Proposed Fairness in Asbestos Injury Resolution Act
 
September 15, 2005
 
Christopher "Chris" Annunziato- Orlando

In February of this year, a new version of the Fairness in Asbestos Injury Resolution Act (FAIR Act) was proposed by Senate Judiciary Committee Chairman Arlen Specter (R-PA). In May, the Judiciary Committee ordered the FAIR Act to be reported to the full Senate. This article provides a summary of some of the FAIR Act (S.852) key provisions.¹ The Act provides that individuals injured from asbestos exposure can no longer bring claims in federal or state court and will instead receive no-fault compensation based on the severity of their conditions. The Act establishes a fund created from set contributions from businesses and insurers based in part on the businesses’ past asbestos-litigation-related expenditures. Businesses and insurers required to contribute to the fund must pay into the fund for up to 30 years.

Who Can File a Claim?

Under the Act, individuals exposed to asbestos will be paid based on severity of injuries. Senator Specter has compared the payout to “workmen’s compensation without proving in court who would be liable under existing tort laws.” To be eligible for an award, individuals would file and prove by a preponderance of the evidence that the claimant suffers from an eligible disease or condition. A claim must be filed within five years from the date the claimant received a medical diagnosis of an eligible disease or discovered facts that would have led a reasonable person to obtain a medical diagnosis with respect to an eligible disease. Any individual that already has a claim pending in court at the time of enactment of the Act, that is not exempt from the Act, must file a claim under the Act within five years of enactment.

Claims must include: a complete employment history; social security records; a description of the asbestos exposure; a description of any tobacco product use history; a written report by the claimant’s physician with medical diagnoses, x-ray films and other test results necessary to establish eligibility; and a description of any prior or pending civil action or other claim.

How Is Each Claimant’s Compensation Determined?

Each claimant will fall into one of 10 levels of compensation, ranging from Level I (low) to Level X (high), depending on their medical diagnoses and history of exposure. For example, to receive Level I compensation a claimant must provide a diagnosis of bilateral asbestos-related nonmalignant disease and evidence of five years of cumulative occupational exposure to asbestos. To receive Malignant Level VIII compensation a claimant must provide: 1) a diagnosis of a primary lung cancer disease on the basis of findings by a board certified pathologist; 2) evidence of asbestosis based on a chest x-ray of at least 1/0 or 1/1 on the ILO scale and showing small irregular opacities of shape or size, either ss, st or tt and present in both lower lung zones and eight or 10 (depending on the ILO scale determination) or more weighted years of substantial occupational exposure to asbestos; and 3) supporting medical documentation establishing asbestos exposure as a contributing factor in causing the lung cancer in question. Claimants who meet the requirements of the act are entitled to an award determined by the following benefit table:

Level	Condition or Disease	Value[2]
I	Asbestosis/Pleural Disease A	Medical monitoring
II	Mixed Disease with Impairment	$35,000
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 One	Individual evaluation/smokers - $75,000; ex-smokers - $200,000; non-smokers - $625,000.
VIII	Lung Cancer with Pleural Disease	Smokers - $275,000; ex-smokers - $700,000; non-smokers - $800,000
IX	Lung Cancer with Asbestosis	Smokers - $575,000; ex-smokers - $950,000; non-smokers - $1.075 million
X	Mesothelioma	$1.075 million

The Administrator can adjust the amounts paid for Level IX by increasing awards for claimants who are less than 51 years of age with dependant children, and decrease awards for claimants who are at least 65 years of age. Claimants who receive awards under the Act for an eligible disease or condition who subsequently develop another such injury are eligible for additional awards, however any amounts paid for the first injury are deducted as a setoff against amounts payable for the second injury.

Who Must Contribute to the Fund?

The Act establishes a $140 billion trust fund. The trust fund has a complex funding scenario in which manufacturers would be responsible for over $90 billion (roughly two-thirds), and insurers responsible for just over $46 billion (roughly one-third).

