Asbestos Litigation: Prospects for Legislative Resolution

Asbestos Litigation: Prospects for Legislative Resolution

Order Code RL32286
CRS Report for Congress
Received through the CRS Web
Asbestos Litigation: Prospects for
Legislative Resolution
Updated August 23, 2006
Edward Rappaport
Analyst in Industry Economics and Finance
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

Asbestos Litigation: Prospects for
Legislative Resolution
Summary
A large volume of litigation has been occasioned by occupational exposure to
asbestos, which may ultimately result in payments of $200 billion or more and has
already bankrupted numerous companies. This litigation “explosion” has led to a
number of innovations in legal process, but some of the more comprehensive
settlements were overturned by the Supreme Court, with the Court suggesting that
the situation “calls for national legislation.”
One approach proposed in the 109th Congress, embodied in H.R. 1957 (Cannon
et al.), would conserve the resources of defendant corporations — many of which
have been bankrupted by asbestos cases — so that funds could be applied first to
workers who are already sick. This would be done by establishing precise standards
for proving the presence of asbestos disease for legal purposes, and postponing the
cases of those who might show evidences of exposure but are not yet impaired. H.R.
1957 would also apply to the asbestos problem a number of principles known under
the more general rubric “tort reform.”
The bill receiving the most attention in the 109th Congress, S. 3274 (Specter and
Leahy) would also establish standards for proving injury but, instead of taking the
tort reform approach, would remove the cases from the court system entirely. In its
place would be an administrative system and a special fund to pay claims. S. 3274
would define nine asbestos disease categories, each with a specified level of
compensation, ranging from $25,000 to $1.1 million. The fund from which claims
would be paid would be financed by assessments on defendant companies and their
insurers. Each of the largest firms subject to assessment would be responsible for
paying up to $27.5 million per year for up to 30 years, with an overall funding goal
of $140 billion.
The most debated points of S. 3274 have included the adequacy of the funding
scheme, the levels of compensation, medical criteria (especially as regards smoking
history), and start-up and close-down issues.
This report discusses such issues thematically, and will be updated to reflect
major legislative actions. A section-by-section analysis of S. 852 (the predecessor
version of S. 3274, as reported by the Judiciary Committee) may be found in CRS
Report RS22081, S. 852: The Fairness in Asbestos Injury Resolution Act of 2005,
by Henry Cohen.

Contents
Scope of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Procedural Improvisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Policy Alternatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Status Quo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Changes in Tort Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Medical Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Administrative System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
The Trust Fund Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Funding Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Compensation Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Diagnostic Categories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Disputed Categories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
The Tobacco Question . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Diagnostic Quality Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Transition Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Pending Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Pending Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Funding Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Sunset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
List of Tables
Table 1. Asbestos Disease Categories and Compensable Amounts . . . . . . . . . . . 9

Asbestos Litigation: Prospects for
Legislative Resolution
Asbestos has been widely used as an insulation material, friction product (e.g.,
in brakes and clutches) and textile reinforcement, due to its unique combination of
strength, flexibility and resistance to heat and corrosion. Over the years, scientific
studies have increasingly implicated the material as a cause of debilitating, fatal lung
diseases. Protective standards have been adopted and progressively tightened, but
human exposures continue to occur through ongoing use and from legacy buildings
and equipment.1 Moreover, cases of asbestosis, lung cancer and other diseases will
be emerging for years to come because they occur after a long latency.
Although most cases of asbestos-related disease have occurred from
occupational exposure, few of the affected workers have been able to obtain medical
and financial assistance from their employers under state workers compensation law.
(This was due to various legal hurdles, such as time limitations, and the difficulty of
proving that lung cancer was caused by employment.) However, many have
successfully sued the manufacturers of asbestos under claims of products liability, to
such an extent that many large firms have been forced into bankruptcy. This
litigation “explosion” has led to calls for legislation that would expedite the
settlement process through administrative alternatives.
The legislation that has advanced the farthest is S. 852, which was marked up
by the Judiciary committee on 26 May 2005 and debated in the Senate during 7 to 14
February 2006. A budgetary point of order was raised by Senator Ensign and
sustained by a vote of 58 to 41 (60 being needed to proceed further with the debate),
sending the bill back to committee. In May 2006, a revised version reflecting the
managers’ amendment and other proposals raised in the floor debate was introduced
as S. 3274.
This report describes how the asbestos litigation process has evolved, and then
discusses the legislative “fixes” that have been tried or proposed. The discussion is
thematic, highlighting the sub-issues remaining most in dispute. For a section-by-
1 The Environmental Protection Agency issued a regulation in 1986 that would have banned
virtually all major uses, but most of the rule was overturned by the Fifth Circuit Court of
Appeals (Corrosion-Proof Fittings, 947 F.2d 1201). A stand-alone bill in the 108th
Congress, S. 1115 (Murray), would have mandated such a ban (with a procedure for EPA
to allow exceptions). One of the bills for resolving litigation, S. 3274 (Specter and Leahy),
would also include a ban on future usage. S. 668 (Specter) would establish criminal
penalties for willful violation of occupational asbestos standards. Current regulatory
standards are described in CRS Report RS21042, Asbestos: Federal Regulation of Uses, by
Edward Rappaport.

