the claims that will be presented. 49
[Footnote]
[Footnote 49: See Statement of David Austern, General Counsel for the Manville Personal Inquiry Settlement, Trust, Hearing before the Senate Committee on the Judiciary, The Asbestos Litigation Crisis Continues--It is Time for Congress to Act, 108th Cong., March 5, 2003.]
As noted in the response to Critic's Contention No. 1, by reducing the substantial transaction costs of the current system and directing resources to those who are injured from asbestos related diseases, S. 852 will deliver more compensation to victims in a timely and certain manner.
The scheduled values of S. 852 are some of the highest of any federal or state compensation program in existence. The values compare very favorably to the statutory, maximum disability and death benefits of all other federal compensation programs and are higher than the benefits offered under state workers' compensation programs. In January of 2002, of the 23 states reporting a calculated, maximum death benefit, the lowest reported amount was $46,900 in Maryland; the highest reported amount was $390,000 in Minnesota. By contrast, under the bill, the benefit for Level IX, Mesothelioma, is $1.1 million.
The values in S. 852 also compare favorably to the other bankruptcy trusts. By example, the Manville Trust provides for a scheduled value of $350,000 for mesothelioma claimants, and is only able to pay 5 cents on the dollar on all claims. A mesothelioma claimant would, therefore, only receive a payment of $17,500 from the Manville Trust, but under S. 852 would receive $1.1 million. While claimants typically sue a number of trusts, the results are likely to be similar.
Finally, the S. 852 prohibits the subrogation of a claim as a result of a claimant receiving an award from the Fund.
Critics' Contention No. 5: Critics contend that S. 852 is supposed to embody a `no fault' system, but the medical criteria are overly stringent.
Response: S. 852 establishes a non-adversarial, no-fault system in which claimants, in sharp contrast to the tort system, will not have to prove fault on the part of defendants or have to provide specific product identification in order to receive compensation. In addition, those individuals that have been exposed to asbestos but are not ill will be eligible for medical monitoring and will remain eligible to receive compensation at a later time should they become ill in the future.
The bill's medical criteria are fair and reasonable and appropriately designed to provide certainty to claimants. Indeed, the starting point for the medical criteria provided for under S. 852 were those from the Manville Trust, which were adopted with the overwhelming support of the claimants and their counsel and which have been substantially followed by other bankruptcy trusts because of their credibility.
In exchange for establishing a no-fault, non-adversarial system, however, the criteria in the Act require a medical diagnosis by the claimant's doctor and sufficient evidence to establish that the claimed illness is asbestos related. Such criteria are also necessary to keep the problems associated with mass screenings and the current abuses found in the tort system from being transferred to the Fund. To ensure the integrity of the Fund and to promote the purpose of the bill to direct funds to those claimants who are truly ill from their exposure to asbestos, therefore, the criteria in the bill reflects compromises, yet is based on sound, diagnostic, medical, latency and exposure criteria.
Critics' Contention No. 6: Critics contend that small businesses that rely on their insurance will be harmed under S. 852 because they will be forced to contribute to the Fund and will not be able to use their insurance in order to do so.
Response: Under the FAIR Act, small businesses, as defined under Section 3 of the Small Business Act, are explicitly exempt from having to contribute to the Fund, but will receive the very protections provided to all of the other defendant participants under the legislation. Also, small companies that have not incurred asbestos liability-related payments of $1 million or more before December 31, 2002 are exempt from having to contribute to the Fund. For those companies that are not exempt from having to contribute to the Fund, S. 852 tiers companies by size and liability, such that no company would have to contribute to the Fund an amount out of line with their resources. In stark contrast, the current tort system provides no protections for small businesses and allows any company of any size, no matter how small, to be sued into bankruptcy. Furthermore, the bill authorizes the Administrator to adjust defendant participants' contributions based on severe financial hardship and demonstrated inequity, further protecting the interests of all businesses of all sizes.
Critics' Contention No. 7: Critics contend that S. 852 will primarily benefit businesses and insurance companies.
Response: This contention is unwarranted. The bill benefits victims who have been inadequately served by the current tort system while providing economic stability to businesses that have been overwhelmed by abusive litigation in the current tort system, driving many into bankruptcy and impacting the jobs and pensions of their employees.
S. 852 will benefit victims significantly because they will receive fair, certain and equitable compensation without the delays and uncertainties inherent in the current tort system. Moreover, claimants will not have to worry whether their defendant is or will become bankrupt, and they will not bear the burden to prove liability, causation or to establish product identification as in litigation.
Further, under the funding provisions in S. 852, more resources will be available to compensate victims than under the current system. As estimated by leading actuaries, because of the substantial transaction costs of the current tort system, only a total of about $61 billion will go to asbestos victims in the future, while an estimated $69 billion will go to plaintiff and defense lawyers. 50
[Footnote] In contrast, under S. 852, $140 billion will go directly to compensate victims.
[Footnote 50: See Jennifer L. Biggs, supra at 2.]
Victims will be much better protected once S. 852 is enacted because the current awards some receive from the tort system are not sustainable into the future. To date, over seventy (70) companies have gone into bankruptcy as a result of asbestos liability, and without reform, more companies will be at risk in the future. The Committee's hearing record is replete with the devastating impact the current asbestos crisis is having on businesses, workers, retirees, shareholders and the U.S. economy. S. 852 will ensure that asbestos victims no longer face the risk that their only recourse will be trusts created out of bankruptcies paying pennies on the dollar.
In short, S. 852 provides fair compensation to those who are injured by asbestos exposure and ensures that scarce resources will not be spent on the unimpaired at the expense of those with asbestos-related injuries now and into the future. Too often those most deserving do not get their fair share out of the current system. Victims will benefit substantially from the new system. S. 852 is fair and balanced and will produce substantial benefits for victims, workers, retirees, shareholders and the U.S. economy.
Critics' Contention No. 8: Critics contend that S. 852 is unconstitutional and will lead to years of litigation over its constitutionality.
Response: S. 852 has been very carefully written to avoid running afoul of the U.S. Constitution. Indeed, it is important to note that more than a decade ago a committee of the United States Judicial Conference, appointed by the Chief Justice of the U.S. Supreme Court, studied the special features of asbestos litigation and concluded that the `ultimate solution should be [federal] legislation recognizing the national proportions of the problem and creating a national asbestos dispute resolution scheme * * *.' 51
[Footnote] Since that time, the U.S. Supreme Court has called repeatedly for an administrative solution as provided for in S. 852.
[Footnote 51: Report of the Judicial Conference Ad Hoc Committee on Asbestos Litigation 3 (March 1991); see also id. at 42 (dissenting statement of Hogan, J.) (agreeing that `a national solution is the only answer' and suggesting `passage by Congress of an administrative claims procedure * * *')]
In 1997, in Amchen Prods., Inc. v. Windsor, 521 U.S. 628-629 (1997), Justice Ginsburg wrote: `The argument is sensibly made that a nationwide administrative claims processing regime would provide the most secure, fair, and efficient means of compensating victims of asbestos exposure.'
[Footnote 52: In March 2003, in writing for the Court in Norfolk & Western Ry. v. Ayers, 123 S.Ct. 1210, 1228 (2003), Justice Ginsburg again stated: `The `elephantine mass of asbestos cases' lodged in the state and federal courts, we again recognize, `defies customary judicial administration and calls for national legislation.' The Committee has heeded the explicit call of both the U.S. Judicial Conference and the U.S. Supreme Court in establishing the no-fault, publicly-administered, privately-funded administrative claims process provided for in S. 852.]
[Footnote 52: See also Ortiz v. Fibreboard Corp., 527 U.S. 815, 821 (1999).]
In reviewing the constitutionality of S. 852, at the specific request of the Committee, preeminent Harvard constitutional law scholar Professor Laurence H. Tribe, testifying before the Committee on June 4, 2003, confirmed the constitutionality of the legislation:
My conclusion, in brief, is that the FAIR Act is well within Congress' authority to enact and does not offend the constitutional guarantees of due process, equal protection, or right to jury trial. Nor does it represent an uncompensated taking of private property, an unconstitutional impairment of contracts, or a violation of the separation of powers. 53
[Footnote]
[Footnote 53: See Statement of Lawrence H. Tribe, Hearing Before the Senate Committee on the Judiciary, Solving the Asbestos Litigation Crisis: S. 1125 The Fairness in Asbestos Injury Resolution Act of 2003, 108th Cong., June 4, 2003, at 2.]
With regard to the concerns of some that the preemption of common law tort claims may violate due process or create a claim under the Takings Clause of the Constitution, Professor Tribe testified further on the ability of Congress to preempt common law tort claims:
The legislative precedents illustrate the breath of Congress' power to adjust, restrict, or even abolish common-law and statutory causes of action. Thus, Congress has ample authority to rationalize asbestos claims, by creating an Article I procedure in the asbestos court for the orderly payment of such claims and thereby avoiding a race-to-the-bottom situation in which relatively unimpaired plaintiffs are overpaid, transaction costs are high, and grievously injured plaintiffs risk getting little or no compensation at all * * *. It has long been settled, ever since the states began adopting workers' compensation statutes, that a legislature is free to modify or abolish common-law causes of action without violating due process or creating a claim for compensation under the Takings Clause. 54
[Footnote]
[Footnote 54: Tribe testimony at 6.]
In written testimony submitted to the Committee by former Solicitor General Seth Waxman supports this analysis, he explains that `[t]here is further no doubt that in pursuing proper national goals, Congress may, to the extent it deems necessary or desirable, preempt and supersede the operation of state law.' 55
[Footnote]
[Footnote 55: Hearing on Solving the Asbestos Litigation Crisis: S. 1125, the Fairness in Asbestos Injury Resolution Act of 2003, Before the Senate Comm. on the Judiciary, 108th Cong. 4 (2003) (testimony submitted for the record by Seth P. Waxman, Wilmer, Cutler & Pickering).]
Nevertheless, should the constitutionality of S. 852 be challenged, the legislation explicitly provides for an expedited appeal directly to the Supreme Court as a matter of right within thirty days of any decision of a federal court finding any part of S. 852 to be unconstitutional. This ensures that any such litigation will be resolved quickly.
Critics' Contention No. 9: Critics contend that the FAIR Act will become another black lung fund with the government having to put money into the Fund to compensate victims.
Response: The FAIR Act establishes a trust fund for the compensation of asbestos claims that is privately funded. (Section 221(a)). Although the program is housed in the Department of Labor, the Act ensures that all administrative expenses, as well as claims, are paid by the Fund. (Section 101(a)(3)). The FAIR Act expressly provides that nothing in the Act shall be construed to create any obligation of funding from the United States or to require the United States to satisfy any claims if the amounts in the Fund are inadequate. (Section 406(b)). As such, industry, not the U.S. Treasury, will be paying the bills.
In response to an inquiry from Senator Nickles on S. 1125, as reported out of the Senate Judiciary Committee in 2003, the GAO recognized that S. 1125 explicitly provides that any borrowing by the Fund would not be supported by the U.S. Government. The GAO noted, however, that `[t]o ensure that the government incurs no liability for repayment of borrowing under the act, Congress may wish to explicitly state that repayment of borrowing is limited solely to amounts available in the Fund.' The GAO's recommendation has now been incorporated into the FAIR Act. Under the Specter draft, any borrowing is limited to monies expected to be paid into the Fund, and section 221(b)(4) of the FAIR Act expressly provides that `[r]epayment of monies borrowed by the Administrator under this subsection is limited solely to amounts available in the [Fund].' (Section 221(b)).
In addition, the problems of the Black Lung Disability Trust Fund being chronically under-funded have been considered, and FAIR Act has been carefully crafted so as not suffer from the same problems as the Black Lung program. Many of the companies obliged to pay for workers' illnesses under the black lung fund were, soon after the enactment of the legislation creating the fund, acquired by other corporate interests. The legislation had not contemplated this scenario, and the successors-in-interest were not obligated to continue the payments that the original companies had made. The FAIR Act, by contrast, includes a comprehensive and specific provision designed precisely to ensure that successors-in-interest to the participants in the Fund are held just as responsible as the participants were, so that the Fund will not suffer any finial harm as the result of merger-and-acquisition activity. This provision of the FAIR Act also requires reporting on all such activity to the Administrator, and just as importantly creates the opportunity for the Administrator--or another interested party--to bring a lawsuit to force compliance with the successor-in-interest provision and the obligations of such successors.
Further, unlike the Black Lung program, which is financed by a tax imposed solely on coal mining companies, the asbestos compensation fund has a much broader funding base because asbestos litigation has affected virtually every sector of industry. Moreover, the funding obligations are not dependent on a fixed tax on a few companies, but are instead guaranteed collectively by all of the defendants and insurers. In addition, unlike the Black Lung program the total amount of funding is based on a long history of claims filing with bankruptcy trusts, which is the best available data upon which to estimate funding obligations, and the most reliable claims projections by experts in the field.
The Black Lung program also has been criticized as being based on overly broad, ill-considered presumptions, creating what has been characterized as a runaway program. The medical criteria in the FAIR Act are based on detailed medical standards and require credible and reliable medical evidence to be filed with all claims. The Act also provides for Physicians Panels to review claims that have a more tenuous relationship to asbestos exposure. There are also independent reviews of certain claims and audit provisions to address any potential fraud and abuse. These safeguards were made to ensure that the FAIR Act does not establish a runaway program, while still providing compensation to the true victims of asbestos exposure. Finally, the FAIR Act also now excludes claims previously called Level VII claims, the so-called exposure-only lung cancers.
Also unlike the Black Lung program, the FAIR Act provides the Administrator with greater flexibility to address short-term funding problems without incurring undue debt, and, as previously noted, any debt incurred must be based on expected monies to be paid by defendants and insurers. If the guaranteed funds are not sufficient to pay all of the Fund's obligations, including administrative expenses and debt repayments, when due, the Fund will sunset and asbestos victims will be able to pursue their claims in court. (Section 405(f)). The funding requirements are to continue even after sunset if necessary to pay off any debt. (Section 405(f)(5)). The taxpayers will not be left holding the bill.
The Black Lung Benefits Act only required that a program be created for coal miners with pneumoconiosis, and the statute merely outlined presumptions of those who should be eligible and delegated authority to determine eligibility requirements to the Department of Labor. See, e.g., 30 U.S.C. Sec. 921. Section 121 of the FAIR Act, on the other hand, prescribes detailed medical, diagnostic, latency, and exposure requirements to determine eligibility for compensation of asbestos claims. Consequently, Congress itself in the FAIR Act prescribes the criteria for eligibility for compensation, and these criteria are designed to compensate only those truly ill from asbestos exposure and not other causes. Unlike the Black Lung Benefits Act, the FAIR Act does not authorize the Department of Labor to promulgate new eligibility criteria or to change the criteria reflected in the statute. Indeed, as part of the annual report to Congress required by the FAIR Act, the Administrator must review claims filings and eligibility determinations to ensure the purposes of the Act are met and that the Fund is compensating true victims of asbestos exposure and not compensating claims for injuries that are not caused by asbestos. (Section 405(c)). Based on experience gained in implementing the program, the Administrator can recommend changes to the eligibility criteria, but any such recommended changes must first go through a special commission and then be approved by Congress. (Section 405(e)). The Administrator is not authorized to change the eligibility criteria through regulations.
Moreover, the bill expressly mandates Department of Labor the authority to contract out with a claims handling facility to help alleviate the initial influx of claims. (Section 106(c)(4)). Currently, there are a number of private sector claims handling facilities in existence with experience managing asbestos claims. For example, the Claims Resolution Management Corporation (`CRMC') handles the claims processing for the Manville Trust and three other bankruptcy trusts. CRMC reportedly has been able to handle over 150,000 asbestos claims annually from law firms filing with the Manville Trust. In addition to CRMC, there are a number of claims management facilities that handle a multitude of cases every year on behalf of insurance companies and defendants. Existing claims handling facilities are very efficient. For example, in 2002, CRMC adopted a sophisticated electronic claims submission system. These entities (or new entities drawing upon the expertise of these entities) would be available to handle claims on behalf of the Department of Labor and/or to assist in training of claims handling personnel. The costs of retaining such entities would be borne entirely by the Fund.
Critics' Contention No. 10: Critics contend that legislation that imposes a set of medical criteria in the tort system would be preferable to the trust fund created in S. 852.
Response: The Committee received significant testimony establishing that the current system for compensating asbestos victims is broken. Victims are dying while they wait for their day in court. When they finally receive their day in court, victims often receive only a small percentage of the costs involved in our tort system, or if the defendant has been forced to file for bankruptcy, then victims receive little or no compensation. This dire situation cries out for a solution outside of the court system that streamlines the claims process for victims; ensures that they receive timely and fair compensation relative to the severity of their injuries; and protects compensation they receive from subrogation by insurance companies.