Each company’s funding requirements are based on the company’s size and “prior asbestos expenditures.” A company’s “prior asbestos expenditures” is equal to the gross total amount paid by or on behalf of a company at any time before December 31, 2002, in settlement, judgment, defense, or indemnity costs related to all asbestos claims against that company and includes payments made by insurance carriers to or for the benefit of the company. To determine the contribution amount, each company is placed into a “tier” based on the prior asbestos expenditures, and then is placed into a “sub-tier” based on the size of the company. The following chart demonstrates the various tiers:

Tier	Prior Asbestos Expenditures	Annual Contribution Amounts Depending on Size of Company[3]
I	Debtors with $1 million in expenditures	1.67 percent of debtor’s 2002 revenues All assets[4] 50 percent of total unencumbered assets[5]
II	$75 million or greater	$27.5 million $24.75 million $22 million $19.25 million $16.5 million
III	$50 million to $74.9 million	$16.5 million $13.75 million $11 million $8.25 million $5.5 million
IV	$10 million to $49.9 million	$3.85 million $2.475 million $1.65 million $550,000
V	$5 million to $9.9 million	$1 million $500,000 $200,000
VI	$1 million to $4.9 million	$500,000 $250,000 $100,000
VII[6]	$5 million or greater	$11 million[7] $5.5 million $550,000

As noted on the chart in Tier I, business entities in bankruptcy prior to the enactment of the Act still have funding requirements. More significant are the provisions of the Act that require continuation of entities’ payment requirements even if they file bankruptcy. Payments to the Fund by entities that file for bankruptcy under a chapter of title 11 of the United States Code, after the date of enactment “shall constitute costs and expenses of administration of the case under section 503 of title 11, USC” and “shall not be stayed or affected as to enforcement or collection by any stay or injunction power of any court; and shall not be impaired or discharged in any current of (sic) future case under title 11, United States Code.”

Companies can apply for adjustments to their funding requirements based on financial hardship. To qualify for the financial hardship adjustment a company must demonstrate that the amount of its payment obligation would constitute a severe financial hardship.

Companies required to participate in the Fund have reporting requirements.

The Act establishes an Asbestos Insurers Commission composed of five members who are to be appointed by the President, by and with the advice and consent of the Senate. The Insurance Commission is to determine the amount that each insurer participant is required to pay into the Fund. Insurers that have paid at least $1 million in defense and indemnity costs before the date of enactment of the Act in response to claims for compensation for asbestos injuries arising from a policy of liability insurance are insurer participants in the Fund. Other insurers are exempt from mandatory payments.

What If the Fund Sunsets?

After sunset of the Fund, any individual injured as a result of asbestos exposure who had not previously had a claim resolved under the Fund may go back to the courts and institute a civil action. Even individuals who received awards for a nonmalignant disease (Levels I through V) can assert a claim in court after sunset for a subsequent or progressive disease. Additionally, individuals who received awards under the Fund for any disease except mesothelioma (Levels I through IX) can assert a claim in court after sunset for mesothelioma. Actions in court after sunset may be brought in any federal district court, any state court in the state where the claimant resides, or any state court in a state where the asbestos exposure occurred.

Other Key Details

The Trust Fund would be housed in the Labor Department and run by the Administrator of the Office of Asbestos Disease Compensation, appointed by the President, by and with the advice and consent of the Senate. The Administrator will serve for a term of five years and report directly to the Assistant Secretary of Labor for the Employment Standards Administration. The Administrator is responsible for processing claims, determining, levying and collecting assessments on participants and conducting audits, and can impose civil penalties on persons or entities found to have submitted or engaged in materially false or fraudulent statements or practices under the bill. An Advisory Committee on Asbestos Disease Compensation would be established composed of 24 members. The Majority and Minority Leaders of the Senate, the Speaker of the House and the Minority Leader of the House will appoint four members, two of which represent the interest of claimants and two to represent the interest of participants. The Administrator will appoint eight members who will have qualifications and expertise in occupational or pulmonary medicine, occupational health, workers’ compensation programs, financial administration of invested funds, program auditing or other relevant fields. For five years prior to appointment, these members cannot have earned more than 15 percent of their income by serving in matters related to asbestos litigation as consultants or experts. The Advisory Committee will advise the Administrator on claims filing and processes procedures, audit procedures and development of a list of industries, occupations and time periods for which there is a presumption of substantial occupational exposure to asbestos.

The Act includes “audit authority” for the trust fund Administrator which allows inspection of defendant participants’ books, papers, records or other data, and to compel testimony from relevant persons to determine and enforce the liability of businesses’ payments into the Fund. The Administrator is authorized to summon businesses liable for a payment under the Act or officers or employees of such businesses to appear before the Administrator to produce books and give testimony under oath.

Concerns About the Act

Nearly every party affected by the Act has voiced concern in the past.

Disagreement exists on whether $140 billion is adequate to cover present and future claims. Labor wanted approximately $9 billion more and businesses and insurers said the $140 billion is the absolute maximum amount they will agree to.

Some lawmakers and businesses are concerned that claimants seeking awards under Level VII would, in essence, be compensated for impairments stemming from smoking rather than asbestos exposure and would be an unnecessary burden on the Fund. Senate Majority Leader Bill Frist (R-TN) has said repeatedly that he fears smokers in this category would overwhelm the trust fund. Others argue that smokers who fall within Level VII should be compensated because asbestos exposure substantially increases the risk and virulence of lung cancer among smokers.