CRS-2
section explanation, see CRS Report RS22081, S. 852: The Fairness in Asbestos
Injury Resolution Act of 2005, by Nathan Brooks.
Scope of Litigation
It is estimated that at least 730 thousand people had brought asbestos-related
personal injury suits against more than 8,000 defendants by the end of 2002, and the
number of new claims each year appears to be still increasing.2 Typically, each
plaintiff sues dozens of defendants, so the total volume of litigation is quite
substantial. The total amount spent on asbestos litigation (awards and expenses) has
been on the order of $70 billion, most of this expenditure being financed by
defendant companies and their insurers. The total ultimate bill may be on the order
of $200 to 250 billion. The amounts awarded in individual cases are difficult to
estimate, as most are resolved confidentially by settlements, but among cases that
have gone to trial and succeeded,3 the average award has been about $1.8 million.
Negotiated settlements tend to be considerably less, however. Minus the legal
expenses of both plaintiffs and defendants, about 42% of total spending has been
reaching the claimants as their net recovery.
The resulting liabilities have forced some 73 companies into bankruptcy in the
last 30 years, 37 of them since January 1, 2000. Among the most prominent of these
firms are Armstrong World Industries, Babcock & Wilcox, Federal Mogul, Johns-
Manville, Owens-Corning, U.S. Gypsum and W. R. Grace. Bankruptcy is not a
desirable outcome for either the defendant firms or the claimants. Claims can be put
on hold for five years or more, and in some cases the trusts established to take care
of victims have been able to pay only 5% to 10% of what was expected. A subsidiary
question is the extent to which defendants can rely on their insurance companies to
cover their liabilities, an issue that is occasioning substantial litigation of its own.4
Procedural Improvisation
The unprecedented scale of litigation has induced courts and the parties to
develop new structures for resolution of cases. Whereas, at first, defendants
vigorously contested such issues as whether a worker was “injured,” whether the
cause was asbestos exposure, and which manufacturer’s asbestos was the particular
asbestos at fault, by the 1980s new court procedures and decisions were establishing
clearer bases for liability. Some judges encouraged consolidation of cases, for
example, by selecting a few individual cases to go to trial as representative of the
whole. Defendants found that their best opportunity was to negotiate settlements
2 Quantitative data cited here are from Stephen Carroll et al., Asbestos Litigation (Santa
Monica, CA: RAND Institute for Civil Justice, 2005). Available at [http://www.rand.org/
pubs/monographs/MG162/index.html].
3 About two-thirds of plaintiffs going to trial win and receive awards.
4 Randy Maniloff, “Asbestos: Insurance Coverage Issues on a Changing Landscape,”
Mealey’s Litigation Report: Insurance, July 9, 2002.

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through attorneys representing thousands of claims at a time, with the amounts for
each individual to be determined by schedules of factors such as disease type. By the
1990s, the leading law firms representing claimants had standing agreements with the
major defendants for settling claims (though that system has since lost much of its
viability).
The bankruptcy courts have been a notable forum for resolving cases en masse,
beginning with the pathbreaking Manville Trust.5 In 1988, after six years under court
supervision, Johns-Manville Corp. emerged from bankruptcy 50% owned by a trust
charged with compensating current and future asbestos liability claimants.
Administrative procedures were developed to streamline claims handling. The trust’s
operating expenditures are only 5% of benefits paid, and lawyers representing
claimants cannot charge more than 25%. Thus, claimants receive 70% of what the
trust pays out. Unfortunately, though, the amounts paid are quite low, since the
assets of the trust have only been adequate to pay 5% to 10% of full value. The
system became a model for other, solvent companies. Congress also codified the
process for a bankrupt firm to resolve its liability for all pending and future claims
via such trusts.6 In short, some observers believe that through such innovations
“asbestos litigation was transformed in fact — although not in form — into a quasi-
administrative regime.”7 Much of the resulting concepts and language feed into the
legislative measures discussed below.
Most recently, some corporations, including Halliburton, Honeywell and the
European-based manufacturer ABB, have presented plans by which claims are to be
resolved by the bankruptcies of their subsidiaries rather than the parent corporation,
which would then be able to carry on freed of asbestos liabilities. This would make
use of the 1994 bankruptcy law amendment, but leave the parent corporation solvent
and still in control of its operations (unlike the Manville model, which put control of
the whole corporation under the trust).8
Finally, many had expected eventually to come to a final resolution of most
cases by “global” settlements. However, the two prominent asbestos settlements that
were fully litigated up to the Supreme Court were overturned there.9 The key
features of the Georgine settlement were (1) definitive criteria for proving exposure
5 Homepage: [http://www.mantrust.org].
6 Section 111 of the Bankruptcy Reform Act of 1994 (P.L. 103-394), also known as Section
524(g).
7 Stephen Carroll et al., Asbestos Litigation Costs and Compensation, An Interim Report
(Santa Monica, CA: RAND Institute for Civil Justice, 2002), p. 26.
8 Susan Warren and Alexei Barrionuevo, “Halliburton to Settle Asbestos Claims,” Wall
Street Journal (Dec. 19, 2002), pp. A3, A6. A recent ruling has cast doubt on the efficacy
of this strategy. See Russell Gold and Goran Mijuk, “ABB Fails to get Court Approval for
Asbestos Plan,” Wall Street Journal (Dec. 3, 2004), pp. A3, A8.
9 Amchem Products v. Windsor, 521 U.S. 591 (1997) [also known as the Georgine case] and
Ortiz v. Fibreboard, 527 U.S. 815 (1999). See Deborah Hensler, “As Time Goes By:
Asbestos Litigation after Amchem and Ortiz,” Texas Law Review, v. 80, no. 7 (June 2002),
pp. 1899-1924.