According to the most recent RAND study, asbestos victims receive an average of only 42 cents for every dollar spent on asbestos litigation. Thirty-one cents of every dollar have gone to defense costs, and 27 cents have gone to plaintiffs' attorneys and other related costs. Enactment of a medical criteria bill for asbestos would fail to reduce the high transaction costs of the asbestos tort system.
Medical criteria bills do nothing to protect businesses from going bankrupt or victims who were injured by bankrupt companies from receiving fair compensation. Many asbestos manufacturers are in bankruptcy proceedings and therefore are immune from suit. Victims like our nation's veterans are unable to recover for asbestos exposure they received while serving the country in the current tort system. The Judiciary Committee recently received the following testimony from Hershel W. Gober, National Legislative Director, Military Order of the Purple Heart:
The avenues open to veterans to seek compensation through the tort system, however, are very limited. The Federal government, as the members of this Committee know, has sovereign immunity, thereby restricting veterans' ability to recover from the government; and most of the companies that supplied asbestos to the Federal government have either disappeared or are bankrupt and, therefore, are only able to provide a fraction of the compensation that should be paid to asbestos victims, if anything at all. Even if there is a solvent defendant company for a veteran or his/her family to pursue, there remains the lengthy, costly, and uncertain ordeal of filing a civil lawsuit and going through discovery and trial, where the plaintiff bears a heavy burden of proof and often has the very difficult to impossible task of establishing which defendant's product caused their injuries.
Criteria bills would do nothing to compensate victims like our nation's veterans who were injured by bankrupt companies during their service to our country.
Legislation imposing medical criteria in the tort system is inherently unfair to victims. Such measures do not alleviate the delays victims face when confronted with overwhelmed court dockets. Criteria bills will impose new hurdles for plaintiffs and continue to require the identification and proof of the manufacturer or entity responsible for exposing them to asbestos decades ago. In contrast, the FAIR Act Fund will not require victims to identify and prove the manufacturer or entity that exposed them to asbestos. Under the FAIR Act Fund, victims will not have to hope that the entity responsible for their exposure is financially solvent. They will recover compensation under the Fund in proportion to their impairment or disease.
The current system for compensating victims of asbestos exposure is inefficient and inequitable. A medical criteria bill is not a solution because it operates within the same tort system. A true alternative will avoid the problems with the current asbestos tort system and bankruptcy compensation process. The Fund created by S. 852 will provide fair and timely compensation to all victims impaired by asbestos exposure and would bring financial certainty to defendant companies and insurers. Medical criteria proposals that would operate within the existing tort system simply would not.
SECTION BY SECTION ANALYSIS
Sec. 1. Short title; table of contents.
Sec. 2. Findings and purpose.
Sec. 3. Definitions.
Sec. 101. Establishment of Office of Asbestos Disease Compensation
The FAIR Act establishes the Office of Asbestos Disease Compensation (the Office) within the Department of Labor for the purpose of providing timely and fair compensation to individuals with asbestos-related injuries in a no-fault, non-adversarial manner. If the Office does not sunset early (see sunset provisions in Title IV), then it shall terminate automatically no later than twelve (12) months after the Administrator certifies that the Asbestos Injury Claims Resolution Fund (the Fund) has not paid out claims in twelve (12) months and does not have any debt obligations to pay.
An Administrator, appointed by the President with the advice and consent of the Senate, will head the Office for a term of five (5) years and report directly to the Assistant Secretary of Labor for the Employment Standards Administration. The Administrator is charged with the following responsibilities: (1) paying all administrative expenses out of the Fund; (2) promulgating rules, regulations, and procedures necessary to implement the Act, including rules expediting the consideration and payment of claims for exigent claims as soon as possible after date of enactment; (3) contracting and appointing of services and personnel; (4) selecting Deputy Administrators, one to handle the claims administration and resolution process and one to handle the fiscal management of the Fund; and (5) managing the assets to ensure the financial integrity of the Fund.
The Freedom of Information Act (FOIA) shall apply to the Office and Asbestos Insurers Commission. The Act provides a process by which a participant or claimant may seek an exemption from disclosing their confidential records under FOIA. The Act charges the Administrator and Chairman of the Asbestos Insurers Commission with establishing: (1) procedures for handling the commercial and financial records of participants marked confidential; (2) a pre-submission process determine the confidential nature of information pertaining to insurer reserves and asbestos-related liabilities of participants; and (3) procedures for determining the confidential nature of personnel and medical files of claimants.
Sec. 102. Advisory Committee on Asbestos Disease Compensation
The Administrator shall establish an Advisory Committee on Asbestos Disease Compensation (the Advisory Committee) no later than one hundred twenty (120) days after the date of enactment to advise the Administrator on all matters related to the functioning, maintenance, and administration of the Fund. The Advisory Committee shall be composed of twenty (20) members appointed for three (3) year terms, except that of the first members appointed, an equal number shall be appointed for one (1), two (2), and three (3) year terms. Of the members appointed, the Administrator shall designate a Chairperson and a Vice Chairperson.
The Majority and Minority Leaders of the Senate, the Speaker of the House, and Minority Leader of the House shall each appoint four (4) members. Of the four, two (2) shall represent the interests of the claimants, at least one of whom having been recommended by national labor federations. The other two (2) shall represent the interests of the participants, one of whom shall represent the interests of the insurer participants and the other the interests of the defendant participants. The Administrator shall appoint four (4) members with qualifications and expertise in fields relevant to the administration of the Fund. None of the members may have earned more than fifteen (15 percent) of their income by serving in matters related to asbestos litigation as consultants or expert witnesses for each of the five (5) years before their appointments.
The Advisory Committee shall meet at the call of the Chairperson, or the majority of its members, at least four (4) times per year during the first five (5) years of the asbestos compensation program and at least two (2) times per year thereafter. The Administrator shall provide such information and administrative support to the Advisory Committee as reasonably necessary to enable it to carry out its responsibilities.
Sec. 103. Medical Advisory Committee
The Administrator shall establish a Medical Advisory Committee to provide expert advice regarding medical issues. None of the members may have earned more than fifteen (15 percent) of their income by serving in matters related to asbestos litigation as consultants or expert witnesses for each of the five (5) years before their appointments.
Sec. 104. Claimant Assistance
The Administrator shall establish a comprehensive claimant assistance program no later than one hundred eighty (180) days after the date of enactment to aid claimants in the claims process. The program shall provide for the establishment of resource centers. To the extent possible, the program shall locate the centers in areas within the Department of Labor, or other Federal agencies, in areas with large concentrations of potential claimants. The Administrator may enter into contracts with outside organizations that do not have a financial interest in the outcome of claims for the purpose of providing services to potential claimants.
Legal Assistance: The Administrator shall establish a legal assistance program to aid claimants in legal representation issues. As part of the program, the Administrator will maintain a list of attorneys who are willing to provide their services on a pro bono basis. The Administrator shall provide claimants notice of and information relating to available pro bono legal services and any limitations on attorneys fees. Further, an attorney shall provide an individual notice of pro bono services for legal services available before the individual becomes a client with regard to an asbestos claim.
An attorney may not receive in attorney's fee awards any more than five (5 percent) of a final award made under the Fund. If a representative violates these provisions, that attorney will be fined the greater of five thousand ($5000.00) dollars or twice the amount received by the representative for services rendered in connection with the violation.
Sec. 105. Physicians Panels
The Administrator shall establish Physicians Panels for the purpose of making medical determinations and performing other such functions that are necessary to carry out the Act. The Administrator shall establish enough Panels to ensure the efficient conduct of the medical review and exceptional medical claims process. The Administrator may periodically adjust the number of Physicians Panels on the basis of a mandatory periodic review.
To serve on a Physicians Panel, a person shall be a licensed physician in any State, board-certified in pulmonary medicine, occupational medicine, internal medicine, oncology, or pathology, and has earned no more than fifteen (15 percent) of their income as an employee of a participating defendant or insurer or law firm representing any party in asbestos litigation or as a consultant or expert witness for each of the five (5) years before appointment. Each panel shall be composed of three (3) physicians. The Administrator shall designate two (2) of the physicians on each panel to participate in each claim submitted to the Panel. The third physician shall only participate in the event of a disagreement.
Sec. 106. Program Startup
Interim Regulations: The Administrator shall promulgate interim regulations and procedures for the processing of claims and the operation of the Fund no later than ninety (90) days after the date of enactment.
Interim Personnel: This subsection grants the Secretary of Labor, the Assistant Secretary of Labor for the Employment Standards Administration, and the Administrator permissive authority to engage in certain activities that will ensure the swift start up of the Act. Specifically, the Secretary of Labor and the Assistant Secretary of Labor for the Employment Standards Administration may make such personnel and resources available to the Administrator. Further, the Administrator is authorized to contract with individuals and entities with experience handling financial matters and reviewing workers' compensation, occupational disease, or similar claims.
Exigent Health Claims: The Administrator shall develop procedures for the expedited categorization, review, and payment of exigent health claims. To qualify for treatment as an exigent health claim: (1) a claimant must provide a diagnosis of mesothelioma meeting the requirements of the Act 39
[Footnote] or documentation of diagnosis in the form of a declaration or affidavit by an examining physician of a terminal asbestos-related disease with the life expectancy of less than one year 40
[Footnote] ; or (2) if the spouse or child of a exigent claimant who was living when the claim was filed (or who was living on the date of enactment if the claim is filed before the implementation of interim regulations) but has since died of an asbestos-related disease, the spouse or child must provide information establishing that the claimant was eligible to receive compensation and has not already received compensation from the Fund. The Administrator may designate additional categories of claims that qualify as exigent health claims in final regulations.
[Footnote 39: Pursuant to 121(d)(9), the claimant must submit a diagnosis of mesothelioma completed by a board certified pathologist and evidence that the claimant was exposed to asbestos while working, brought home by an individual exposed to asbestos at work, living in the vicinity of a operation that regularly released asbestos fibers in the air, or in some other manner.]
[Footnote 40: The physician must have examined the claimant within one hundred twenty (120) days of the date of completing the diagnosing document.]
The Act authorizes the Administrator to contract with a claims facility to enter into settlements with claimants. The processing and payment of such claims shall be subject to the rules and regulations enacted under the Act.
Extreme Financial Hardship Claims: The Act grants the Administrator permissive authority to give expedited treatment to additional categories of claim on the basis of extreme financial hardship.
Interim Administrator: The Assistant Secretary of Labor for the Employment Standards Administration shall serve as the Interim Administrator until the Administrator is appointed and confirmed. The Interim Administrator shall perform the responsibilities and have the authority conferred on the Administrator by the Act. Prior to the promulgation of final regulations relating to claims processing, the Interim Administrator shall issue interim regulations and may prioritize claims processing based on the severity of illness and likelihood that exposure to asbestos was a substantial contributing factor to causing the illness.
Stay of Claims; Return to the Tort System: As of the date of enactment, any asbestos claim pending in State or Federal court shall be subject to a stay unless: (1) the presentation of evidence has begun before an impaneled jury or judge, as trier of fact, or (2) a verdict, final order, or final judgment has been entered by a trial court. 41
[Footnote]
[Footnote 41: See Section 403(d)(2).]
Exigent Health Claims- This section provides for the settling of exigent health claims filed before and after the date of enactment.
Procedures for Settlement of Exigent Health Claims- A claimant with an exigent health claim wishing to settle the claim may file a claim or a notice of intent to seek a settlement with the Administrator at any time prior to certification of an operational Fund or claims facility. If the individual files a notice of intent, the claimant then has sixty (60) days to provide the Administrator with the information necessary to file a claim. Filing a claim shall require submission of the following information: (1) the amount received or entitled to be received as a result of collateral source settlements and copies of all such settlements; (2) any information that the claimant would be required to submit in support of a claim against the Fund; (3) certification by the claimant that the information provided is true and complete; and (4) for exigent claims arising after the date of enactment, a good faith identification of every defendant that the claimant could have appropriately brought an action against in a civil action for the asbestos injury.
If the claimant submits all of the required information on time, the Administrator then has sixty (60) days to determine whether the claim is an approved exigent claim. If so, then the Administrator shall issue a certification to all parties that the claim is an approved exigent health claim valued at a set amount (based on the award value under the Act subtracted by the amount of collateral source compensation) and pay the claimant in that amount.
If the claimant fails to submit all of the required information on time or there is a deficiency in the application, then the claimant shall have thirty (30) days to perfect the claim.
If the claimant fails to perfect the claim or is determined not to be eligible as an exigent health claim, then the claimant will not be allowed to proceed.
The Administrator or claims facility must provide notice to the claimant within ten (10) days of failure to act if unable to process and certify the claim and must immediately refer the claim to affected defendants. If the Administrator or claims facility fails to provide such notice, then the claimant may provide notice to defendants to prompt a settlement.
Within thirty (30) days of receiving such a notice from the plaintiff of failure to process or from the Administrator of failure to process or to pay, the defendant may serve a good faith offer. This amount--or the aggregate, if multiple offers are made--may not exceed the amount that the claimant would be entitled to under the Fund.
The claimant must accept or reject the offer within twenty (20) days of receiving an offer. If the claimant accepts the offer, the settlement is subject to court approval, which must be given within twenty (20) days of the acceptance. The court may only reject an offer upon a finding of bad faith or fraud.
If the offer is rejected, then the defendant has ten (10) days to amend the offer. If the offer is the same of the amount that the claimant would receive under the Fund, then the claimant must accept the offer. If the claimant rejects the offer again (for example, because the offer was less than what the claimant is entitled to receive under the fund) or the defendant fails to amend the offer, then the amount the claimant is entitled to receive through the settlement is increased to one hundred fifty (150 percent) percent of the Fund award. If the claimant fails to make an offer at all, then the amount the claimant is entitled to receive through the settlement is increased to one hundred fifty (150 percent) percent of the Fund award.
Payment Schedule- The Administrator has the discretion to extend these time periods if paying out the claims on the protracted time table would severely harm the solvency of the Fund. The amount the claimant is entitled to receive through the settlement is increased to one hundred fifty (150 percent) percent of the Fund award if there is a failure to pay according to this section.
Mesothelioma Claimants- Initial payment of fifty (50 percent) percent of the award in thirty (30) days of acceptance and payment of the remaining fifty (50 percent) percent in six (6) months of acceptance. Administrator's discretion allows for payments to be extended to 50 percent in six (6) months and 50 percent eleven (11) months after acceptance;
Other Terminal Claims- Initial payment of fifty (50 percent) percent of the award in six (6) months of acceptance and payment of the remaining fifty (50 percent) percent in eleven (11) months of acceptance. Administrator's discretion allows for payments to be extended to 50 percent in first year and 50 percent second year after acceptance;
Recovery of Costs- A defendant who pays out a claim in accordance with this section may recover the cost of settling by deducting it from future payments to the Fund.
Continuation of Health Claims- After 9 months an exigent claimant may pursue their claim in the court where the case was stayed or in the appropriate state or federal court for claims arising post enactment so long as the Fund is not operational, and if the claim has not been settled or if the claim has not been paid in full.
The continuation of an exigent claim in the tort system shall not be subject to capped damages or attorney's fees caps, and shall not be cut off by a certification that the fund has become operational.
Asbestos Claims- Pursual of Asbestos Claims in Federal or State Court--If the Administrator cannot certify to Congress that the Fund is fully operational and handling all asbestos claims within twenty-four (24) months of the date of enactment, then persons with asbestos claims, except for those with Level I claims, may pursue their claims in the State or Federal court located within the State where the claimant resides or where the asbestos exposure arose. If the defendant cannot be found in one of these forums, then the claimant may pursue the claim in the Federal or State court in the State where the defendant may be found. If the plaintiff alleges that asbestos exposure occurred in more than one county or Federal district, the trial court will determine the most appropriate forum for the claim. If the court determines that another forum is most appropriate, then the court shall dismiss the claim. Any relevant statute of limitations shall be tolled during this time.
This section does not preempt or supersede State venue requirements that are more restrictive.
Credit of Claim and Effect of Operational or NonOperational Fund- If the claimant receives any compensation as a result of pursuing a claim in the court system, then such recovery shall count as collateral source compensation for purposes of handling the claim under the Fund. Any participant who pays a claimant through a court proceeding may recover the cost of the payment by deducting an amount from subsequent payments into the Fund up to the amount that the claimant would have received from the Fund.
Operational Preconditions and Certification- The Administrator may not certify that the Fund is operational and paying out claims at a reasonable rate until sixty (60) days after the Administrator has published in the Federal Register information pertaining to the funding allocation of defendant participants and the funding methodology of insurer participants (to be done within thirty (30) days of the date of enactment). Upon certification, the Administrator shall publish a notice in the Federal Register that the Fund is operational and paying out claims at a reasonable rate.