Another sticking point is what happens if and when the trust fund sunsets. The Act allows claimants to return to court to reclaim their right to jury trial. Business and insurer participants are not happy about the prospect of claimants returning to court, especially state courts.

The AFL-CIO had concerns about several aspects of the Act. The AFL-CIO takes issue with the statute of limitations provisions for claims that arise after the enactment of the Fund. They argue that imposing a limitations period on claims that arise after the Fund is established and on claims that are pending in court at the time of enactment is unfair and detrimental to the Fund.

The Association of Trial Lawyers of America (ATLA) argued that the award amount for mesothelioma claimants is too low. ATLA asserts that those claimants should be awarded $1.8 million, and upward adjustment of awards should be allowed based on the claimant’s age and number of dependants.

Equitas Reinsurance Limited and Equitas Limited, English companies which together reinsure certain direct and reinsurance liabilities of pre-1993 Lloyd’s Names including liabilities on claims for asbestos related injuries, have several concerns about the proposed Act. Equitas is concerned about provisions that treat it differently than all other insurers who will contribute under the Funding plan. Equitas also points out that the Act does not ensure that members of the Asbestos Insurance Commission will be free of conflicts of interest. Equitas and other issuers are concerned that the Act provides no specifics on how much each insurer will be required to contribute to the Fund.

Finally, the National Associations of Manufacturers’ Asbestos Alliance is concerned about claimants returning to the courts if and when the Fund sunsets. They are also concerned about the values for lung cancer claimants who are smokers and/or ex-smokers. The Alliance also has concerns that trial lawyers will try to get around the Act by “converting” unimpaired asbestos claims into silica claims and thus remaining in the court system.

These concerns are just a few of the many expressed by interested parties.

Conclusion

Although a diverse group of Senators co-sponsor S.852, it is questionable whether the Fairness in Asbestos Injury Resolution Act will make it out of the Senate.⁸ The issues that remain are the same issues that killed off the previous proposed asbestos reform bills. In fact, not long ago, 15 insurance companies sent a letter to Senator Specter noting that the problems with the asbestos legislation are unfixable. The insurers urged Senator Specter and the Judiciary Committee to turn their efforts toward “alternative legislation” focused on litigation reforms like adopting medical criteria that victims would have to meet to be eligible to file asbestos lawsuits, or instituting “venue reform.”

Businesses and insurers that could be affected by the Act if it is enacted would be well advised to: 1) keep abreast of the status of the Act and H.R. 1360; 2) monitor drafts as they are released; 3) contact their U.S. congressmen/congresswomen; and 4) get/stay involved in the process. Even if the proposed Act is not ultimately enacted by this Congress, it, or some form of it, is very likely to be proposed again in the near future.

For more information, e-mail Chris Annunziato at chris.annunziato@hklaw.com or call toll free, 1-888-688-8500.

¹ The House of Representatives has a related bill (H.R. 1360) that this article does not address.

² The values in this table are based on earlier Committee discussion draft versions because the current version of the Act obtained did not contain the benefits table. The House bill (H.R. 1360) did contain a benefits table and differed as follows: Level VII - smokers $50,000, ex-smokers $150,000; Level IX - non-smokers $1.05 million; and Level X - $1.05 million.

³ The Act does not specify what revenue amount qualifies for each sub-tier. The Act simply says that within each tier, the entities with the highest revenues qualify for the highest subtier payment and the entities with the lowest revenues qualify for the lowest sub-tier, etc.

⁴ This sub-tier is for debtors that have no material continuing business operations but hold cash or other assets that have been allocated or earmarked for the settlement of asbestos claims.

⁵ This sub-tier is for debtors that have no material continuing business operations and no cash or other assets allocated or earmarked for the settlement of any asbestos claim.

⁶ Tier VII is for entities that at any time have been subject to asbestos claims brought under the Employers' Liability Act as a result of operations as a common carrier by railroad.

⁷ The payment requirement for entities included in Tier VII are in addition to any payment requirement applicable to such entity under Tiers II through VI.

⁸ Arlen Specter (R-PA) is the sponsor of S.852. The co-sponsors are: Max Baucus (D-MT); Dianne Feinstein (D-CA); Patrick Leahy (D-VT); Chuck Grassley (R-IA); George Voinovich (R-OH); Mike DeWine (R-OH); Lindsey Graham (R-SC); Orrin Hatch (R-UT); and David Vitter (R-LA).