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and illness, in a simplified and expedited process, (2) standardized compensation for
actual illness only, (3) preservation of the right to compensation later if disease (or
worsened disease) occurs later, (4) a cap on attorney fees, and (5) a limited right to
opt out and rely on one’s ordinary right to sue. These settlements were rejected for
not meeting the requirements for establishing class actions under Federal Rule of
Civil Procedure 23. Georgine was found wanting because various subgroups of
claimants (and potential claimants) were in widely varying circumstances, so that
common elements did not predominate among their cases. Also, adequate
representation was not broadly enough assured, especially for those who might
become aware of their injury only in the future. These defects were not adequately
overcome by the agreement’s provision allowing potential plaintiffs to opt out. The
Ortiz class was established under a different subsection of Rule 23 that did not
require meeting such criteria, but the Court said it had not been demonstrated
convincingly enough that the settlement qualified for this alternate rule subsection
(assets of defendants insufficient to meet liabilities).
What was notable about these cases is that members of the Supreme Court
expressed discomfort with having to reject settlements with some merit for not
meeting the detailed requirements of federal court procedure (which, of course, has
its own merits). As stated by Justice Ginsburg in the Georgine case, “Rule 23, which
must be ... applied with the interests of absent class members in close view, cannot
carry the large load ... heaped upon it.” More pointedly, Justice Souter in Ortiz
commented that “this litigation defies customary judicial administration and calls for
national legislation.”
Thus, each of several hoped-for routes toward resolution — bankruptcy court,
class actions, or consolidation of individual cases in one court (which is possible for
federal court cases) has run into significant impediments in recent years. At the same
time, differences have emerged between claimants who are critically ill and others
who may be less sick (or show abnormal x-rays without apparent illness) but who sue
immediately, either because of legal deadlines (“statutes of limitations”) or because
they fear that funds may not be available later.
Policy Alternatives
Status Quo
Despite warnings that the asbestos problem is reaching “crisis” proportions, it
could be argued that the current legal regime has distinct advantages and should be
allowed to proceed as it is, or with minor improvements. The current system is
providing substantial assistance to large numbers of victims, most of whom do not
have to pay lawyers’ fees unless and until compensation is received. From a public
policy perspective, the fact that defendant companies are the ones financing the
benefits may be considered broadly beneficial. That is, companies in all industries
are being put on notice that allowing harm to occur to employees and the public can
be fatal to their own financial well-being.

CRS-5
On the other side of the ledger, the current system is not likely to have adequate
resources to fully compensate all claimants. A substantial portion of the resources
that are available is used to run the system rather than directly benefit claimants. It
is also disorganized, with no oversight to assure that compensation is allocated
primarily to those with the most compelling cases.
Changes in Tort Law
Some observers see asbestos litigation as part and parcel of broader problems
with personal injury litigation that justify more general “tort reform,” especially in
cases with thousands of plaintiffs. Many specific measures have been suggested,
such as caps on punitive damages, limitations on joint and several liability, and more
narrowly specifying the court(s) in which each plaintiff can bring his/her case.10
A tort innovation peculiar to asbestos is the “pleural registry.” In a number of
states, this device enables one to make a tentative filing when one learns of one’s
injury (often upon diagnosis of pleural plaques),11 and thus meet the legal deadline
even though no (or minor) impairment has yet occurred. Trial of the claim is delayed
until serious symptoms occur. And if a non-malignant case is established, a potential
claim for cancer would be put aside until that disease becomes evident (a two disease
rule). The idea behind the postponing of cases — many of which will never progress
to debilitating disease — is to allow immediate resources to be concentrated on those
with the most serious immediate problems.
Medical Criteria
Building on the pleural registry concept, H.R. 1957 (Cannon et al.) would hold
in abeyance statutes of limitations and other time limits until such time as impairment
may occur and be diagnosed. Then, before plaintiffs can proceed further with an
asbestos or silica12 suit, they would first make a prima facie case that they have a
physical impairment and that exposure to asbestos has been a substantial contributing
factor. The bill specifies detailed medical criteria for establishing these claims.
Factors to be considered include employment and smoking history, x-ray evidence
of abnormalities such as pleural thickening or opacities, pathological evidence of
lung scarring, and impaired breathing shown by measures such as forced vital
capacity.
H.R. 1957 also incorporates a number of general tort reform features, as well as
others to address the techniques of some lawyers and their medical associates who
10 Tort reform is discussed more generally in CRS Report 95-797, Federal Tort Reform
Legislation: Constitutionality and Selected Statutes, by Henry Cohen.
11 Pleural plaques resemble calluses. They are patches of tough sinewy tissue which form
on the inside of the chest wall and show up in chest x-rays. They are generally thought of
as an indicator of asbestos exposure rather than a disease.
12 H.R. 1957 notes in its findings section that the number of silicosis cases has been rising
rapidly and that “it is necessary to address silica legislation to avoid an asbestos-like
litigation crisis.”