Effect of Certification on Claims- Any non-exigent claim in Federal or State court that has not begun the presentation of evidence before a judge or impaneled jury or is the subject of a verdict, final order, or final judgment by a trial court shall be null and void and reinstated as a claim against the Fund upon the Administrator's certification that the Fund is operational. Claimants may pursue all asbestos-related claims in court upon the Administrator's certification that the Fund cannot become operational.
Non-Operational Certification- Claimants may pursue all asbestos-related claims in court upon the Administrator's certification that the Fund cannot become operational.
Sec. 107. Authority of the administrator
This section grants the Administrator the authority to issue subpoenas for and compel the attendance of witnesses within a 200 mile radius, administer oaths, examine witnesses, require the production of books, papers, documents and other evidence, and request the assistance from other Federal agencies with the performance of the duties of the Administrator.
Sec. 111. Essential elements of eligible claim
Claimants must timely file a claim with the Fund and prove by a preponderance of the evidence that they have an eligible disease or condition as demonstrated by evidence that meets the requirements established in the claims procedures.
Sec. 112. General rule concerning no-fault compensation
It is the intent of the FAIR Act to provide a process to compensate victims in a faster and more certain manner than provided by the current system. The FAIR Act, therefore, removes the burden that a claimant would ordinarily bear to establish that the injury was the fault of a particular party. Further, under the FAIR Act, claimants do not have to prove that an injury resulted from the negligence or other fault of any other person.
Sec. 113. Filing of claims
A claimant, or the personal representative of a deceased or incompetent claimant, must file claims with the Office within five (5) years from the time the claimant received a medical diagnosis and medical test results sufficient to satisfy the criteria for the disease level for which the claimant is seeking compensation. If the Act preempts a timely filed pending asbestos claim, then the asbestos claimant has five (5) years from the date of enactment to file with the Fund. Failure to file with the Office within the prescribed time period has the effect of extinguishing the claim and prohibiting recovery. This section specifically provides that the Act shall not treat a claim against a bankruptcy trust that has received initial payments and due to receive future payment from such a trust as a pending claim for purposes of filing against the Fund.
The Act does not bar a claimant who receives an award for an eligible disease level from receiving additional awards for higher disease levels. Further, the Act does not impose a statute of limitations on the claimant for filing claims for additional awards relating to the progression of a non-malignant disease. However, any malignant disease level claim must be filed with the Fund within five (5) years of receiving a medical diagnosis and medical test results sufficient to satisfy the disease level.
The Act contains provisions addressing the effect of multiple injuries for Libby, Montana claimants. Pursuant to this section, if the nonmalignant condition of a Libby, Montana claimant progresses and can prove that the condition has progressed by providing pulmonary function tests, the claimant will qualify for an additional award from the Fund. The Administrator shall offset any previous awards from the Fund against an award granted to a Libby, Montana claimant for the progression of a nonmalignant claim. A Libby, Montana claimant shall qualify for treatment as a Level IV claim if the claimant: (1) provides a diagnosis of a bilateral asbestos-related disease; (2) evidence of TLC or FVC less than eighty (80%) percent; and (3) medical documentation establishing exposure to asbestos as a substantial contributing factor to causing the condition in question to the exclusion of other more likely causes. A Libby, Montana claimant shall qualify for treatment as a Level V claim if the claimant: (1) provides a diagnosis of a bilateral asbestos-related disease; (2) evidence of TLC or FVC less than sixty (60%) percent; and (3) medical documentation establishing exposure to asbestos as a substantial contributing factor to causing the condition in question to the exclusion of other more likely causes. The provisions outlined above regarding the effect of multiple injuries on asbestos claims shall apply if a Libby, Montana claimant develops a malignant level disease.
A claimant must include at a minimum the following information with the claim: (1) name and information pertaining to the identity of the claimant; (2) information pertaining to the identity of any dependants and beneficiaries; (3) relevant employment history, (4) the asbestos exposure of the claimant, (5) the tobacco use of the claimant; (6) medical records identifying the asbestos-related disease; (7) any prior asbestos-related claims, including information pertaining to any collateral sources of compensation, and (8) evidence of non-smoker or ex-smoker status if the claimant asserts such status and seeks compensation under a malignant level.
If the claimant files an incomplete claim, the Administrator shall notify the claimant that the incomplete status of the claim and shall indicate information missing from the claim. Further, the Administrator shall also notify the claimant of assistance services available through the Claimant Assistance Program. The claimant then has a year to supply the missing information. However, failure to provide the information within this timeline will result in the dismissal of the claim.
Sec. 114. Eligibility determinations and claim awards
This section lays out the time period for considering and paying a claim.
When evaluating and determining the eligibility of a claim against the Fund, the Administrator shall consider: (1) the factual and medical evidence presented by the claimant; (2) the medical determinations of the Physicians Panel; and (3) the results of any investigation conducted determining whether the claim satisfies the eligibility criteria.
The Administrator has ninety (90) days after the filing of the claim to provide the claimant with a proposed decision on the claim. If the Administrator fails to provide the claimant with a proposed decision within one hundred eighty (180) days after filing the claim, then the claim shall be deemed accepted and the claimant entitled to payment. However, if the Administrator subsequently rejects the claim in whole, then the claimant shall receive no further payments. Alternatively, if the Administrator subsequently rejects the claim in part, then future payments shall be adjusted accordingly.
A claimant has ninety (90) days from the date of issuance of a proposed decision: (1) to submit a written request for a hearing on the decision; or (2) to make a written request for a review of the written record. A representative of the Administrator shall conduct the hearing in a manner as to best ascertain the rights of the claimant. It is within the discretion of the Administrator's representative to grant a subpoena requested by the claimant. The Administrator shall issue a final decision no later than: (1) one hundred eighty (180) days after receiving the request for a hearing on the decision; or (2) ninety (90) days after receiving the request for review on the written record. If the claimant does not make a request for obtaining a review either on the written record or in a hearing, then the Administrator shall issue a final decision. If the final decision materially differs from the proposed decision, then the claimant is entitled to review of the final decision.
A claimant may authorize an attorney or other individual to represent the claimant in any proceeding under this Act.
Sec. 115. Medical evidence and auditing procedures
This section authorizes the Administrator to establish procedures to ensure that accuracy of medical evidence submitted in support of a claim against the Fund.
The Administrator will establish procedures: (1) to audit medical evidence submitted as part of claims ensuring the accuracy of x-ray readings and pulmonary function tests; (2) to consider the appeal by a provider of a finding of non-compliance with medical standards; (3) to evaluate x-rays submitted in support of a claim; (4) to maintain a list of at least fifty (50) certified B readers that may participate in independent reviews of x-rays; and (5) to audit pulmonary function test results submitted as part of claim. The Office shall pay for the cost of all additional evaluations and tests required under this section.
The Administrator has the authority to find the x-ray readings of certain providers inadmissible if the Administrator determines that the provider fails to comply with prevailing medical practices. A non-compliant provider may appeal the Administrator's determination pursuant to procedures established by the Administrator.
Pursuant to procedures established by the Administrator, independent certified B readers shall evaluate x-rays submitted in support of a claim on a random basis. If the independent B reader disagrees with the grading of the submitted x-ray, then a second independent certified B reader shall review the x-ray. The Administrator shall take into account the findings of the two independent B readers when considering the submitted claim.
When assessing the smoking status of Malignant Level VI-IX claimants, the Administrator shall have the authority to obtain records of past medical treatment and evaluation, affidavits of appropriate individuals, applications for insurance and supporting materials, and employer records of medical examinations. Further, the Administrator may require the performance of blood tests--including the performance of a required serum cotinine screening--or other appropriate medical tests on Malignant Level VI-VIII claimants who assert that they are non-smokers or ex-smokers.
Any false information submitted under this section shall be subject to criminal or civil penalties.
Sec. 121. Medical criteria requirements
This section establishes the latency, diagnostic, exposure and medical criteria required of an asbestos claim for each of the nine (9) disease levels. Levels I through V include nonmalignant asbestos-related disease or conditions and levels VI through IX include malignant diseases.
Latency: Claimants must provide a statement from a doctor or a history of exposure stating that at least ten (10) years elapsed from the date of the initial exposure to the date of the initial diagnosis of any asbestos-related injury.
Diagnostic Criteria: This section sets forth diagnostic criteria that track the typical elements of a medical diagnosis, such as an in-person physical examination by the claimant's doctor, a thorough review of the claimant's medical, smoking and exposure history by the claimant's doctor, and a review of other potential causes of the claimant's illness.
For levels I through V, the claimant must provide a diagnosis based on an in-person physical examination by the claimant's doctor providing the diagnosis, an evaluation of smoking history and exposure history before making a diagnosis, an x-ray reading by a certified B-reader. Level III through V claims must also include a pulmonary function test. For deceased Level I through V claimants, the claim must include a physician's report based on pathological evidence or an x-ray reading by a certified B-reader. For levels VI through IX, the claimant must provide a diagnosis based on a physical examination or on findings by a board-certified pathologist. For deceased Level VI through IX claimants, the claim must include a diagnosis of the disease by a board-certified pathologist and a physician's report based upon a review of the claimant's medical records.
Exposure Criteria: A claimant must demonstrate meaningful and credible evidence of exposure to asbestos in the United States, its territories or possessions, or while a United States citizen, while an employee of an entity organized under any Federal or State law regardless of location, or while a United States citizen while serving on any United States flagged or owned ship, provided the exposure results from such employment or service.
Proof of Exposure--The claimant may demonstrate exposure to asbestos by affidavit of the claimant (or, if deceased, a co-worker or family member of the claimant) or by alternative documentation, such as invoices, construction or similar records, or other reliable evidence.
`Take-Home' Exposure--Alternatively, the claimant may satisfy the exposure criteria by demonstrating that the claimant was exposed to asbestos brought home by an occupationally exposed person. A claimant establishing `take home' exposure must demonstrate that: (1) the claimant lived and used the residence of an occupationally exposed person during the required exposure time; and (2) the occupationally exposed person can satisfy the exposure requirements for the level claimed. It is understood that household members may travel to a certain extent for work or vacation and still be considered as `living with' another member of the household. Except for Level IX claims, a Physicians Panel will review all `take home' exposure claims determine whether the causal relationship between the take home exposure to asbestos is comparable to the occupationally exposed person.
Libby, Montana--The Administrator shall waive the occupational exposure requirements for workers in the mining and milling operations in Libby, Montana, and persons who lived or worked within a 20-mile radius of Libby, Montana for at least 12 consecutive months prior to December 31, 2004.
Exposure Presumptions--The Administrator shall set exposure presumptions prescribing time periods in which workers employed in specific industries or occupations were substantially exposed to asbestos. A claimant must demonstrate that the claimant worked in the industry for the relevant time period to be entitled to the presumption. However, these presumptions are not conclusive of substantial exposure to asbestos and may be rebutted by information to the contrary. Further, even if the claimant can demonstrate entitlement to a presumption of exposure, the claimant must still satisfy the exposure and medical criteria requirements.
For the first five (5) years of the operational Fund, the presumptions will at a minimum include those identified in the 2002 Trust Distribution Process of the Manville Personal Injury Settlement Trust as of January 1, 2005. Thereafter, the Administrator may modify the presumptions on the basis of supporting evidence. These presumptions are not conclusive of substantial exposure to asbestos.
Asbestos disease levels
Non-malignant Conditions--For non-malignant conditions (Levels I to V), the medical criteria generally require a diagnosis of bilateral pleural plaques or thickening, bilateral pleural calcification, diffuse pleural thickening, bilateral pleural disease of grade B2, or asbestosis based on x-ray readings or pathology. Level II includes claimants with mixed obstructive and restrictive disease based on pulmonary function testing and supporting medical documentation, such as a written opinion by the examining or diagnosing physician according to diagnostic guidelines establishing that asbestos exposure was a contributing factor to the disease. Mild, moderate and severe impairment is required for Levels III, IV, and V, respectively, based on pulmonary function test results and supporting medical documentation, such as a written opinion by the examining or diagnosing physician according to diagnostic guidelines establishing that the claimant's asbestos exposure is a substantial contributing factor in causing the pulmonary condition in question. Level I requires five (5) years cumulative occupational exposure, while levels II through V require five (5) years substantial occupational exposure weighted based on time and industry (`weighted years').
Malignant Conditions--For malignant conditions (Levels VI to IX), the medical criteria require a diagnosis of mesothelioma, primary lung cancer, or other cancer.
Level VI (other cancers) claims include (i) a diagnosis of primary colorectal, laryngeal, esophageal, pharyngeal, or stomach cancer; (ii) evidence of a bilateral asbestos-related nonmalignant disease; (iii) fifteen (15) weighted years of exposure to asbestos; and (iv) supporting medical documentation , such as a written opinion by the examining or diagnosing physician according to diagnostic guidelines establishing that the claimant's exposure to asbestos was a substantial contributing factor in causing the claimant's other cancer. Level VII claims must include: (i) a diagnosis of primary lung cancer; (ii) evidence of bilateral pleural plaques, thickening, or calcification as established by chest x-ray or any such diagnostic methodology supported by the findings of the Institute of Medicine; (iii) evidence of twelve (12) or more weighted years of substantial occupational exposure; and (iv) medical documentation, such as a written opinion by the examining or diagnosing physician according to diagnostic guidelines, establishing asbestos exposure as a substantial contributing factor in causing the cancer. Level VIII claims must include: (i) a diagnosis of a primary lung cancer disease; (ii) evidence of asbestosis based on a chest x-ray showing irregular opacities and the relevant weighted years of exposure; and (iii) supporting medical documentation, such as a written opinion by the examining or diagnosing physician according to diagnostic guidelines establishing that the claimants exposure to asbestos for ten (10) or more weighted years was a substantial contributing factor in causing the claimant's cancer. Level IX claims shall include: (i) a diagnosis of malignant mesothelioma; and (ii) credible evidence resulting from occupational, take home, or other identifiable exposure to asbestos. Diagnosis of all of the malignant disease levels must be made by a board certified pathologist.
Study of `other cancers' and causation: This subsection calls for the Institute of Medicine (IOM) to complete a study no later than April 1, 2006 of causal link between asbestos exposure and the other cancers: colorectal, laryngeal, esophageal, pharyngeal and stomach cancers. Congress, the Administrator, the Advisory Committee on Asbestos Disease Compensation or the Medical Advisory Committee, and the Physicians Panels shall receive a copy of the study. The findings of the study shall have a binding effect on the Administrator and the Physicians Panels when determining whether asbestos exposure is a substantial contributing factor to causing Level VI cancers. If the study finds that asbestos is not a substantial contributing factor to causing any one of the Level VI cancers, then claims may not be filed or compensated for the relevant Level VI diseases.
Study of CT Scans: This subsection calls for the IOM in conjunction with the National Institutes of Health (NIH) to complete a study no later than April 1, 2006 of using CT scans as a diagnostic tool of asbestos indicators. Specifically, the study will determine whether the medical profession accepts the use of CT scans as a tool to detect asbestos indicators and whether professional standards of practice exist for the Administrator to rely on CT scan evidence. Congress, the Administrator, the Advisory Committee or Medical Advisory Committee, and the Physicians Panels shall receive a copy of the study. The findings of this report shall have a binding effect on the Administrator and Physicians Panels in determining what constitutes reliable and acceptable evidence for Level VII claims.
Exceptional Medical Claims: This provision allows a claimant to have a claim designated an exceptional medical claim if the claim does not meet the medical criteria requirements of the bill or has been found ineligible for compensation based on the failure to meet the medical criteria only. The claimant must provide a report from a physician meeting the requirements of this section which includes (i) a complete review of the claimant's medical history and current condition, (ii) additional material as required by the Administrator, and (iii) a detailed explanation as to why the claim meets the standard for designating exceptional medical claims.
A Physicians Panel shall review all applications for designation as an exceptional medical claim. For the claim to receive treatment as an exceptional medical claim, a Physicians Panel must find that the claimant cannot meet the requirements for reasons beyond the individual's control, but can through comparably reliable evidence establish a condition similar to one that would satisfy the requirements. In reaching its determination, a Physicians Panel may request additional reasonable testing. Further, the claimant may submit CT scans in addition to an x-ray.
If a Physicians Panel certifies a claim as an exceptional medical claim, it must designate the disease category for which the claimant may seek compensation and refer the claim to the Administrator for a determination on eligibility on the remaining diagnostic, latency and exposure requirements. In making this determination, the Administrator shall give due consideration to the recommendation of the Physicians Panel. If a Physicians Panel denies claimant's application for designation as an exceptional medical claim, then the claimant may resubmit application based on new evidence, specifying the new evidence that serves as the basis of the resubmission.