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allegedly have generated thousands of questionable cases. Thus, the bill attempts to
avoid diagnosis “mills” by requiring that the prima facie evidence be developed by
a qualified physician who “has or had a doctor-patient relationship” with the plaintiff.
Among the tort reform ideas in H.R. 1957:
! Venue: Cases may only be brought in federal court for the district
where the plaintiff resides or experienced the asbestos exposure.
! Consolidation of cases: Only with the consent of all parties.
! Burden of proof: It must be shown that the conduct of each
defendant and exposure to each defendant’s asbestos or silica was a
substantial contributing factor to the disease.
! Proportional liability: One implication of this provision is that full
damages would not be received if some potential defendants have
not been sued or have become bankrupt.
! Cap on non-economic losses: $250 thousand ($500 thousand in
cases of mesothelioma). Also, punitive damages not available.
A similar measure — though differing in particulars — was introduced as a
substitute amendment during debate on S. 852 (see infra) but tabled on a vote of 70-
27.)
The philosophy of “medical criteria” bills is that the court system (i.e., the
federal court system) can handle the asbestos issue if cases are dealt with in an
orderly, reasonable way. This means, above all, that awards be made if and when
actual impairment occurs, on the basis of reliable, relevant evidence. Given these
conditions, it is held that there would be no need for new governmental agencies and
levies.13
Administrative System
Two bills in the 108th Congress (H.R. 1114 and S. 2290) would have established
administrative systems to settle claims along the lines of the Georgine settlement.
Their intent was to circumvent the seemingly insurmountable requirements of the
Federal Rules of Civil Procedure — while assuring a reasonable measure of justice
for all parties. (New versions of S. 2290 have been introduced in the 109th Congress,
and will be discussed extensively in the next section.)
Like the other bills just discussed, H.R. 1114 (Kirk) would require all claimants
to first establish that they have an eligible asbestos-related medical condition; failing
that, their right to future action would be preserved until such time as impairment
occurs. The unique feature of H.R. 1114 was its establishment of a new agency
13 Debate on Cornyn amendment SA 2749 in Congressional Record, February 9, 2006. pp.
S882-S885 and S944-S957.

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within the Justice Department, the Office of Asbestos Compensation (OAC). The
OAC would not only determine medical eligibility, but would also take direct part
in litigation and settlement. First (upon issuing a claimant a certificate of medical
eligibility), the OAC, acting through a Trustee, would receive offers of settlement
from both sides. The Trustee would also make offers of its own to claimants. If a
claimant accepts the Trustee’s offer, the Trustee would assume the claim and pursue
it against the defendants. Claimants could accept or reject any offers they wish, and
for any cases not settled, either pursue a regular lawsuit or an administrative
proceeding under the auspices of the OAC. A federal fund would be established for
the purpose of facilitating the Trustee’s assumption of claims, with the intention of
the fund breaking even financially in the long run.
The Trust Fund Approach
In 2003, the Senate Judiciary Committee began an extensive series of hearings
on the asbestos issue and facilitated negotiations involving groups of diverse
interests. Out of this process emerged a series of bills. At the beginning of the 109th
Congress, the new chair of the committee, Senator Specter, introduced S. 852 with
seven co-sponsors of both parties. It was reported in June 2005 (Senate Report 109-
97) and debated in February 2006, failing a test vote at that time. A revised version,
S. 3274, was introduced in May. The House has not taken up the asbestos issue since
2000.14 (For further explanation of specific provisions, see CRS Report RS22081,
S. 852: The Fairness in Asbestos Injury Resolution Act of 2005, by Henry Cohen.)
S. 3274 would facilitate the resolution of cases, not only, like the other bills, by
specifying medical eligibility criteria, but also by establishing a schedule of benefits
— ranging to over $1 million for mesothelioma — and a fund financed by
assessments on defendant companies and their insurers, through which all claims
would be paid. Each of the largest firms subject to assessment would be responsible
for paying up to $27.5 million per year for as long as 30 years. The funding target
is $140 billion, consisting of $90 billion from defendant companies, $46 billion from
insurance companies, and about $4 billion from liquidation of existing bankruptcy
trusts. The federal government is expressly excluded from any payment obligation.
In what follows, we discuss S. 3274 specifically, highlighting the particular
points that have been most difficult and/or still attract opposition to the bill. They
fall mostly under the headings of: funding adequacy, acceptability of the
compensation schedule, basis for the diagnostic categories, and start-up and close-
down issues. (Most of these points, it may be noted, were addressed in the 2003
committee report on S. 1125 (108th Congress), which still constitutes a useful
overview despite subsequent changes in the details.15)
14 H.R. 1283 (Hyde)/S. 758 (Ashcroft) in the 106th Congress (H.Rept. 106-782). See Palmer,
Elizabeth. “House Panel Approves Bill to Federalize Asbestos Cases,” CQ Weekly, March
18, 2000, pp. 598-599.
15 U.S. Congress, Senate Committee on the Judiciary, The Fairness in Asbestos Injury
Resolution Act of 2003, 108th Cong. 1st sess., S.Rept. 108-118 (Washington: GPO, 2003),
(continued...)

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Funding Adequacy
A number of unknowns mean the bill’s stated funding capacity of $140 billion,
a substantial sum by any measure, may yet not suffice to pay all scheduled benefits.
The Congressional Budget Office (CBO) estimated that the ultimate total claims
would probably be in the range of $120 to 150 billion.16 Combined with
administrative and financing costs, revenues of at most $140 billion might not be
sufficient. Moreover, some private estimates indicated that claims might be as much
as double CBO’s figures.17
The bill features a fixed schedule of benefits, while the adequacy of funding is
addressed through a number of contingency measures (e.g., a “guaranteed payment
account”). The revenue side of the equation thus becomes a bit complicated. In any
case, it should be recognized that the “headline” figure of $140 billion is a goal or
estimate rather than a fixed mandate. Actual assessments on defendant companies
will be determined by their assignment into tiers and sub-tiers, these being defined
by the companies’ historical asbestos payments and recent (2002) sales revenue.
Annual assessments (for 30 years) will range from $27.5 million (a company with
historical asbestos payments greater than $75 million and falling within the top
quintile of these companies by revenue) down to the smallest assessment, $100
thousand (a company with asbestos payments of $1 - $5 million and revenues in the
smallest third of these companies). There is a blanket exemption for small
businesses (as defined by the Small Business Act, 15 U.S.C. 632) and various
“inequity adjustments.” The bill also requires $46 billion from the insurance
industry, but leaves the allocation among companies to a special commission
(Subtitle II B).18 On the expenditure side, some flexibility could be provided by
annual financial reviews, which would lead to reevaluation (and tightening) of
diagnostic criteria if the number of claims in any category differs greatly (25% +/-)
from CBO projections.
The debate in the Senate in February 2006 ultimately turned on the financial
question. A point of order was raised and sustained that CBO’s projections indicated
at least the possibility of expenditures exceeding revenues in periods after the first
10 years of operation. The bill provides, however, that if funding proves inadequate,
the program will be terminated and cases revert to the court system. This question
of “sunset” is dealt with in the final section of this report.
15 (...continued)
227 p. (Hereafter cited as “Committee report”).
16 CBO cost estimate for S. 852, August 25, 2005.
17 Bates White, LLC. Analysis of S. 852. September 2005.
[http://www.bateswhite.com/news/pdf/2005_Bates_FAIR_Act_report.pdf].
18 Groups of insurance companies (possibly even all companies in one group) can agree to
any allocation of their total liability among themselves. Section 404, meanwhile, adjusts the
obligations of insurers and reinsurers to each other and to defendant companies.

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Compensation Adequacy
The diagnostic categories and their compensable amounts are shown in Table
1. (The amounts are in 2005 dollars and are to be adjusted for inflation in future
years.) At least three types of consideration have guided the development of these
numbers: (1) the pattern of awards given by courts or agreed in settlements, (2) the
severity of symptoms and prognosis for each category, and (3) the likelihood that
asbestos is the principal cause of disease. For example, non-lung cancers (Level VI)
are paid less than one-fifth of what is paid for mesothelioma (Level X). This is not
only because mesothelioma is one of the most lethal of cancers (usually resulting in
death within 18 months), but also because mesothelioma is almost always caused by
asbestos.19 (Diagnosis categories are discussed in more detail in the next section.)
Table 1. Asbestos Disease Categories
and Compensable Amounts
Level
Disease or Condition
Award Amount
I
Asbestosis — normal lung function
Medical monitoring only
II
Mixed disease (asbestosis + other) with
$25,000
impairment
III
Asbestosis — TLCa 60-80%
$100,000
IV
Severe asbestosis — TLC 50-60%
$400,000
V
Disabling asbestosis — TLC < 50%
$850,000
VI
“Other” cancers (non-lung)
$200,000
VII A
Lung cancer with pleural disease — smokers
$300,000
VII B
— former smokers
$725,000
VII C
— non-smokers
$800,000
VIII A
Lung cancer with asbestosis — smokers
$600,000
VIII B
— former smokers
$975,000
VIII C
— non-smokers
$1,100,000
IX
Mesothelioma
$1,100,000
Source: S. 852, Sections 121(d), 131.
a. TLC means Total Lung Capacity. For full diagnostic descriptions, see bill, subsection 121(d).
1 9 For gener al i nf ormation about asbestos-related di seases, see
[http://www.nlm.nih.gov/medlineplus/asbestos.html], and [http://www.health.nih.gov/
result.asp?disease_id=54].