Libby, Montana--Due to ongoing studies regarding the medical conditions of the residents of Libby, Montana, such claimants have the option to have their claims designated as exceptional medical claims. A Physicians Panel shall review all such applications made by Libby, Montana claimants.
Nonmalignant Levels II-IV Libby, Montana claimants that receive a certificate of medical eligibility from the Administrator or a Physicians Panel shall receive an award no less than the amount awarded to Level IV asbestosis claimants ($400,000). Malignant level Libby, Montana claimants shall receive an award corresponding to the malignant disease category designated by the Administrator or Physicians Panel. To qualify for Level IV compensation, a Libby, Montana claimant must provide a diagnosis and evidence of an asbestos-related disease as well as supporting medical documentation establishing that asbestos exposure as a substantial contributing factor to causing the condition to the exclusion of other causes.
Study of Vermiculite Processing Facilities--This subsection calls for the Agency for Toxic Substances and Disease Registry (ATSDR) to conduct a study in conjunction with the ongoing National Asbestos Exposure Review (NAER) of all Phase 1 sites that: (1) received vermiculite ore from Libby, Montana; (2) the Environmental Protection Agency (EPA) has mandated further action on the basis of contamination; and (3) was an exfoliation facility that processed at least one hundred thousand (100,000) tons of vermiculite from the Libby, Montana mine. The study shall determine whether the overall nature of these sites is substantially equivalent to that of Libby, Montana. The findings of this study shall have a binding effect on the Administrator in determining whether the claims of residents at these sites deserve the same rights as Libby, Montana claimants.
Naturally Occurring Asbestos--Claimants exposed to naturally occurring asbestos may file and seek designation as an exceptional medical claim.
Guidelines for CT Scans: This subsection calls for the American College of Radiology to develop guidelines and methodology for the use of CT scans as a diagnostic tool. The American College of Radiology shall develop these guidelines after consulting with the American Thoracic Society, American College of Chest Physicians, and IOM.
Sec. 131. Amount
Eligible claims will be paid as follows:
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Disease/condition Amount of award‑
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Level I Asbestosis/Pleural Disease A Medical Monitoring
Level II `Mixed' Disease $25,000
Level III Asbestosis/Pleural Disease B 100,000
Level IV Severe Asbestosis 400,000
Level V Disabling Asbestosis 850,000
Level VI Other Cancers 200,000
Level VII Lung Cancer with Pleural Disease
Smokers 300,000
Ex-Smokers 725,000
Nonsmokers 800,000
Level VIII Lung Cancer with Asbestosis
Smokers 600,000
Former Smokers 975,000
Nonsmokers 1,100,000
Level IX Mesothelioma 1,100,000
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Level IX Adjustments: This subsection grants the Administrator discretionary authority to adjust Level IX awards. The Administrator may adjust Level IX awards upon a determination that such an adjustment would have a neutral effect on the revenue. Specifically, the Administrator may choose to increase the awards for Level IX claimants under 51 and decrease the awards of Level IX claimants who are 65 or older. However, before making such adjustments, the Administrator must publish notice of and plan for such adjustments in the Federal Register.
FELA Adjustments: This subsection provides for the development of special FELA adjustments. Representatives of railroad management and labor have forty-five (45) days after the date of enactment to submit to the Administrator a joint proposal on the eligibility requirements for special FELA adjustments, which the Administrator shall promulgate into regulations no later than ninety (90) days after the date of enactment.
If railroad management and labor are unable to agree on a joint proposal, then the Administrator shall appoint an arbitrator acceptable to both railroad management and labor to determine the benefits available under the special adjustment. After meeting with the representatives of management and labor, the arbitrator shall submit the benefits levels to the Administrator no later than thirty (30) days after appointment, which the Administrator will then promulgate into regulations. The parties to the arbitration may file with the U.S. District Court for the District of Columbia to review the Administrator's order. The court may affirm, set aside (in whole or in part), or remand the order of the Administrator for further action.
To qualify for a special FELA adjustment, a claimant filing an asbestos-related FELA claim, or otherwise eligible to bring such a claim, must demonstrate: (i) employment in the railroad industry; (ii) exposure to asbestos as part of employment; (iii) the nature and severity of the asbestos-related injury; and (iv) evidence establishing eligibility for a disease level of Level II or greater. The amount of the special adjustment shall reflect the type and severity of the disease and shall be one hundred and ten (110%) percent of the average amount a person with the disease would have received in the five (5) year period prior to enactment.
Sec. 132. Medical monitoring
This section provides that Level I claimants will receive reimbursements for all reasonable costs (not covered by insurance) for x-rays, physical examinations, and pulmonary function tests every three years, which will provide the claimant with information as to whether he or she has a compensable illness. Although the claimant may choose which physician conducts such tests, the Administrator will provide eligible claimants with a list of providers in the claimant's area that can provide such services. Filing a claim for reimbursement of medical monitoring costs does not start the clock on the five (5) year statute of limitations for filing a claim for compensation for an eligible condition or disease.
Sec. 133. Payment
This section provides for the payment of asbestos awards. A claimant shall receive payment of their award over a period of three (3) years and in no event more than four (4) years, if necessary to ensure the overall solvency of the Fund, from the date of final adjudication of the claim. The Act establishes a presumption that the claimant shall receive forty (40%) percent of the payment in year 1, thirty (30%) percent in year 2, and thirty (30%) percent of the total amount in year 3. However, the claimant shall in no event receive less than fifty (50%) percent of the award in the first 2 years of the payment period. Claimants may also elect to receive their benefits in the form of an annuity. All benefits are non-taxable and not deemed to be a Medicare benefit. Payment of the asbestos claim shall have the effect of completely satisfying the claim. As such, any claimant receiving payment of an award under the Fund may not later pursue a claim for the same injury in the tort system.
Lump Sum Payments--If a mesothelioma claimant is alive on the date that the Administrator receives notice of eligibility, then the claimant shall receive the full payment of the award in the form of one lump sum no later than thirty (30) days from the date the Administrator approves the claim. If this shortened timeline would threaten the timeline of the Fund, then the Administrator may adjust the time period for paying the claim. However, the Administrator shall ensure that the claimant receives payment no later than the shorter of: (1) six (6) months from the date that the Administrator approves the claim; or (2) eleven (11) months from the date the claimant filed the claim.
Expedited Payments--Exigent health claimants with a terminal diagnosis of less than a year and the spouses or children of exigent health claimants who were living when the claim was filed with the Fund and has since died from an asbestos-related disease shall receive full payment of their claims no later than the shorter of: (1) six (6) months from the date the Administrator approves the claim; or, (2) one (1) year from the date that claimant filed the claim. If this shortened timeline would severely harm the solvency of the Fund, then the Administrator may adjust the time period for paying the claim. However, the Administrator shall ensure that the claimant receives payment no later than the shorter of: (1) one (1) year from the date Administrator approves the claim; or (2) two (2) years from the date the claimant filed the claim.
Sec. 134. Setoffs for collateral source compensation and prior awards
This section provides for the reduction of claimant awards by an amount equal to any collateral source or prior award that the claimant has received or may receive. This includes any amounts that the claimant has received as a result of judgment or settlement for an asbestos related injury serving as the basis for the underlying claim from a defendant, its insurer, or compensation trust.
Collateral sources do not include worker's compensation and veteran's benefits. Further, prior awards from the Fund for non-malignant disease shall not set off subsequent awards for malignant diseases unless the claimant received a diagnosis of the malignant disease before receiving compensation for the non-malignant disease.
Sec. 135. Certain claims not affected by payment of awards
This section provides that payment of an award shall not affect a claimant's claim against a party relating to insurance payments or workers' compensation. As such, the payment of an award shall not be considered a form of compensation or reimbursement for a loss for the purpose of imposing liability on any such party. The section is intended to preserve asbestos claimants' ability to obtain payments such as life or health insurance or workers compensation for asbestos-related injuries and to make clear that claimants will not be required to provide reimbursement of such payments if they receive an award under the Fund. The section is not intended to permit asbestos claimants to pursue direct actions or other litigation in the tort system against insurance companies, based on insurance provided to defendants that is preempted under the Act. No subrogation is allowed as a result of a claimant receiving an award from the Fund.
Sec. 201. Definitions
Sec. 202. Authority and tiers
The Act required defendant participants, in accordance with their assigned tiers and subtiers, to pay over the life of the Fund no more than $90 billion, less any bankruptcy trust credits. Defendant participants will generally be placed in tiers based on historical expenditures on asbestos claims, including costs related to defense and indemnity, and further subdivided based on revenues. 42
[Footnote] The Administrator shall assign each defendant to a tier and determine the amount that each defendant participant shall be required to pay into the Fund according to the guidelines below. Any appeal of the Administrator's determination shall receive an expedited review.
[Footnote 42: It is the intent of the Committee that the amounts contributed by defendants and insurers be tax deductible and that claim awards and the growth of the Asbestos Claims Resolution Fund be tax-free, consistent with the good public policy. The Judiciary Committee and Finance Committee will work together to insert the appropriate language for Senate floor consideration of this bill.]
Bankruptcies Not Caused by Asbestos Liability: This section allows a company to proceed with its bankruptcy if it was not caused by asbestos liabilities. Specifically, the debtor company is permitted to proceed with the filing and approval of the bankruptcy reorganization plan. And any asbestos compensation trust established pursuant to such plan, will be pursuant to other provisions in this Act, be incorporated in the Asbestos Injury Claims Resolution Fund. Therefore, any company that filed for chapter 11 protection prior to January 1, 2003 and has not substantially consummated a plan of reorganization as of the date of enactment of this Act, may petition to proceed with its bankruptcy filing if asbestos liability was not the sole or precipitating cause of its bankruptcy. The presiding bankruptcy court shall make this determination after notice and a hearing upon motion filed by the entity within 30 days of the date of enactment of this Act, which motion shall be supported by an affidavit or declaration of the Chief Executive Officer, Chief Financial Officer, or Chief Legal Officer of that company, and copies of the entity's public statements and filing for chapter 11 protection that asbestos liability was not the sole or precipitating cause of the entity's chapter 11 filing. The bankruptcy court shall hold a hearing and make its determination within 60 days of when the motion is filed. Any judicial review of this determination must be an expedited appeal and limited to whether the decision was against the weight of the evidence presented.
If the bankruptcy court's determination is in favor of the company's motion, that company may proceed with the filing, solicitation, confirmation, and consummation of a plan of reorganization, including a trust and channeling injunction pursuant to section 524(g) of the bankruptcy code, notwithstanding any other provisions of this Act, provided that: (1) the bankruptcy court determines that such confirmation is required to avoid the liquidation or the need for further financial reorganization of that company; (2) an order confirming the plan of reorganization is entered by the bankruptcy court within nine months after the date of enactment of the Act, or such longer period approved by the bankruptcy court for good cause shown. To the extent such company or a debtor successfully confirms a plan of reorganization including a 524(g) trust and channeling injunction that involves payments by insurers who are otherwise subject to this Act, such insurers shall obtain a corresponding reduction in the amount otherwise payable by that insurer under this Act.
Tier I: Includes all debtors that, together with all of their direct or indirect majority-owned subsidiaries, have prior asbestos expenditures greater than $1 million. The definition of `debtor' in Sec. 201 includes persons that have a case pending under a chapter of title 11 of the United States Code on the date of enactment of the FAIR Act or at any time during the 1-year period immediately preceding that date, irrespective of whether the debtor's case under that title has been dismissed. Any appeal of determination shall receive an expedited review in the U.S. Circuit Court of Appeals for the circuit in which the bankruptcy is filed.
Other Tiers: Except as otherwise provided, persons or affiliated groups are included in Tier II, III, IV, V, VI or VII according to their prior asbestos expenditures as follows:
Tier II: $75 million or greater.
Tier III: $50 million or greater, but less than $75 million.
Tier IV: $10 million or greater, but less than $50 million.
Tier V: $5 million or greater, but less than $10 million.
Tier VI: $1 million or greater, but less than $5 million.
Tier VII: $5 million or more in FELA liability. (Note: Tier VII is discussed in Sec. 203.)
A defendant participant shall remain in the tier and the subtier that they are assigned to for the life of the Fund, regardless of subsequent events, unless the Administrator finds sufficient evidence to conclude that inclusion within a tier was inaccurate.
Superseding Provisions: The FAIR Act shall supersede all of the following: (i) The treatment of any asbestos claim in a plan of reorganization with respect to a debtor included in Tier I; (ii) any asbestos claim against a debtor in Tier I; and (iii) any agreement, understanding, or undertaking by a debtor or third party with respect to the treatment of any asbestos claim filed in a debtor's bankruptcy case. Further, any plan of reorganization, agreement, understanding, or undertaking by any debtor (including any pre-petition agreement, understanding, or undertaking that requires future performance) or any third party relating to an asbestos claim shall be of no force or effect and no person shall have any right or claim with respect to such agreements.
Specifically, Section 202(f)(2) provides that agreements by debtors relating to asbestos claims are of no force and effect under this Act, regardless of whether such agreements were entered into pre-petition or as part of the reorganization process. Section 202(f)(2) also expressly provides that Section 403(c)(3), which preserves pre-enactment settlement agreements that meet certain criteria, does not apply to agreements relating to the asbestos claims of debtors, even if such agreements were entered into prior to the bankruptcy filing. The differential treatment of settlement agreements entered into by solvent entities and debtors is both logical and entirely consistent with the current expectations of parties to those agreements under existing law. Asbestos claimants who have fulfilled all of the conditions to payment under settlement agreements with solvent entities have a defined right to payment on certain terms; if the Act were to abrogate such agreements, it would be effecting a substantial change in the parties' rights and expectations. By contrast, asbestos claimants with claims against debtors under pre-petition settlement agreements have no such settled expectations. By operation of the Bankruptcy Code, the rights and obligations of the parties to such agreements were subject to substantial modification once the debtor filed for bankruptcy, and claimants were faced with uncertainty as to how much and when, if at all, they would be paid under any Plan of Reorganization and/or Trust Distribution Plan. One of the benefits of the Act is that it resolves that uncertainty by providing such claimants, if they meet medical and eligibility criteria, with a certain and timely remedy that is not dependent on the complex byways of the bankruptcy process.
Sec. 203. Subtiers
Defendant participants in Tiers II through VI shall be assigned a subtier on the basis of their revenues. Except as otherwise provided, persons or affiliated groups included within Tiers I through VII shall pay the following amounts to the Fund:
Tier I: Tier I debtors shall pay the following amounts according to subtier assignment:
Subtier 1--Operational companies--In general, 1.67024 percent of the debtor's 2002 revenues. However, a debtor otherwise in Subtier 1 shall annually pay $500,000 if it falls within a limited engineering and construction exception. The Administrator may allow a Subtier 1 debtor to meet its payment obligation with other assets if the Administrator determines that an all cash payment would render the debtor's reorganization infeasible. If a debtor with a case pending under chapter of title 11, United States Code, fails to pay its payment obligation on time, the Administrator may seek payment of all or any portion of the amount due from any direct or indirect majority-owned subsidiaries.
Right of Contribution--The liquidation, cancellation, or termination of a debtor participant's interest in a direct or indirect majority-owned foreign subsidiary resulting from foreign liquidation proceedings shall not affect a participant's obligation to the Fund. However, the debtor participant shall have a claim against the foreign subsidiary, as determined by a court of competent jurisdiction, in an amount greater of: (i) the estimated amount of the subsidiary's asbestos liabilities; or (ii) the subsidiary's allocable share of the participant's obligations to the Fund.
Maximum Annual Payment Obligation--Subject to the assessment provisions of the Act and the contributions of debtors in Tier I, Subtiers 2, 3 and the Class Action Trusts, the annual payment obligation of a Tier I, Subtier 1 debtor shall not exceed $80,000,000.
Subtier 2--Non-operational company debtors other than class action trusts must assign all of the unencumbered assets earmarked for the settlement of asbestos claims to the Fund no later than ninety (90) days after the date of enactment.
Subtier 3--Non-operational companies with no assets earmarked for the settlement of asbestos claims shall contribute fifty (50%) percent of all unencumbered assets to the Fund no later than ninety (90) days after the date of enactment.
Calculation of Unencumbered Assets--Unencumbered assets shall be calculated as the total assets, excluding insurance related assets, jointly held, in trust or otherwise, with a defendant participant less all allowable administrative expenses, allowable priority claims under section 507 of title 11, United States Code, and allowable secured claims.
Class Action Trust--The assets of any class action trust established by a court before the date of enactment for the settlement of asbestos claims of any Tier I debtor shall be transferred to the Fund no later than sixty (60) days after that date of enactment.
Tier II: A person or affiliated group in Tier II shall pay the following amounts into the Fund on an annual basis:
Subtier 1--$27.5 million (highest revenues).
Subtier 2--$24.75 million (next highest revenues).