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Claimants could receive net payments somewhat less than these amounts due
to certain contingencies, particularly:
Attorney fees: While a program of assistance in filing claims (including
information about pro bono attorneys) would be established, claimants could use
their own fee-based attorneys. However, the bill would limit fees to 5% of the
benefit received.
Collateral sources: Benefits would be reduced for collateral sources (i.e., other
payments received from defendants and insurers). However, there would be no offset
for workers compensation or veterans benefits. The case of railroad and maritime
workers is complicated because they are covered by the Federal Employers Liability
Act (FELA, 45 U.S.C. 51 et seq.) or Jones Act (46 U.S.C. App. 688), both of which
have aspects both of workers compensation and of tort liability. S. 3274 (subsection
131(b)(4)) deals with this complication by awarding — in lieu of what they might
have gotten by workers compensation — an additional “special adjustment” equal to
110% of the average amount received by asbestos victims (at the claimant’s disease
level) in recent years.
Diagnostic Categories
Eligibility for benefits would require certain kinds of evidence, including
documentation of occupational exposure to asbestos (preceding a minimum 10-year
latency period), smoking history, physical examination, pulmonary function test, x-
rays (and possibly CAT scans), and pathology report.20 With this evidence,
administrators are to apply the criteria in Subsection 121(d) and determine the
highest of the 10 disease levels to which each claimant belongs (if any). The goal is
a non-adversarial system that is prompt, efficient, and as accurate as possible in a
field where there are substantial scientific uncertainties. While in some respects the
benefit of the doubt is given to claimants, on the other hand the system is meant to
eliminate screening “mills” that produce thousands of claims upon evidence that is
fragmentary at best, if not fraudulent.21
Disputed Categories. Several of the disease categories have drawn criticism
on the ground that they are not credibly linked to asbestos exposure. Among these
are as follows:
! Simple asbestosis (Level I). It is agreed on all sides that claimants
at Level I are not impaired (“ill”), hence do not receive cash
compensation, only the right to monitoring. If illness on other levels
is subsequently found, compensation can then be claimed. Some
20 There are special allowances for victims of the World Trade Center attack and Hurricane
Katrina, and for residents of Libby, Montana (who received substantial exposure from the
dust of a vermiculite mine). The bill mandates a study of whether significant exposure
occurred to people living near about 18 sites around the country where vermiculite was
processed.
21 On allegations of fraudulent testing, see Sen. Kyl’s statement, Committee report pp. 95-
98. Also, Parloff, Roger. “Diagnosing for Dollars,” Fortune, 13 June 2005. p. 97 ff.

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dispute the rationale for monitoring, arguing that being at Level I
does not imply any higher probability of subsequent illness than for
other workers who are not at Level I. On the other side it is argued
that, as done with many toxic substances, all exposed workers
should get screening regardless of whether they show symptoms.22
! “Other cancers” (Level VI). There is dispute here on whether
asbestos causes non-lung cancers (such as colorectal). Proponents
of the provision note that the existing bankruptcy trusts compensate
for non-lung cancers, but opponents claim that this is due to quirks
of bankruptcy bargaining dynamics. At any rate, an independent
physician panel must determine in each Level VI case that asbestos
was a substantial contributing factor to the cancer. The bill would
also mandate a study by the Institute of Medicine, the conclusions of
which will be binding, regarding the issue of causation at Level VI.
! Lung cancer without evidence of asbestos disease. Previous
versions of the bill included a level for lung cancer without evidence
of pleural disease or asbestosis. But S. 3274 has no such level, in
effect accepting the argument that when asbestos causes lung cancer,
there is almost always identifiable asbestos damage.
! “Mixed dust” / Silicosis. Oftentimes asbestos exposure occurs in
combination with silicosis. Concern about potential use of “mixed
dust” lawsuits to circumvent the ending of asbestos suits23 led to a
new subsection, 403(b). It requires, in effect, that anyone suing over
silica disease must show that asbestos was not a substantial
contributing factor to one’s impairment.
The Tobacco Question. Underlying most of these disputes is the relevance
of smoking history. The committee report stated that “The Fund is not intended to
be a compensation system for smokers, which would otherwise overwhelm the Fund,
leaving no money for asbestos victims.” Thus the compensation scheme discounts
the awards to smokers in two ways. First, the three lung cancer levels (two in the
current version of the bill) are distinguished by the degree of pathology or x-ray
evidence linking the cancer to asbestos. Implicitly, a higher probability is attributed
to other causes (e.g., tobacco or radon) where the link to asbestos causation is less
certain (and a third level was deleted altogether). Second, levels are divided
explicitly into sub-levels for smokers, former smokers24 and non-smokers.
22 Compare Committee report pp. 98-99 and pp. 212-213. The bill also allocates $20 to $30
million per year for at least five years for a screening program “for individuals at high risk
of asbestos-related disease.” (Sect. 221(c))
23 The issue gained considerable attention in the wake of an unexpected court ruling in June
2005. (Glater, Jonathan. “The Tort Wars, at a Turning Point,” New York Times, October
9, 2005, Business p. 1,7) The Senate Judiciary Committee held a hearing on the issue on
February 2, 2006.
24 Those who quit at least 12 years before diagnosis.

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The resulting scheme has been criticized from both sides. On the one hand, as
noted, some claim that asbestos is almost never the cause of cancer without also
causing clinical asbestosis, so there should be no Level VII. On the other side,
plaintiff advocates note that a high percentage of the blue collar workers most
exposed to asbestos were indeed smokers, so that the widely publicized figure of up
to $1 million for lung cancer would be received by very few.
A key point of disagreement is whether there is synergy between tobacco and
asbestos in causing cancer. Many believe that there is such a synergistic effect (i.e.,
when one is exposed to both asbestos and tobacco), the risk of lung cancer is
enhanced greatly beyond the sum of the two factors independently. If this is so, then
it could be argued that the awards to smokers should not be reduced very much vis-a-
vis non-smokers. However, differing testimony on the matter was received by the
committee and consensus not reached.25
Diagnostic Quality Control. In addition to the foregoing disagreements
about defining eligible medical categories, there is the issue of types of evidence to
be deemed credible. In the existing tort law system, plaintiffs present evidence
favorable to their case and defendants have an opportunity to challenge it. Since S.
3274 would replace tort law with a non-adversarial, administrative system, it
explicitly defines what kinds of evidence are necessary and acceptable, and requires
auditing of the results.
Subsection 121(b) sets general rules for expertise of those developing evidence.
Thus, (1) x-ray interpretations must be done by “B-readers,” a certification overseen
by the National Institute for Occupational Safety and Health; (2) pulmonary function
testing for asbestos (Levels III to V) is to be done in accordance with the standards
of the American Thoracic Society; and (3) diagnosis of malignancies (Levels VI
through IX) must be done by board-certified pathologists.26 Furthermore, guidelines
are to be developed relating to CT scans in the diagnosis of lung damage, for future
use in the program (subsection 121(h)).
Section 115 provides for reviews and audits, including the empaneling of
independent B-readers to spot check accuracy of submitted readings. Certain B-
readers who have previously been paid for testimony are disqualified from the
program. The Administrator is also instructed to develop methods for evaluating
general medical evidence. If the evidence presented by particular physicians or
25 Both sides were supported by expert witnesses. The committee majority in favor of the
bill relied particularly on testimony of Dr. James Crapo of the University of Colorado. The
dissenting minority claimed a “scientific consensus” for synergy as expressed by institutions
such as the National Toxicology Program (Department of Health and Human Services) and
the International Agency for Research on Cancer. Compare Committee report pp. 64-66
with pp. 200-202.
26 According to the bill text, diagnoses of non-malignant conditions (Levels I through V) can
be rendered by any physician. However, the Committee report (at p. 39) expressed the
intent that “the documentation would be provided by an appropriately board-certified
physician in occupational medicine or pulmonary medicine,” while recognizing that access
to same “may not be feasible for all claimants due to geographical constraints.”

CRS-13
facilities is found “not consistent with prevailing medical practices or the applicable
requirements of this act,” consequences may include disqualification. Finally,
Section 401 provides criminal penalties for fraud or false statements.
Transition Issues
S. 3274 would pre-empt all cases pending on the date of enactment, and all
future cases, in favor of the new system.27 Possibly hundreds of thousands of cases
would be transferred at the outset, so that getting the system established and making
what are supposed to be prompt decisions might be an administrative as well as
financial challenge. Concern has been expressed about at least three transition
issues: claimants potentially caught between systems, status of settlements, and a
possible cash “crunch” in the first few years.
Pending Cases. Concern has been expressed about claimants who may have
their pending cases dismissed but must wait for the new system to begin. Proposals
have been made (and included in S. 1125, 108th Congress, as reported) to delay
termination of tort proceedings until the administrative system was up and running,
but this was not included in subsequent versions of the bill. Rather, S. 852 contains
certain deadlines for getting the process going. First, case processing is to begin
immediately, even before funding is established. “Exigent health claims” (e.g., cases
of terminal illness) are to be given priority, and the administrator is to certify within
nine months of enactment that the office is ready to review and pay exigent claims.
In cases of mesothelioma, payment of 50% is to be made within 30 days of approval,
the rest in six months. On another track, incentives are given (subsection 106(f)(2))
to promptly reach negotiated settlements for mesothelioma cases. For participants
in existing bankruptcy settlements, the trusts are to set aside 10-12 % of their assets
to continue making payments until the Fund is operational. Finally, the office must
be ready to start processing all types of claim within 24 months. If the start-up
deadlines are not met, claimants may pursue their cases in court (at least until such
time as the program does become operational).
Pending Settlements. Subsection 403(c) of S. 3274 would terminate
“inventory” or “matrix” agreements, which are open-ended, standing arrangements
that pay specified amounts to claimants who qualify currently or in the future. One’s
view on whether these or other agreements should be terminated will probably
correspond with one’s overall evaluation of the fairness of the proposed system vis-a-
vis the current tort system. For example, it is argued that some companies that have
agreed to settlements will pay much less under the bill’s terms.28 But, as argued by
the committee majority for passage (108th Congress), “The purported unfairness of
27 There are a few exceptions. For example, non-consolidated cases may proceed if at the
presentation of evidence stage. (Subsection 403(d)(2))
28 The January 2006 bankruptcy settlement of USG Corp. (the former U.S. Gypsum)
explicitly provides that if an asbestos bill is passed in the 109th Congress, then the company
will put $900 million into its trust fund for injury claims (roughly what it estimates it would
owe to the government fund), but the company will deposit another $3 billion if no such bill
is enacted. Johnson, Fawn. USG Corp. Announces Asbestos Settlement that Would
Resolve 150,000 Workers’ Claims. Daily Labor Report, 31 January 2006. p. A7, A8.