Subtier 3--$22 million (remaining).
Subtier 4--$19.25 million (next to the lowest revenues).
Subtier 5--$16.5 million (lowest revenues).
Each subtier shall contain as close to an equal number of the total defendant participants as possible.
Tier III: A person or affiliated group in Tier III shall pay the following amounts into the Fund on an annual basis:
Subtier 1--$16.5 million (highest revenues).
Subtier 2--$13.75 million (next highest revenues).
Subtier 3--$11 million (remaining).
Subtier 4--$8.25 million (next to the lowest revenues).
Subtier 5--$5.5 million (lowest revenues).
Each subtier shall contain as close to an equal number of the total defendant participants as possible.
Tier IV: A person or affiliated group in Tier IV shall pay the following amounts into the Fund on an annual basis:
Subtier 1--$3.85 million (highest revenues).
Subtier 2--$2.475 million (next highest revenues).
Subtier 3--$1.65 million (remaining).
Subtier 4--$550,000 (lowest revenues).
Each subtier shall contain as close to an equal number of the total defendant participants as possible.
Tier V: A person or affiliated group in Tier V shall pay the following amounts into the Fund on an annual basis:
Subtier 1--$1 million (highest revenues).
Subtier 2--$500,000 (remaining).
Subtier 3--$200,000 (lowest revenues).
Each subtier shall contain as close to an equal number of the total defendant participants as possible.
Tier VI: A person or affiliated group in Tier VI shall pay the following amounts into the Fund on an annual basis:
Subtier 1--$500,000 (highest revenues).
Subtier 2--$250,000 (remaining).
Subtier 3--$100,000 (lowest revenues).
Each subtier shall contain as close to an equal number of the total defendant participants as possible.
If a participant's required subtier payment under Tier VI would exceed the amount the participant paid in asbestos expenditures during the eight (8) years prior to the enactment of the Act for settlements and judgments, then the participant shall make the payment of the immediately lower subtier. Alternatively, if the participant paid less than $100,000 in annual asbestos expenditures for the eight (8) years prior to the enactment of the Act for settlements and judgments, then the participant shall not have to make payments into the Fund.
If a participant receives an adjustment under this subsection, then the participant may not also receive a hardship and inequity adjustment.
Tier VII--In addition to an assignment in Tiers II through VI, a person or affiliated group shall also be included in Tier VII if it is, or has at any time been subject to, asbestos claims under FELA and has paid not less than $5 million in costs relating to such claims. Such persons or affiliated groups shall pay, in addition to their other tiered payment obligations and on an annual basis:
Subtier 1: $11 million (Railroad or common carriers with revenues of $6 billion or more).
Subtier 2: $5.5 million (Railroad or common carriers with revenues of less than $6 billion, but more than $4 billion).
Subtier 3: $550,000 (Railroad or common carriers with revenues of less than $4 billion, but more than $500 million).
Revenues: Revenues shall be determined by reported earnings for the year ending December 31, 2002, or if applicable, the earlier fiscal year that ends during 2002. Any portion of revenues of a defendant participant derived from insurance premiums shall not be used to calculate the payment obligation.
Sec. 204. Assessment administration
This section requires each defendant participant to pay the amount required of its tier, subtier assignment on an annual basis until the defendant participant has either satisfied its obligations during the 30 annual payment cycles of the Fund or the Fund receives $90 billion from the defendant participants, excluding any amount rebated.
Small Business Exception: This subsection exempts from payment requirements and subtier allocations all persons or affiliated groups meeting the definition of `small business' as defined by the Small Business Administration pursuant to the Small Business Act, 15 U.S.C. Sec. 632, on December 31, 2002.
Adjustments: Under expedited procedures established by the Administrator, a defendant participant may seek an adjustment of the amount of its payment obligations, either in the form of forgiveness of a portion of the payment or a rebate, based on severe financial hardship or demonstrated inequity. The decision of the Administrator whether to grant the adjustment and the size of such an adjustment is subject to judicial review pursuant to section 303.
The Administrator shall appoint a Financial Hardship Adjustment Panel and an Inequity Adjustment Panel to advise the Administrator in granting adjustments.
Hardship Adjustments--A defendant participant may apply for such an adjustment during any period in which a payment obligation to the Fund remains outstanding. To qualify for the adjustment, the defendant participant must demonstrate that the amount of the payment obligation would constitute a severe financial hardship.
Inequity Adjustments--To qualify for an inequity adjustment, a defendant participant must demonstrate that the amount of its payment obligation is exceptionally inequitable: (1) when measured against the amount of the likely cost of its future liability in the tort system in the absence of the Fund, (2) when compared to the payment rate for all defendant participant in the same tier, or (3) when measured against the percentage of prior asbestos expenditures that were incurred with respect to claims that neither resulted in an adverse judgment nor the subject of a settlement that required a payment to a plaintiff. Additionally, a defendant participant shall qualify for a two-tier main tier and a two-tier sub-tier adjustment reducing the payment obligation by demonstrating that not less than ninety-five (95%) percent of such person's prior asbestos expenditures arose from claims related to the manufacture and sale of railroad related products, so long as the sale of such products is temporally and casually remote. The phrase `shall qualify for' in Sec. 204(d)(3)(A)(ii) shall have the same meaning as `shall be granted' in the following paragraph.
Term and Renewal--Hardship and inequity adjustments granted shall have a term of three (3) years. A defendant participant may seek renewal of the adjustment by demonstrating continued qualification.
Reinstatement Authority--Following the expiration of the hardship or inequity adjustment period granted under this section, the Administrator shall annually determine whether there has been a material change in the financial condition of the defendant participant such that the Administrator may reinstate part or all of the defendant participant's payment obligation that was not paid during the adjustment term.
Limitation of Adjustments--The aggregate total of financial hardship and inequity adjustments in any given year shall not exceed $300 million, except to the extent (1) additional monies are available for adjustments as a result of carryover of prior years' funds or made available under the Defendant Guaranteed Payment Account; or (2) the Administrator determines that additional adjustments are needed in excess of the cap to address situations that would otherwise render defendant participants insolvent by its payment obligations.
Bankruptcy Relief--This subsection provides a special adjustment for defendant participants that would be rendered insolvent upon paying the amount due to the Fund. A defendant participant may apply for this adjustment at any time during which such a payment is due to the Fund. To qualify for such an adjustment the defendant participant must provide the Administrator with information sufficient to establish that the payment would render the defendant participant insolvent as required by the Bankruptcy Code.
The Administrator may grant a defendant participant an adjustment of its payment into the Fund sufficient to prevent the defendant participant from becoming insolvent and unable to pay its debts. The defendant participant shall have the adjustment for a term of a year but may seek renewal of the adjustment on an annual basis by demonstrating that the adjustment or modification of its payment remains justified. The Administrator shall review such adjustments on an annual basis for a material changes in the condition of a defendant participant warranting the reinstatement of a defendant participant's payment obligation.
Several Liability: Each defendant participant's payment obligation to the Fund is several. There is no joint liability and the future solvency of any defendant participant shall not affect the assessment assigned to any other defendant participant.
Consolidation of Payments: This subsection provides for the consolidated reporting of defendant participants and such affiliated groups as elect to report in such a manner for the purpose of determining payment obligations to the Fund. If such groups choose to report on a consolidated basis, then the Administrator shall treat the group as a single defendant participant. In such a case, sole liability for annual payments to the Fund shall rest with the ultimate parent of the group. However, notwithstanding the subsection immediately preceding this section, members of the group may pursue actions against affiliated members for joint payment into the Fund.
Determination of Prior Asbestos Expenditures: Payments by indemnitors prior to December 31, 2002, shall count as part of the indemnitor's prior asbestos expenditures. However, prior asbestos expenditures shall not be for the account of either the indemnitor or indemnitee if the indemnitor entered into a stock purchase agreements in 1988 that involved the sale of stock of businesses that produced friction and other products where the agreement provided that the indemnitor indemnify the indemnitee and affiliates for losses arising from matters, including asbestos claims, asserted before the date of the agreement and filed after the date of the agreement and prior to the ten (10) year anniversary of the sale.
Minimum Annual Payments: As an aggregate, defendant participants shall pay at least $3 billion annually into the Fund for thirty (30) years. To the extent such annual payments fail to meet this minimum after taking into account hardship and inequity adjustments for defendant participants and applicable adjustments for distributors, then monies from the defendant guaranteed payment account shall pay the balance. To the extent that there are insufficient monies in the guaranteed payment account to meet the minimum net, the Administrator shall assess a guaranteed payment surcharge to pay the balance of the minimum requirement unless the Administrator has implemented a funding holiday.
Procedures for Making Payments: This section outlines the materials defendant participants must submit to the Administrator for the purpose of determining the amount that such defendant participant must pay into the Fund.
Initial Year: Tier I--Each debtor shall file with the Administrator no later than ninety (90) days after the date of enactment: (1) a statement identifying the bankruptcy cases associated with the debtor, a statement of whether its prior asbestos expenditures exceed $1 million; and (2) a statement of whether the debtor is operational and holds any assets. Additionally, debtors falling within the subtiers shall file as follows: (1) those within subtier 1 shall file with their payment, a statement of the 2002 revenues or a statement of prior asbestos expenditures and the nature of business operations if the defendant participant qualifies for the payment exception, (2) those within subtier 2 shall assign its assets to the Fund, (3) those within subtier 3 shall include with their payment a statement of how such a payment was calculated, and a signature page personally verifying the truth of the statements and estimates as required by section 404 of the Sarbanes-Oxley Act.
Initial Year: Tiers II-VI--Each participant included within Tiers II through VI shall file with the Administrator no later than one hundred eighty (180) days after the date of enactment: (1) a statement of whether it elects to report on a consolidated basis; (2) a good faith estimate of prior asbestos expenditures; (3) a statement of 2002 revenues; (4) payment in the amount specified for the lowest subtier of the tier within which the defendant participant falls; and (5) a signature page personally verifying the truth of the statements and estimates as required by section 404 of the Sarbanes-Oxley Act.
Relief--The Administrator shall establish procedures to grant defendant participants relief from its initial payment obligation where the participant shows that it is likely to qualify for a financial hardship adjustment and failure to provide relief would cause severe irrevocable harm.
Initial Year: Tier VII--Each defendant participant shall file with the Administrator no later than ninety (90) days after the date of enactment: (1) a good faith estimate of all asbestos-related FELA payments; (2) a statement of revenues; and (3) payment in the amount specified by the subtier.
Notice: The Administrator shall directly notify all reasonably identifiable defendant participants no later than two hundred and forty (240) days after the date of enactment that the defendant participant must submit certain information necessary to calculate the amount that the participant must pay into the Fund. Further, the Administrator must publish a notice in the Federal Register that any possible defendant participant must submit such information necessary to calculate the amount that such a participant would be required to pay into the Fund. Such a notice shall include a list of all defendant participants that the Administrator has directly notified of this requirement. Upon receiving notice of this requirement, the defendant participant has thirty (30) days to submit such information to the Administrator.
Initial Determination--Once the Administrator has received this information from the defendant participant, the Administrator has sixty (60) days to send such a participant a notice of initial determination identifying the tier and subtier into which the participant falls and the annual payment obligation. The Administrator then has seven (7) days to publish a notice in the Federal Register listing all of the defendant participants that the Administrator has sent such an initial determination.
Payments--The defendant participant must then pay the Administrator the amount required under this initial determination no later than thirty (30) days after receiving the initial determination.
Rehearing--A defendant participant seeking a rehearing of the Administrator's inclusion of the participant within a given tier and/or subtier must file such a request within thirty (30) days of receipt of notice of the Administrator's determination. The Administrator shall publish a notice of any change of a defendant participant's tier or subtier assignment or payment obligation in the Federal Register.
New Information: The Administrator shall adopt procedures for requiring the payment of additional amounts, or refunding amounts already paid, based on new information received. Additionally, if the Administrator receives information that an additional person may qualify as a defendant participant, the Administrator shall require such person to submit information necessary to determine whether the person is required to make payments.
Defendant Hardship and Inequity Adjustment Account: This subsection provides for the creation of a defendant hardship and inequity account. The Administrator shall deposit any excess monies (not to exceed $300 million) received in a given year that exceed the minimum aggregate payment of $3 billion.
Use of Funds--The money in this account may only be used to balance any hardship and inequity adjustments, distributor tier adjustments, or to reimburse defendant participants granted relief after payment.
Carryover of Unused Funds--Any unused funds in a given year in the account shall be carried over for adjustments in subsequent years.
Defendant Guaranteed Payment Account: The Administrator shall place any monies paid in excess of the minimum annual amount of $3 billion into a defendant guaranteed payment account. The Administrator may then use this money to grant additional adjustments, not to exceed $50 million in any given year.
Guaranteed Payment Surcharge: Unless the Administrator grants a funding holiday, if there are insufficient funds in the defendant guaranteed payment account to meet the minimum aggregate payment into the fund of $3 billion, then the Administrator shall impose a guaranteed payment surcharge on defendant participants sufficient to attain the minimum aggregate annual payment.
Limitation--The Administrator shall not impose a surcharge on defendant participants in Tier V, Subtier 3 or Tier VI, Subtier 3. This amount shall be reallocated on defendant participants.
The Administrator shall impose any such a surcharge on a pro rata basis against a defendant participant's relative liability, taking into account any adjustments granted by the Administrator. Further, the subsection requires the Administrator to certify that all reasonable efforts have been extended to collect the minimum annual payment of $3 billion from the defendant participants before imposing such a surcharge. The Administrator shall not issue a final certification until after publishing a proposed certification in the Federal Register and providing for a public comment and notice period.
Adjustments for Distributors: This section provides a definition of `distributor' and procedures for distributor tier reassignments. Specifically, after a final determination by the Administrator of tier assignment, a distributor may submit an application, prepared in accordance to promulgated rules, for a tier adjustment. A distributor submitting an application for tier adjustment shall pay amounts into the Fund according to its assignment until the Administrator makes a final decision on the adjustment application. The Administrator's decision and designation on the application shall be final. However, if the defendant participant has a right to a rehearing of the Administrator's decision pursuant to the procedures in the Act. If the Administrator's adjustment decision results in a lower payment obligation, then the Administrator shall grant a refund or credit of excess payments.
But that for this provision of the bill, a distributor that: (1) would be assigned to Tier IV, shall be assigned to Tier V; (2) would be assigned to Tier V, shall be assigned to Tier VI; and (3) would be assigned to Tier VI, shall be assigned to no tier at all and shall have no payment obligation to the Fund. However, a distributor shall not be eligible for an inequity adjustment.
The total number of adjustments available under this provision shall not exceed $50 million. If the total number of adjustments will exceed this limit, then each distributor's adjustment shall be reduced pro rata until the aggregate does not exceed $50 million.
Sec. 205. Stepdowns and funding holidays
Stepdowns: The Administrator will reduce the minimum aggregate funding obligations of the defendant participants by ten (10%) percent of the initial minimum aggregate at the end of the tenth, fifteenth, twentieth, and twenty-fifth years of the life of the Fund. The Administrator will apply these reductions on a pro rata basis to all of the defendant participants, except with regard to tier 1, sub-tiers 2-3 defendant participants and class action trusts. However, the Administrator may suspend, cancel, reduce, or delay any reductions if he/she finds that such is necessary to ensure that sufficient assets in the Fund are present to pay future obligations.
Funding Holidays: This section grants the Administrator the authority to reduce or waive all or part of the payment obligations. However, such a funding holiday may not be granted in the first ten (10) years of the life of the Fund. Further, such a funding holiday may only be granted after the tenth year of the Fund if there are sufficient assets in the Fund to fulfill its obligations.
Each year after the tenth year of the Fund, the Administrator shall conduct an annual review of the Fund to determine whether the Fund contains sufficient assets to satisfy all of its payment obligations and grant a funding holiday. Upon such a finding, the Administrator shall award a funding holiday on a pro rata basis on the relative payment obligations the defendant participants, except with regard to the tier 1, sub-tiers 2-3 participants and class action trusts. However, should the Administrator receive new information that leads him/her to believe that the funding holiday will cause the Fund to be depleted to the point that there will not be sufficient assets to satisfy future obligations, then the Administrator may revoke all or part of the funding holiday on a pro rata basis.
Certification: The Administrator must certify through a written notice in the Federal Register, including a thirty (30) day comment period, that any stepdown or funding holiday satisfies the requirements of the section. After consideration of the submitted public comments, the Administrator must make a final certification of the stepdown or funding holiday and notify each defendant participant of such within thirty (30) days of the final certification.
Sec. 206. Accounting treatment
Payment obligations shall be subject to accounting discounting for each defendant participant. However, this discounting shall not reduce the amount of monetary payments to the Fund.