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preempting non-final settlement agreements ... [etc.] ... rests on the faulty premise
that the existing system is somehow fair.”29
Funding Schedule. As noted, a large number of cases may be expected at
the outset. Concern has been repeatedly expressed, during the debate on an asbestos
resolution fund, about whether sufficient amounts would be available to promptly
pay a large expected number of claims in the first years. Final decisions (in
uncontested cases) could possibly start coming within 180 days of enactment, and the
first (40%) installment on each claim is to be paid within one year of the award
decision.30 In anticipation of this demand, the bill front-loads the collection of funds.
The stated goals of the funding program are to: (a) collect $3 billion each year from
defendant companies; (b) collect more than $20 billion from insurers over the first
five years;31 and (c) receive the assets of bankruptcy trusts within six months of
enactment. This would come to more than $35 billion within five years. Moreover,
the compensation fund could borrow, both from the Federal Financing Bank and the
private sector. The limits of borrowing authority are not specified numerically, but
defined in terms of what could be repaid from anticipated revenues over the
subsequent 10 years (Subsection 221(b)(3)).32 The bill also authorizes surcharges for
various contingencies.
In order to provide greater assurance to those claimants who are most ill, there
is a lockbox-type mechanism (Section 221(c)). Under this provision, the
administrator would establish separate accounts for each of the most serious
diagnoses (Levels IX, VIII, V and IV) and reserve needed funds to them first.
Implicitly, claimants in other levels would not be paid if sufficient funds are not
available for the four protected levels.
Sunset
The ultimate guaranty that the program would not add to the federal deficit is
that the fund’s fiscal status will be regularly monitored and, if insolvency is
foreseeable and unavoidable, the program will be wound up and cases be returned to
the court system. Although the nominal life of the program is 30 years, it could be
terminated earlier if the fund is found to be inadequate to meet all claims. With each
annual report, the administrator is to analyze whether the fund will be able to pay all
claims as due at any time within the next five years. If such shortfall is projected, the
administer is to make recommendations for reform or termination.
Recommendations are referred to a special commission consisting of five Cabinet
members, who will hold public hearings and forward its recommendations to the
29 Compare Committee report pp. 69-71 with pp. 206-208.
30 The administrator can extend the claim payment schedule to four years instead of three
years “if such action is warranted in order to preserve the overall solvency of the Fund”
(Subsection 133(a)(3)). Even so, 50% of each award must be paid within two years.
31 $2.7 billion in years 1 and 2, $5.075 billion in years 3 through 5.
32 Repayment is not a general government obligation, but “is limited solely to amounts
available in the ... Fund” (Subsection 221(b)(4)).

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Congress. However, if the administrator, at any time after claim processing has
begun, conducts an operational review and determines “that if any additional claims
are resolved, the Fund will not have sufficient resources when needed33 to pay 100%
of all resolved claims while also meeting all other obligations...,” then the program
is to terminate 180 days thereafter.
Thus the annual report, with its five-year financial projections, gives regular
opportunities for deliberative mid-course corrections. But if insolvency (inability to
meet all currently assumed obligations) ever becomes imminent, the administrator
is authorized to terminate the program. In that case, unresolved or new asbestos
cases can be pursued in court, albeit with certain restrictions. In particular, there
would not be as wide a choice of venue as at present. The suits could be filed either
in the federal courts or in a state court where the claimant resides or experienced the
asbestos exposure.
In the debate on the budget point of order, critics of the bill disputed whether
such a scenario would ever be followed, arguing that political pressures to “save” the
program in the event of a financial shortfall would be irresistible. Thus, they
cautioned, the acceptability of a possible shortfall should be considered before going
ahead with the program.
33 The phrase “when needed” would seem to allow for the slowing of payments from a three-
year to a four-year schedule as authorized by Subsection 133(a)(3).