Sec. 210. Definition
Sec. 211. Establishment of Asbestos Insurers Commission
The President, with the advice and consent of the Senate, shall appoint 5 members to serve on the Asbestos Insurers Commission (the Commission) and shall select a Chairman from among its members. No member may be an employee, immediate family member of an employee, or shareholder of an insurer participant and may not be an officer of the Federal Government, except by reason of membership on the Commission. Further, a former officer, director, employee, or shareholder of an insurer participant within the two years prior to appointment may not sit on the Commission unless such information is fully disclosed. Any vacancy shall be filled by Presidential appointment.
Not later than 30 days after the date on which all members of the Commission have been appointed, the Commission shall hold its first meeting and shall thereafter meet at the call of the Chairman as necessary. No business may be conducted without a majority of the member participating.
Sec. 212. Duties of Asbestos Insurers Commission
Determination of Insurer Payment Obligations: Insurer participants shall be responsible for a total aggregate contribution of $46.025 billion, less any bankruptcy trust credits. The Commission shall determine the amount required of each insurer to pay into the Fund. The Commission's first rulemaking shall promulgate the methodology for allocating payments among the participants. This rule shall also include a methodology for adjusting payments by insurer participants to make up in the first five (5) years, and any other years as provided for, any failure to meet the minimum aggregate annual payment to the fund resulting from: (1) financial hardship and inequity reductions; (2) the failure or refusal of an insurer participant to make the required payment; or (3) any other reason causing the payments to fall below the required amounts. Within the time constraints of this provision, the Commission shall conduct a thorough study to determine the reserve allocation of each insurer participant, including requesting information from the Securities and Exchange Commission (SEC) if necessary.
Not later than one hundred twenty (120) days after the initial meeting, the Commission shall commence a rulemaking procedure to propose and adopt a rule providing for the allocation of contributions among the insurers. The Commission may provide for one or more allocation formulas to be applied to all insurer participants or groups of similarly situated participants. After adopting such a rule, the Commission shall then apply that formula to determine the amount that each insurer participant shall be required to pay into the Fund.
This section also grants the Commission and Administrator authority over every insurer, reinsurer and run-off entity to enforce the provisions of the Act and ensure the payment of such an insurer participant's full contribution obligation without regard to whether it is licensed in the United States. Insurer participants are severally liable for payments to the Fund, unless otherwise provided. There is no joint liability and the future insolvency of any insurer participant shall not affect the assessment assigned to any other insurer participant.
Reinsurers who issued retrospective policies to an insurer participant after 1990 that provides for a risk or loss transfer to insure for asbestos and other losses shall make payments into the Fund on behalf of the insurer participant. The insurer participant holding the policy shall direct the reinsurer to pay all or a portion of the payment directly into the Fund within ninety (90) days after the scheduled date to make an annual payment into the Fund, subject to the enforcement procedures of the Fund.
Payment Criteria--Insurers that have paid or assessed at least $1 million in defense or indemnity costs by a legal judgment or settlement for asbestos-related personal injury claims shall be considered insurer participants only. It is not the intent of the Act to submit insurer participants to double liability and so no insurer participant shall be liable for payment obligations as defendant participants as well.
The Commission shall consider and weigh the following when establishing the allocation formula: (1) historic premium for lines of insurance associated with asbestos exposure; (2) recent loss experience for asbestos liability: (3) reserves for asbestos liability; (4) the likely cost of future liabilities; and (5) any other relevant factors. The Commission may establish procedures and standards for determination of asbestos reserves of insurer participants.
Payment Schedule--The aggregate annual amounts shall be as follows:
Years 1 and 2: $2.7 billion
Years 3 through 5: $5.075 billion
Years 6 through 27: $1.147 billion
Year 28: $166 million
Certain Runoff Entities--A runoff entity shall include any direct insurer or reinsurer whose asbestos liability reserves have been transferred, directly or indirectly, to the runoff entity and on whose behalf the run off entity handles, adjusts, and/or pays asbestos claims.
Financial Hardship and Exceptional Circumstances Adjustments--Insurer participants may seek adjustments by demonstrating that the set contribution poses an exceptional circumstance or severe financial hardship to the insurer participant. The Commission may determine whether to grant and the size of any such adjustment. However, such adjustments shall not affect the aggregate payment obligations of insurer participants, except as provided in the allocation methodology rule by the Commission, shortfall assessment credits, or the shortfall analysis.
Funding Holidays--At any time after the first ten (10) years of the Fund, the Administrator shall reduce or waive part or all of the payments required by the insurer participants if the Administrator determines that the assets of the Fund at that point in time and expected future payments satisfy the anticipated obligations of the Fund. However, such a funding holiday shall only be made: (1) to the extent that the Administrator determines that the Fund will be able to satisfy the Fund's obligations; and (2) will be applied on an equal pro rata basis to the insurer participants. The Administrator shall conduct an annual review to determine whether to reduce or waive insurer participant payments. If the Administrator receives information at any time that indicates that the reduction or waiver may cause the assets of the Fund and the expected future payments to decrease, then the Administrator shall revoke all or part of the reductions or waivers on a pro rata basis to ensure the Fund's obligations.
Procedure for Notifying Insurer Participants of Individual Contribution Obligations: This section provides the timeline and process for determining the amount that each insurer participant is obligated to pay into the Fund.
Within thirty (30) days after its initial meeting, the Commission must directly notify all reasonably identifiable insurer participants of the requirement to submit information necessary to calculate the amount of any required contribution to the Fund. The Commission shall also publish a notice in the Federal Register requiring any person who may be an Insurer Participant to submit such information along with a list of all notified insurer participants. Upon publication of this notice, there will be thirty (30) days public comment period regarding the completeness and accuracy of the list of identified insurer participants. Insurers meeting the criteria of insurer participants shall respond to such notice. The response shall be signed by a responsible corporate officer, general partner, proprietor, or individual of similar authority, who shall certify under penalty of law the completeness and accuracy of the information submitted.
Not later than one hundred and twenty (120) days after the initial meeting of the Commission, the Commission shall send each participant a notice of the initial determination assessing a contribution to the Fund. The Commission then has seven (7) days to publish a notice of initial listing of insurer participants, along with their initial determination. If no response is received from the participant, or if the response is incomplete, the initial determination assessing a contribution from the participant shall be based on the best information available to the Commission. Not later than thirty (30) days after receiving notice of the initial determination from the Commission, an insurer participant may provide the Commission with additional information to support limited adjustments to the assessment received to reflect exceptional circumstances.
The Commission has the authority to conduct examinations of the books and records of insurer participants to determine the completeness and accuracy of the information submitted for the purpose of determining required contributions. The Commission may request the Attorney General to subpoena persons to compel relevant information. Additionally, any escrow account established in connection with an asbestos trust fund that has not been judicially confirmed by the date of enactment shall be the property of and returned to the insurer participant.
Not later than sixty (60) days after the notice of initial determination is first sent out, the Commission shall send a notice of final determination.
Insurer Participants Voluntary Allocation Agreement: Direct insurers and reinsurers have thirty (30) days from the day of the Commissions proposed rulemaking on the allocation formula to submit their own allocation agreement, approved by all the participants in the applicable group, to the Commission. Upon receipt of this agreement, the Commission must determine whether the allocation agreement meets the requirements of the Act and certify the agreement. Once the Commission certifies the agreement, the Commission no longer has authority over insurer participant. At this point, the Administrator shall assume the responsibility of calculating individual contribution obligations.
Commission Report: Until the Commission is terminated, though, the Commission shall submit an annual report stating the amount that each insurer participant is required to contribute to the Fund, including the payment schedule, to the Administrator and the Committees on the Judiciary of the Senate and the House of Representatives.
Interim Payments: Insurer participants must submit a certified statement to the Administrator of its net reserves for asbestos liabilities within thirty (30) days of the date of enactment. The Administrator must allocate this interim payment--which must be made within ninety (90) days of the date of enactment and in an amount not to exceed fifty (50%) percent of the insurer participants' first year payment obligation--according to the amount that the participants hold in reserves. The Administrator must publish this allocation in the Federal Register within sixty (60) days of enactment. The Administrator's final allocation is appealable under Section 303. Insurer participants must then make a payment into the Fund within the first ninety (90) days of the date of enactment of an amount not to exceed fifty (50%) percent of the first year's total payment obligation.
Transfer of Authority from the Commission to the Administrator: Upon termination of the Commission, the Administrator shall assume the responsibilities and authority of the Commission, except that the Administrator shall not have the power to modify the established allocation formula.
Financial Hardship and Exceptional Circumstances Adjustments--The Administrator shall have the authority to make adjustments for financial hardships and exceptional circumstances as provided for in the Act for a term not to exceed three (3) years. Upon the grant of any adjustment, the Administrator shall increase the payments of all other insurer participants in accordance with the allocation methodology established by the Commission.
Credits for Shortfall Assessments--The Administrator shall grant any insurer participant required to make up for a shortfall pursuant to the allocation methodology within the first five (5) years of the Fund a credit against its annual payments in year 6 and thereafter. The credit will equal amount in the amount the insurer participant made in shortfall assessments and granted on a pro rated bases over the same number of years that the participant paid such assessments. However, the Administrator shall not grant a credit for short fall assessments imposed by the Administrator as a result of the shortfall analysis.
Accounting Treatment: Insurer participant payment obligations to the Fund shall be subject to discounting under applicable accounting guidelines but shall in no way reduce the required payments into the Fund.
Judicial Review: The Commission's established allocation formula, its final determinations of contribution obligations and other final actions shall be judicially reviewable.
Sec. 213. Powers of the Asbestos Insurers Commission
This section authorizes the Commission to conduct rulemakings for the purpose of implementing its authority under the Act. The Commission may hold hearings, sit and act at such times, take testimony and receive evidence as it considers advisable. The Commission may secure directly from any Federal or State department or agency such information as the Commission considers necessary to carry out this act, and may use the United States mails in the same manner and under the same conditions as other departments and agencies of the Federal government. The Commission may not accept, use, or dispose of gifts or donations of services or property. The Commission may also enter into contracts as it deems necessary to obtain expert advice and analysis.
Sec. 214. Personnel matters
This section provides for certain personnel matters relating to the performance of the duties of the Commission, such as: (1) the pay of members of the Commission; (2) the appointment of additional personnel necessary to perform its duties; (3) the compensation rate for such additional staff; and (4) the detailing of individuals serving in other branches of the Federal government.
Sec. 215. Termination of Asbestos Insurers Commission
The Commission shall terminate sixty (60) days after the date on which the Commission submits its report.
Sec. 216. Expenses and costs of commission
All expenses and costs of the Commission shall be paid by the Asbestos Injury Claims Resolution Fund.
Sec. 221. Establishment of the office of asbestos injury claims resolution
This section provides for the establishment of the Office of Asbestos Disease Compensation within the Asbestos Injury Claims Resolution Fund.
Borrowing Authority: This subsection gives the Administrator borrowing authority. However, in any calendar year, the Administrator may not borrow an amount in excess of all amounts expected to be paid by participants during the subsequent ten (10) years, taking into account previous payment obligations of the Fund for amounts already borrowed and other payment obligations of the Fund. The purpose of this provision is to ensure that the Fund does not sunset early as a result of unforeseen circumstances, such as an unexpected surge in claims filed in a single year. This subsection also gives the Administrator the authority in the first five (5) years of the Fund to borrow amounts necessary for the performance of the Administrator's duties from the Federal Financing Bank in accordance with section 6 of the Federal Financing Bank Act of 1973. Again, the purpose of this provision is to ensure that the Fund does not sunset in the early years that it becomes operational and assist in the smooth start up of the Fund.
Repayment of monies borrowed by the Administrator shall be made in full by Fund contributors to the extent there is either current or prospective amounts available in the Fund.
Lockbox for Severe Asbestos-Related Injury Claimants: This section authorizes the Administrator to establish four separate lockbox accounts to protect the funds needed to compensate the victims with the most severe asbestos-related injuries: mesothelioma (Level IX), lung cancer (Level VIII), severe asbestosis (Level V), and moderate asbestosis (Level IV). The Administrator shall allocate to each of these accounts a portion of payments to the Fund to compensate anticipated claimants for each account. Funds will be allocated to these accounts based on the best epidemiological and statistical studies. Within sixty (60) days after the date of enactment and periodically during the life of the Fund, the Administrator shall determine an appropriate amount to allocate to each account.
Audit Authority: This section grants the Administrator audit authority to examine data, summon persons and materials, and take testimony for the purpose of ascertaining the veracity of information provided, determining outstanding liabilities, or inquiring into any offense connected with the administration or enforcement of payment obligations.
False, Fraudulent, or Fictitious Statements or Practices: If the Administrator determines that materially false, fraudulent, or fictitious statements or practices have been submitted or engaged in by persons submitting information to the Administrator or Commission, then the Administrator may impose a civil penalty not to exceed $10,000.
Identity of Certain Defendant Participants; Transparency: A person, as defined by the Act, having knowledge that either they are an affiliated group has prior asbestos expenditures of $1 million dollars or more shall submit to the Administrator within sixty (60) days of the date of enactment the name, or ultimate parent, of the person with such liability and the likely tier to which the group may be assigned. The Administrator, or Interim Administrator, shall publish in the Federal Register no later than twenty (20) days after this sixty (60) day period a list of submissions received. After this list is published, a person may submit information to the Administrator relating to the identity of others with prior asbestos liability of $1 million dollars or more.
No Private Right of Action: There shall be no private right of action under any State or Federal law against any participant based on a claim of compliance or noncompliance with the FAIR Act or the involvement of any participant in the enactment of the FAIR Act.
Sec. 222. Management of the Fund
The Administrator shall hold monies in the Fund for the exclusive purpose of providing benefits to asbestos claimants and their beneficiaries and to otherwise defray the reasonable expenses of administering the Fund. The Administrator shall invest amounts in the Fund in a manner that enables the Fund to make current and future distributions to or for the benefit of asbestos claimants, taking into account the nature of the Fund and relevant outside factors.
Bankruptcy Trust Guarantee: To ensure the liquidity of the Fund, the Administrator shall have the authority to impose a pro rata surcharge on all participants if the assets of a bankruptcy trust established before July 31, 2004, are not available to be transferred because a non-appealable final judgment has enjoined the transfer of funds from the trust or the borrowing authority is insufficient because it would likely increase the possibility that the Fund will sunset on the basis of reasonable claims projections. Such a surcharge may not exceed the total aggregate amount of the enjoined assets of the relevant bankruptcy trusts of four ($4,000,000,000) billion dollars. Any surcharge shall be applied over a period of five (5) years on a pro rata basis on the relative aggregate funding obligations of all participants, taking into account any hardship, inequity, or exceptional circumstances adjustments granted by the Administrator. Before the Administrator may apply such a surcharge, he/she must publish notice in the Federal Register that includes information relating to the reasons why a surcharge is necessary, the amount of the assets enjoined from a bankruptcy trust, the total aggregate amount of the surcharge, and the amount of the surcharge for each tier and subtier of participant. After the thirty (30) day comment period, the Administrator shall publish a final certification in the Federal Register.
Bankruptcy Trust Credits: If the Fund receives assets from a bankruptcy trust established after July 31, 2004, then the Administrator shall credit the aggregate payment obligations of all participants. The Administrator shall allocate the credits in amongst the defendant and insurer participants.
Sec. 223. Enforcement of payment obligations
If any participant fails to meet its payment obligations to the Fund, then the Administrator must make a demand of payment and provide the participant with thirty (30) days to cure the default. If the participant fails to cure the default, then the United States shall have a lien for an amount equal to the participant's payment obligation. In the case of a bankruptcy or insolvency proceeding, the lien shall be treated in the same manner as a lien for taxes due and owing to the United States.
In any case where there has been a refusal or neglect to pay an assessment, the Administrator may bring a civil action in any appropriate United States District Court, or other appropriate lawsuit or proceeding outside of the United States. In any action involving a willful refusal to pay, the Administrator may seek punitive damages, including costs and attorneys fees, and may collect a fine equal to the total amount of the liability not collected.
Enforcement Authority as to Insurer Participants: In addition to other enforcement provisions, the Administrator may seek to recover amounts in satisfaction of a contribution not timely paid by an insurer in the following manners:
Subrogation--The Administrator shall be subrogated to the contractual rights of participants to recover payment obligations from non-paying foreign insurer payments. The Administrator may then bring an action or arbitration against the nonpaying participant pursuant to those rights.
Recoverability of Contribution--In any action brought under this section, the nonpaying insurer participant shall not be entitled to a credit or offset for amounts collectable from any participant or a right to collect any sums payable from a participant.
Intervention/Cooperation--An insured party of a nonpaying insurance party shall cooperate with the Administrator in enforcement proceedings against the nonpaying participant. The Administrator shall have the power to settle or compromise any claims against an insurer participant.
Bar on U.S. Business--Unless the participant complies, if any insurance participant refuses to pay a contribution obligation, then in addition to other penalties, the Administrator shall issue an order barring such entity and its affiliates from conducting business within the United States. Further, if any insurer participant does not supply requested information, then the Administrator shall bar the participant from doing business in the United States or from obtaining a license from any State to write insurance until payment of all contributions.
Credit for Reinsurance--If a reinsurer insurer participant defaults on its payment obligation to the Fund or otherwise fails to comply with the Act, then the Administrator may issue an order barring any direct insurer participant from receiving credit for reinsurance purchased from the defaulting reinsurer after the date of the Administrator's determination of default.
Defense Limitations: A participant must raise any challenges available to the participant regarding the constitutionality of the FAIR Act or determinations of payment obligations made by the Administrator or Commission during administrative or judicial review proceedings provided under the Act. If the participant fails to raise these challenges at that point, then the Act bars the participant from later raising such a challenge during enforcement proceedings.
Deposit of Funds: The Administrator shall deposit in the Fund any monies collected as a fine equal to the total amount of the participant liability.
Proposed Transactions: The FAIR Act incorporates language from an amendment by Senator Leahy last Congress designed to ensure future accountability of corporate participants in the Fund that are sold, or otherwise change hands. The Leahy amendment defined participants in the trust fund to include so-called `successors in interest' based on the `substantial continuity test' to determine whether it is fair and appropriate to require a company to take on the obligations of its predecessor. This amendment adopts the precedent of number courts that have generally looked to a number of factors in determining `substantial continuity': whether the new company retains the same assets and facilities, the same employees and supervisors, the same jobs and working conditions, the same products and services, and the same customers and investors. 43
[Footnote]
[Footnote 43: This `substantial continuity' rule has been routinely applied in cases involving tort plaintiffs and the beneficiaries of federal statutes, such as the NLRA (labor relations), the Family Leave Medical Act (FMLA), CERCLA (environmental crimes), Title VII (EEOC) and the Veterans' Readjustment Assistance Act.]
The FAIR Act includes a comprehensive and specific provision designed precisely to ensure that successors-in-interest to the participants in the Fund are held just as responsible as the participants were, so that the Fund will not suffer any financial harm as the result of merger-and-acquisition activity. This provision of the FAIR Act also requires reporting on all such activity to the Administrator, and just as importantly creates the opportunity for the Administrator--or another interested party--to bring a lawsuit to force compliance with the successor-in-interest provision and the obligations of such successors.
Notice and Contents of Notice--A participant must provide the Administrator notice of a proposed transaction(s) that would result in the transfer of a significant portion of the participant's assets. The Administrator shall protect information contained in the notice as confidential commercial information if: (1) the participant requests such treatment; (2) the participant does not publicly disclose the transaction(s); and (3) the Administrator does not believe that the true nature of the transaction merits action against the participant.
The Administrator shall prescribe by rulemaking the information necessary for the participant to include such notice. The Administrator will use this information to determine whether: (1) the party acquiring the assets of the participants should be considered a successor in interest of the participant; or (2) the transfer would allow a trustee in Chapter 11 proceedings to avoid the payment obligations of the participant to the Fund.
The participant must also include a statement in the notice regarding whether a person has or will become a successor in interest to the participant and whether that person has acknowledged such.
Timing--
Notice of Transaction--The participant must give the Administrator notice of such a transaction no later than thirty (30) days before the consummation of the proposed transaction. If the process involves a series of transactions, then the participant must give the Administrator notice of the series of transaction no later than thirty (30) days before the consummation of the first transaction in the series. As such, any proposed transaction may not be consummated until at least thirty (30) days after the Administrator receives such notice, unless otherwise provided by the Administrator.
Certification Statements--The participant shall submit a certification of notice compliance to the Administrator by the date of the participant's payment obligation.
Right of Action--This subsection provides for the right of action against a participant engaging in such a transaction or any party to the transaction on the grounds that: (1) the participant and person has not stated or acknowledged that the person has or will become a successor in interest as a result of the transaction; or (2) the transfer would allow a trustee in Chapter 11 proceedings to avoid the payment obligations of the participant into the Fund. The Administrator or other participant may bring such an action in the appropriate United States district court or, otherwise, any forum appropriate outside of the United States.
Relief--In such an action, the Administrator or participant may seek: (1) declaratory judgment of whether a person is a successor in interest of the participant; or (2) a preliminary restraining order or any other appropriate relief as determined by the court against the transaction if the transaction would allow a Chapter 11 trustee to avoid the payment obligations of the participant into the Fund.
Sec. 224. Interest on underpayment of nonpayment
If a participant fails to meet its payment obligation on or before the last date prescribed for payment, the liable party shall pay interest on that amount at the Federal short-term rate determined under section 6621(b) of the Internal Revenue Code of 1986, plus 5 percentage points until the date paid.
Sec. 225. Education, consultation, screening, and monitoring
The Administrator shall establish a program for the education, consultation, medical screening, and monitoring of persons exposed to asbestos out of the assets of the Fund.
Outreach and Education: No later than one year after the date of enactment, the Administrator shall establish an outreach and education program to provide information about asbestos-related conditions to members of the population who are at-risk of exposure.
Medical Screening Program: The Administrator shall establish a medical screening program for individuals who are at high risk of incurring an asbestos-related disability between the eighteenth and twenty-fourth months that the Fund is fully operational. The Administrator shall adopt regulations establishing: (1) criteria for participation in the screening program; (2) protocols conducting the medical screening process of participants; and (3) the frequency that participants may receive medical screening services.
The program shall receive annually at least $20,000,000 and no more than $30,000,000 for the first five (5) years of the program. However, the Administrator may suspend funding of the program if continued funding would cause the Fund to sunset. After the program is fully implemented, the Administrator may reduce the annual amount the program receives to less than $20,000,000. At the conclusion of the fourth year, the Administrator shall conduct a review of the program to recommend the amount to be allocated to the program for an additional five (5) years, not to exceed six hundred $600,000,000 million dollars. All contracts with medical screening providers shall provide for the reimbursement of those services and the termination of such contracts if the Administrator determines that the provider does not meet the provider qualifications.
Medical Monitoring Program: The Administrator shall establish a medical monitoring program for persons exposed to asbestos and approved for level I compensation. Procedures for the administration of the program shall include: medical tests, such as the distribution of a health evaluation and work history questionnaire, physical examinations, chest x-rays, and spirometry; qualifications of medical providers who are to provide the tests; and administrative provisions for the reimbursement from the Fund for costs of monitoring.
Sec. 226. National mesothelioma research and treatment program
This section requires the Administrator of the Fund and the Director of the National Institutes of Health (NIH) to allot respectively $1.5 million from the Fund and $1 million from funds available to the Director annually for the years 2006-2015 to establish ten (10) mesothelioma disease research and treatment centers. The Director of the NIH shall, in consultation with the Medical Advisory Committee, select sites for the centers that are, amongst other requirements: (1) distributed in areas of high concentration of mesothelioma cases; and (2) closely associated with the Department of Veterans Affairs medical centers. The Administrator of the Fund and the Director of the NIH shall allot respectively $1 million from the Fund and $1 million from amounts available to the Director for the years 2006-2015 to establish a National Mesothelioma Registry. No less than $500,000 of these amounts shall be allocated for the collection and maintenance of tissue specimens. Each of the ten (10) mesothelioma centers shall participate in the registry. The Administrator of the Fund and the Director of the NIH shall allot respectively $1 million from the Fund and $1 million from funds available to the Director for the years 2006-2015 to establish a Center for Mesothelioma Education, with the advice and consent of the Medical Advisory Committee. The Director of the NIH shall publish and provide Congress a report and recommendations on the results gained through the Program no later than September 30, 2015, which shall contain such information as the Act requires.
Sec. 301. Judicial review of rules and regulations
The United States Court of Appeals for the District of Columbia Circuit shall have exclusive jurisdiction over any action to review rules or regulations promulgated by the Administrator. A petition for review shall be filed not later than sixty (60) days after the date notice of such promulgation appears in the Federal Register. The United States Court of Appeals for the District of Columbia shall provide procedures for expedited review.
Sec. 302. Judicial review of award decisions
Any claimant adversely affected or aggrieved by a final decision of the Administrator regarding compensation may petition for judicial review of the decision by filing a petition of review in the United States Court of Appeals for the circuit in which the claimant resides within ninety (90) days of the issuance of a final decision of the Administrator. The court shall uphold the decision of the Administrator unless the court determines, upon review of the record as a whole, that the decision is not supported by substantial evidence, contrary to law, or is not in accordance with procedure required by law. This review will be subject to expedited procedures.
Sec. 303. Judicial review of participants' assessments
The United States Court of Appeals for the District of Columbia Circuit shall have exclusive jurisdiction over any action to review a final determination regarding the liability of any person to make a payment to the Fund, including a notice of applicable subtier assignment, notice of insurer participant obligation, a notice of financial hardship or inequity determination, and notice of a distributors tier adjustment. A petition for review shall be filed not later than sixty (60) days after a final determination giving rise to the action and will be subject to an expedited review. Any defendant participant who receive notices of its applicable subtier assignment and any insurer participant who receives notice of a payment obligation must commence any action within thirty (30) days of receiving such notice.
Sec. 304. Other judicial challenges
The United States District Court for the District of Columbia shall have exclusive jurisdiction over any action for declaratory or injunctive relief challenging any provision of the FAIR Act. Such action shall be filed not later than sixty (60) days after the date of enactment or sixty (60) days after the final action by the Administrator giving rise to the action, whichever is later.
A final decision in the action shall be reviewable on appeal directly to the Supreme Court of the United States and shall be taken by filing a notice of appeal within thirty (30) days, and the filing of a jurisdictional statement within sixty (60) days, of the entry of a final decision.
Such actions shall be advanced on the dockets and subject to an expedited review process.
Sec. 305. Stays, exclusivity, and constitutional review
The courts may not issue a stay of a payment obligation pending its final judgment. Further, the courts may not issue a stay or injunction on the basis of a challenge to the whole or any portion of the FAIR Act until the all judicial avenues have been exhausted. An action for which review is otherwise provided for by the FAIR Act shall not be subject to judicial review in any other proceeding.
Constitutional Review: The original action shall be filed in the United States District Court for the District of Columbia and shall be heard by a three (3) judge court. A final decision on the action shall be reviewable only by an appeal directly to the Supreme Court of the United States, which shall be taken by filing a notice of appeal within ten (10) days and a jurisdictional statement within thirty (30) days after entry of the final decision. The United States District Court for the District of Columbia and the Supreme Court of the United States to expedite the disposition of such an action.
If the transfer of any asbestos trust of a debtor or class action trust, or the Act as a whole, is held to be unconstitutional, then the Fund shall transfer the remaining balance of such assets back to the appropriate trust within ninety (90) days after the final decision is ordered.
Sec. 401. False information
This section amends Title 18, Chapter 63 of the U.S. Code by adding a new section 1348 to impose criminal penalties for fraud against the Office of Asbestos Compensation, and false statements made against the Asbestos Injury Claims Resolution Fund by any party.
Sec. 402. Effect on bankruptcy laws
Contribution obligations are not dischargeable and may not be stayed when a participant files for bankruptcy. Claims by the Administrator against a participant are allowed even in bankruptcy. Participants' payment pending bankruptcy or in bankruptcy are not avoidable as preferences or executory contract.
Transfer of Existing Asbestos Trusts: Existing asbestos trusts, including 524(g) trusts, will be incorporated into the Asbestos Injury Resolution Fund. The assets of such trusts shall be transferred to the Fund no later than six (6) months after the date of enactment. The Administrator shall have discretion when transferring assets of these trusts and may refuse to accept any asset that may create liability for the Fund in excess of the value of the asset. For trusts with beneficiaries that are not asbestos claims, the assets transferred to the Fund shall not include assets allocable to non-asbestos-related beneficiaries. Incorporation of trust assets is estimated to provide an additional $4-6 billion in contributions to the fund.
Effect on Insurance Receivership Proceedings: In any insurance receivership proceeding involving an insurer participant, there shall be a lien in favor of the Fund for the amount of any assessment and any such lien shall be given priority over all other claims against the participant in receivership, except for the expenses of the receivership. Payment of any assessment shall not be subject to any stay in any insurance receivership proceeding.
Standing in Bankruptcy Proceedings: The Administrator shall have standing in any bankruptcy involving a debtor participant. Further, no bankruptcy court may require the return of property seized by the Administrator to satisfy participant obligations to the Fund.
Sec. 403. Effect on other laws and existing claims
This section provides that there will be no other forum for recovery of an asbestos injury claim other than under the Act and addresses the effect that the Act has on particular areas of the law as it relates to the asbestos problem.
Effect on silica claims
In General--An individual seeking to recover on the basis of suffering a silica-related injury must plead with particularity and establish by a preponderance of the evidence that: (i) the individual has not asserted or filed a claim for an asbestos-related injury and that the individual is not eligible for a monetary award under the Fund; (ii) the injury was caused by exposure to silica; and (iii) asbestos was not a significant contributing factor. To establish that the individual is suffering a `functional impairment' due to silica and not because of exposure to asbestos, the plaintiff must establish that they would not meet the exposure requirements set in Section 121 of this Act. If an individual is not able to meet these requirements, then the claim is preempted by the Act.
Required Evidence--The initial pleading must be accompanied by: (1) admissible evidence relating to an individual's condition and exposure to asbestos; (2) notice of a previous lawsuit or claim asserting an asbestos-related injury; and (3) copies of all medical and lab reports pertaining to the individual's exposure to asbestos.
Statute of Limitations--State law shall apply regarding the statute of limitations for filing a silica claim. However, the clock will begin to run on the statute of limitations for any claim filed under this subsection when the plaintiff becomes impaired.
Superseding Provisions: Except as provided below and in provisions relating to the settlement of claims during the start up of the Fund, the Act shall supersede obligations imposed by any agreement, understanding, or undertaking relating to an asbestos claim that requires future performance. Such `future performance' is not intended to include obligations to defend, indemnify or hold harmless parties making payments under insurance coverage settlement agreements, or to maintain the confidentiality of such agreements, where the other financial terms and conditions have been satisfied.
Exception--This Act shall not abrogate a binding and legally enforceable written settlement between a participant and a named plaintiff if before the date of enactment the settlement was executed directly by: (1) the settling defendant or insurer and the specific individual plaintiff, the immediate relatives of the plaintiff, or an authorized legal representative on behalf of the plaintiff if the plaintiff is incapacitated; (2) the settlement contains an express obligation by the participant to make future definite payments; and (3) all of the conditions to payment have been fulfilled, including court approval, within thirty (30) days of the date of enactment. However, if a settlement agreement is prepared in anticipation of this Act, then the exception of this provision shall not apply.
The exception shall not apply to bankruptcy-related agreements.
Any settlement payment under this provision shall be considered a collateral source. This subsection shall not abrogate a settlement agreement reached in anticipation of the Act and anticipates the effects of the Act. Further, this subsection shall not abrogate an otherwise enforceable settlement agreement executed before the date of enactment between a settling defendant or insurer and a named plaintiff for the payment or the health care insurance or expenses of the plaintiff.
Exclusive Remedy: The remedies provided under the Act shall be the exclusive remedy for an asbestos claim. However, the Act shall not apply to any individual civil action in State or Federal court that on the date of enactment: (i) has commenced the presentation of evidence to an impaneled jury or a judge, sitting as a trier of fact; or (ii) a verdict, final order, or final judgment has been entered by a trial court. This exception to the preemption provisions of the Act is intended to permit the completion of civil trials involving plaintiffs in which the presentation of evidence has already begun on the date of enactment, as well as to preserve jury verdicts or judgments on all issues following the completion of such a trial. The exception is not intended to apply to mass trials such as class actions, consolidations, or other trials involving multiple plaintiffs not related by marriage or other family relationship, or to proceedings related to a bankruptcy.
Bar on Asbestos Claims: As of the date of enactment, no new or pending claims may be pursued in State or Federal court, except those that meeting a limited exception preserving certain insurance claims or those filed during the start up to the Fund before it is fully operational. An exception to the preservation of insurance claims under Section 403(e)(2) concerns insurance coverage obligations relating to claims that are preempted, barred, or superseded by Section 403. Insurance coverage obligations relating to such claims are commuted under the Act so that insurers are permitted to take down reserves relating to these claims in order to be able to make their contributions to the Fund.
The only judgment that a trial court may enter for a pending claim after the date of enactment is that of a judgment of dismissal. If a State court does not dismiss a claim, it may be removed to Federal court, which will determine whether removal was proper and whether the claim presented is a pending asbestos claim as defined by the Act.
Notwithstanding the express preemption of pending cases, if a court determines that an asbestos claim for which there has been no order or judgment duly entered before the date of enactment is not subject to the preemption provisions and requires a participant to satisfy a judgment with respect to the claim, then the participant will receive a credit against any assessment owed to the Fund equal to the amount of the payment made with respect to the judgment. The Administrator shall require participants seeking credit to demonstrate that the participant pursued timely remedies, including dismissal of the claim. The participant must have also notified the Administrator of the denial of a motion to dismiss within twenty (20) days of the expiration of the period to seek appeal. The Administrator may require as much further information as is necessary and appropriate to establish eligibility for and the amount of such a credit.
Sec. 404. Effect on insurance and reinsurance contracts
Because most insurance policies cover multiple liabilities, it was necessary to account for `erosion' of a policy that covers not only asbestos liabilities, but potentially other liabilities such as property or other environmental liabilities when assessing contribution obligations to the Fund in order to avoid depriving an insured of coverage for other non-asbestos related claims. This section establishes how contributions to the Fund by insurers and reinsurers reduce the limits of existing insurance policies held by the defendant participants. The quantum of erosion is based on the collective payment obligations to the Fund by the insurer and reinsurer participants. The payment obligations are deemed as of the date of enactment to erode remaining aggregate product limits available to a defendant participant in an amount of 38.1% of each defendant participant's scheduled assessment amount. The erosion principles apply to the mandatory payment obligations to the Fund. However, any contingent payment required by the Administrator of any defendant participant shall not be deemed to erode remaining aggregate product limits.
Restoration of Aggregate Product Limits Upon Early Sunset: In the event of an early sunset of the Fund, any unearned erosion amount will be deemed restored as aggregate product limits available to the defendant participant as of the date of enactment. Such amounts will be deemed restored to each policy in such a manner that the last limits deemed eroded at enactment of the Act are to be the first limits restored at the early sunset. The applicable statute of limitations and contractual provisions for filing claims under any insurance policy with restored aggregate product limits shall be deemed tolled from the date of enactment through six (6) months after the date of the early sunset.
Finite Risk Policies Not Affected: Notwithstanding any other provision of this Act, except subject to Sec. 212(a)(1)(D), the Act shall not affect or impair any rights or obligations of any party to an insurance contract that expressly provides coverage for governmental assessments imposed to replace insurance or reinsurance liabilities in effect on the date of enactment.
Notwithstanding any other provision of this Act, except subject to Sec. 212(a)(1)(D) and Sec. 404(d)(2), the Act shall not affect or impair any rights or obligations of any person with respect to any insurance purchased by a participant after December 31, 1990 that expressly provides coverage for asbestos liabilities, including finite risk policies. Subject to Sec. 212(a)(1)(D), which governs the obligations of certain reinsurers to their reinsureds under reinsurance policies commonly referred to as finite risk policies, aggregate stop loss, aggregate excess of loss, or loss portfolio transfer policies, Sec. 404(d)(1)(B) addresses the insurance obligations under so-called `finite risk' insurance contracts purchased by a participant after 1990 and that expressly provide coverage for asbestos liabilities. These two sections have distinct purposes.
Effect on Certain Insurance and Reinsurance Claims: Subject to Section 212(a)(1)(D), a participant may not pursue an insurance or reinsurance claim against another participant for payments to the Fund. However, Section 404(e) provides a limited exception to this bar. A participant may pursue a claim against an insurer or reinsurer on the basis of a written agreement specifically providing insurance, reinsurance or other reimbursement for required payments to (i) a Federal trust fund established by Federal statute to resolve asbestos injury claims or (ii) where applicable under 404(d).
Any assignment of any rights to coverage for asbestos claims to any person who has asserted an asbestos claim prior to the effective date, or to any trust, person, or entity established to pay asbestos claims, shall be null and void.
The Act does not affect or impair any rights or obligations of any person for amount that is obligated to pay with respect to asbestos or other claims except as otherwise provided by the FAIR Act.
Sec. 405. Annual report of the administrator and sunset of the act
This section requires the Administrator to submit an annual report to the Senate Committee on the Judiciary and House Committee on the Judiciary concerning the operation of the Asbestos Injury Claims Resolution Fund. The section specifies the contents of the report which includes summaries, estimates, recommendations, and an analysis of the financial condition of the fund, including the ability of the Fund to pay claims for the subsequent five (5) years in full and as required.
Contents of Report: The annual report shall include an analysis of the claims experience of the Fund during the fiscal year, including among other factors a statement of the percentage of asbestos claimants who filed, determined to be eligible, and received compensation to which they were eligible. The report shall also include a statement as to the administrative performance, financial condition, and financial prospects of the Fund.
Claims Analysis and Verification of Unanticipated Claims: On the basis of the annual report, the Administrator will conduct a review based on the best available medical evidence: (1) of qualifying claims under a disease level to determine whether all or a significant number of qualified claimants under the class level suffer from an asbestos exposure related disease if the number of qualifying claims under a disease level exceeds the Congressional Budget Office (CBO) projected claims by one hundred twenty-five (125%) percent, or; (2) of ineligible claims under a disease level to determine if a significant number of claimants that were denied compensation but should have qualified on the basis of an asbestos exposure related disease if the number of qualifying claims under a disease level falls below the CBO projected claims by seventy-five (75%) percent.
Determination--The Administrator shall examine the best available medical evidence and any recommendation made by the Advisory Committee and Medical Advisory Committee regarding the improvement of diagnostic, exposure, and medical criteria to determine the nature of the claims submitted and awarded compensation under a disease level. Specifically, the Administrator shall determine whether claimants suffering from injuries that were not substantially contributed to exposure to asbestos received compensation under a claim level or whether claimants suffering from injuries that were substantially contributed to exposure to asbestos were denied compensation under a claim level. Further, the Administrator shall determine the accuracy of CBO projections of the number of expected claimants.
Recommendations Concerning Claims Criteria--On the basis of these findings, the Administrator shall issue a recommendation to Congress of changes to compensation criteria to ensure that the Fund compensates the claims of claimants suffering from injuries that are substantially contributed to exposure to asbestos.
Recommendations of Administrator and Advisory Committee: Any recommendations of the Administrator to Congress shall be referred to the Advisory Committee, which shall hold expedited public hearings on such recommendations and any alternatives to come to its own recommendations to be submitted to the Senate and House Committees on the Judiciary no later than ninety (90) days after receiving the Administrator's recommendations.
Shortfall Analysis: If the Administrator concludes after conducting the annual report that the Fund may not be unable to pay claims at any time within the next five (5) years, then the Administrator shall include an analysis explaining why and when the Fund will no longer be able to pay out claims. The Administrator must also include recommendations as to alternatives for responding to the situation and a statement as to which of the alternatives he/she believes would be the best.
Beginning in year 6 of the life of the Fund, if the Administrator determines that a shortfall in payments by insurer participants would cause the termination of the Fund, then the Administrator may impose shortfall assessments on insurer participants in addition to the amounts required under the allocation methodology. However, the Administrator shall not impose shortfall assessments if they would be insufficient to avoid a recommendation of termination of the Fund. These shortfall assessments may not exceed the amount necessary to account for any shortfall in meeting the required aggregate amount to be paid into the Fund by insurer participants.
In formulating recommendations, the Administrator shall consider the reasons for the short fall, including: (1) financial factors such as the returns on investments, borrowing capacity, interest rates, and ability to collect contributions; (2) the operation of the Fund, such as the administration of claims process, collection of obligations, programs, and potential areas of fraud; (3) the appropriateness of the diagnostic exposure and medical criteria; the actual incidence of asbestos-related injuries based on data; and (4) the compensation of injuries with alternative causes. If the Administrator recommends the termination of the Fund, such a recommendation must be accompanied by a plan for winding up the Fund.
Sunset of Act: The Fund shall terminate after the Administrator has: (i) begun processing claims; and (ii) conducted an operational review of the Fund in preparation for the annual report and found that there are insufficient monies in the Fund to consider additional claims and still satisfy all of the Fund's outstanding obligations, such as satisfying resolved claims and paying incurred debt. The Fund shall terminate one hundred eighty (180) days after the Administrator's determination of termination.
Extinguished Claims--A claim that is extinguished for failure to file with the Fund within the prescribed statute of limitations or otherwise preempted shall not be revived after the sunset of the Act.
Continued Funding--The Act requires participants to continue making payments to the Fund. However, if the full payment obligation of the participants is not required to pay off the obligations of the Fund, then the Administrator may reduce the payment levels. Any such reduction shall be allocated among the participants in the same manner as required by the Act above.
Sunset Claims--This provision relates to remaining unsatisfied claims upon termination of the Fund and persons asserting those claims. Upon determination of termination of the Fund, the applicable statute of limitations shall be tolled for the filing of sunset claims. For those who chose to pursue their claims in court, the relevant statute of limitations shall continue to run, except those who filed a claim with the Fund before termination of the Fund shall have two (2) years after the date of termination to file a claim in court.
Asbestos Trusts and Class Action Trusts--After termination, the trust distribution program of an asbestos trust and class action trust will be replaced by the medical criteria requirements of Section 121.
Payment to Asbestos Trusts and Class Action Trusts--The amounts determined to be paid to asbestos trusts and class action trusts must be transferred to the respective trusts of the debtor within ninety (90) days.
Nature of Claim After Sunset: After termination of the Fund, any individual, who has not had an asbestos-related claim satisfied by the Fund, may bring a claim in Federal district court, State court in where the claimant resides, or any State court where the asbestos exposure occurred. If a defendant cannot be found in the State where the plaintiff resides or where the asbestos exposure occurred, then the claim may only be brought in the Federal or State court where the defendant may be found. In suits where asbestos exposure occurred in more than one county or Federal district, the trial court will determine the most appropriate forum for the claim. If the court determines that another forum is most appropriate, then the court shall dismiss the claim. Any relevant statute of limitations shall be tolled during this time.
An individual whose claim was resolved by the Fund may not bring a claim after the sunset of a Fund. However, if the individual recovered for a non-malignant asbestos-related disease from the Fund that has progressed, then the individual may bring a claim for the subsequent progressive disease unless the claimant knew or should have known about the disease at the time of filing with the Fund. Further, an individual, who recovered for a non-malignant or malignant asbestos-related disease from the Fund that has progressed to mesothelioma, may bring a suit on the basis of his/her mesothelioma unless the individual knew or should have known of the disease when he/she filed with the Fund.
Exclusive Remedy--After the Fund sunsets, a suit brought in this manner shall be the exclusive remedy for any asbestos claim, regardless of whether the claim arose before or after the date of enactment or termination of the Act.
Class Action Trusts--An asbestos-related claim may not be maintained against an established asbestos liability class action trust after the assets of the class action trust have been transferred into the Fund. If the Act sunsets, then the only remedy for claims against that class action trust will be to bring a claim against the class action trust established by the Administrator for the purpose of paying asbestos claims.
Expert Witnesses--This provision allows for the introduction of qualified expert testimony meeting certain requirements if the testimony will assist the trier of fact in reaching a determination on a claim.
Sec. 406. Rules of construction relating to liability of the United States government
Except as otherwise specifically provided in this Act, nothing in this Act may be construed as creating a cause of action against the United States government, any entity established under this Act, or any officer or employee of the United States government or such entity. In addition it should not be construed in any way to create an obligation of funding from the United States government, including any authorized borrowing.
Sec. 407. Rules of construction
Nothing in this Act shall preclude the formation of a fund for the payment of eligible medical expenses related to treating asbestos-related disease for current and former residents of Libby, Montana. Any such payment shall not be considered a collateral source.
Nothing in this Act shall be construed to preclude any eligible claimant from receiving health care from the provider of their choice.
Sec. 408. Violations of environmental and occupational health and safety requirements
This section requires the Administrator to refer any information relating to violation of the Toxic Substances Control Act, the Clean Air Act, or the Occupational Safety and Health Act to the Secretary of Labor, to the Administrator of the EPA or the United States Attorney for possible civil or criminal prosecution and penalties. The Act also amends the Occupational Safety and Health Act of 1970 to provide enhanced criminal penalties for willful violations of occupational standards for asbestos.
This section also directs the United States Sentencing Commission to review and amend, as appropriate, the United States Sentencing Guidelines regarding environmental crimes relating to asbestos to ensure that the penalties are sufficient to deter and punish future activity and for other reasons.
Sec. 409. Nondiscrimination of health insurance
A health insurer may not deny, terminate, or alter the terms of coverage of the health plan of a claimant or beneficiary of a claimant because of participation in a medical monitoring program or as a result of information discovered as a result of medical monitoring. This section amends Section 702(a)(1) of the Employee Retirement Income Security Act of 1974, Section 2702(a)(1) of the Public Health Service Act, and Section 9802(a)(1) of the Internal Revenue Code of 1986 to conform with this provision.
Sec. 501. Prohibition on asbestos containing products
This section amends chapter 39 of Title 18 to prohibit the manufacture, distribution and importation of consumer products to which harmful asbestos is deliberately or knowingly added. This section provides a specific exception for the manufacture, processing, or distribution of asbestos-containing products by or for the Department of Defense if the Secretary of Defense certifies and provides a copy of the certification to Congress that: (1) the use of the product is necessary to the critical functions of government (as defined); (2) there are no other reasonably available and equivalent alternatives to the product; and (3) the use of the product will not result in a known unreasonable risk to health or the environment. Further, the provision provides an exemption without a review or limit on duration for any asbestos containing product requested by the Administration of the National Aeronautics and Space Administration if the Administrator certifies and provides a copy of the certification to Congress of the necessity of the product.
The provision also contains specific exemptions and authorizes the Administrator to hear and grant exemptions on a case by case basis. The Committee found precedence and structured this section in large part on an asbestos ban implemented by the Environmental Protection Agency in 1989. Although this regulatory ban was invalidated by the Fifth Circuit on mainly procedural grounds, this section implements it legislatively and it is the Committee's intent that the Administrator use the 1989 Environmental Protection Agency regulations as a guide towards implementing the ban and relevant exceptions under this section. The Committee recommends that the EPA consider, consistent with its prior regulations, among other issues: 1) whether to create a two-stage ban with a manufacturing ban first and a distribution in commerce ban phased in after a proper time delay; 2) whether to provide a labeling mechanism to identify an asbestos containing product as soon as practicable after date of enactment; and 3) whether to provide an enforcement standard that requires a violation under the ban to be knowing and willful.
Sec. 502. Naturally occurring asbestos
This section calls for the Administrator of the Environmental Protection Agency (EPA) to conduct a study and submit a report within twelve (12) months of the date of enactment to assess the risks of exposure to naturally occurring. Given the uncertainties concerning naturally occurring asbestos, including the potential multiple sources of asbestos in communities and the uncertainties associated with the durations of activity-based exposure, the EPA shall evaluate the appropriateness of the existing risk assessment values for asbestos and methods of assessing exposure.
Within eighteen (18) months of the date of enactment, the Administrator of the EPA shall establish dust management guidelines, and model regulations that States or localities can choose to adopt, after consulting with appropriate Federal and State agencies and other interested parties after appropriate notice. These guidelines and model regulations shall include site management practices to minimize the disturbance of naturally occurring asbestos, air and soil monitoring programs to assess exposure levels as development sites, and appropriate disposal options. Further, not later than eighteen months after the date of enactment, the Administrator of the EPA shall establish comprehensive protocols for testing the presence of naturally occurring asbestos after consulting with appropriate State agencies. For existing buildings and areas, the Administrator of the EPA shall issue public education materials, recommended best management practices and recommended remedial measures for areas containing naturally occurring asbestos no later than one (1) year after the date of enactment.
This section also calls for the following:
(1) the Secretary of the Interior to collaborate with the California Geological Survey and any other appropriate State agencies to produce final, publicly available maps of asbestos zones, prioritizing relevant portions of California counties with significant amounts of naturally occurring asbestos that are experiencing rapid population growth, and also identifying and mapping other areas of significant concern in other States;
(2) the Director of the National Institutes of Health to administer one or more research grants to qualified entities for studies that focus on better understanding the health risks of exposure to naturally occurring asbestos, where grants are awarded through a competitive peer-reviewed, merit-based process;
(3) the participation of representatives of the EPA and Health and Human Services in any task force convened by the State of California to evaluate policies and adopt guidelines for the mitigation of risks associated with naturally occurring asbestos;
(4) the Administrator of the EPA to award fifty (50%) percent Federal matching grants for the remediation of naturally occurring asbestos in schools, parks, other public areas, and public or private serpentine roads that generate significant public exposure to naturally occurring asbestos; and to establish criteria to award such grants within four (4) months of the date of enactment; and
(5) an allotment of $40 million from the Fund for the purpose of carrying out the requirements of the section.
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