TCS Daily

Solving the Asbestos Imbroglio

By Doug Bandow - February 4, 2005 12:00 AM

"Justice is distorted and our economy is held back," declared President George W. Bush in his State of the Union speech, by "frivolous asbestos claims." In fact, abusive asbestos litigation has ruined companies, left victims uncompensated, and clogged the courts. The Republican Senate must take on the trial bar.

Asbestos once was a wonder substance, widely used as a fire retardant. But it turned out to cause various diseases and has generated hundreds of thousands of lawsuits -- 600,000 are now
pending. Eventually as many as 2.7 million cases might be filed. The U.S. Supreme Court noted "the elephantine mass of asbestos cases."

So far the litigation has cost $70 billion, and by some estimates could ultimately reach $275 billion. The lawsuits have driven scores of firms into bankruptcy.

Moreover, much of the compensation is being grabbed by people who aren't ill. Even some trial attorneys representing plaintiffs who genuinely have been sickened by asbestos are pushing for a legislative solution.

Two years ago then-Senate Judiciary Committee Chairman Orrin Hatch (R-UT) drafted a massive settlement bill which he managed to push through the panel. Sen. Hatch's Fairness in Asbestos Injury Resolution Act would have created a compensation trust fund and established illness categories with set payments.

Economist Michelle White of the University of California (San Diego) concluded: "For most claimants, the Hatch bill offers speed, certainty and higher average compensation than they would receive in the courts."

But recalcitrant Senate Democrats, beholden to the politically potent tort lobby, refused to allow the measure to come up for a vote. Indeed, the bill came under fire from all directions.

Reformers worried that the legislation wouldn't cut enough frivolous lawsuits. Trial attorneys contended that the trust fund wasn't big enough to guarantee compensation. Fiscal conservatives complained that the federal government might be left holding the fiscal bag.

The new committee chairman, Sen. Arlen Specter (R-PA), is circulating his own draft legislation, which would create a $140 billion trust fund while allowing plaintiffs to return to court if necessary. But trial attorneys have gone on the attack.

A fund in that range is "clearly not adequate according to anybody who's looked at the issue," argues Carlton Carl of the Association of Trial Lawyers of America. But the companies which would contribute worry about any failure to cap their liability, as well as to strictly limit compensation to those who have been harmed.

Virtually everyone agrees that the system is broken. It's bad for an economy where job creation remains a concern for nervous workers. It's unfair for companies which are paying for harm that they didn't cause. It's particularly tragic for the seriously ill who will never be adequately compensated.

So far more than 75 firms have gone bankrupt as a result of asbestos litigation. The staggering costs of asbestos liabilities have pushed many defendant companies into bankruptcy or to the brink thereof," explain economists Joseph Stiglitz, Jonathan Orszag, and Peter Orszag.

Average shareholders have suffered. As many as 130,000 jobs have disappeared and even more won't be created in the future because of money diverted from investment to litigation. Many employees who kept their jobs have lost their employer-provided retirement accounts.

As companies which actually produced asbestos have collapsed, trial attorneys have turned to food and beverage, steel and iron, pulp and paper, metal goods, and textile firms. A study by Prudential Financial notes: "Defendants are increasingly 'peripheral'"; asbestos "was more or less 'incidental' in their products or facilities; [i]f it was in their products, it was enclosed [and] therefore, only a minimal number of fibers were released into the air."

Attorney Steve Kazan, who represents genuinely sick clients, complained that "we are seeing large numbers of cases from 'new' industries where it seems clear that if there is any asbestos exposure at all it is very likely limited in intensity as well as scope, with relatively few workers having real exposure."

As a result, people who aren't ill are filing an increasing number of cases. Observe Stiglitz, Orszag, and Orszag, "the share of total new claimants who are unimpaired" has jumped from about four percent to three-quarters over the last two decades.

Many of these plaintiffs are collecting damages from conditions caused by other factors, such as smoking. Which means less money for the sick whose illnesses were caused by asbestos. Complains U.S. District Court Judge Charles Weiner, who manages the federal asbestos docket: "Substantial transaction costs are expended [on those who aren't sick] and therefore unavailable for compensation to truly ascertained asbestos victims."

States are beginning to address multitudinous asbestos suits. Ohio has set medical criteria for recovery, while Florida and Mississippi judges have threatened to toss out cases filed by plaintiffs from other jurisdictions. The American Legislative Exchange Council has proposed model legislation to create an "inactive docket" for plaintiffs who have shown no evidence of illness.

Federal judges have begun to exercise tighter oversight of bankruptcy cases. Mark Brodsky of Elliott Management Corp. argues that "a wave of recent asbestos bankruptcies has presented the federal judiciary with an unprecedented opportunity to expose and neutralize fraud and abusive practices, facilitate reorganizations, and ensure that legitimate asbestos victims are compensated better and earlier."

But federal legislation -- capping total damages, setting medical criteria for compensation, and ensuring some recovery for the ill -- also is necessary. For reasons of both justice and economics, Congress should join the president in making tort reform a top priority.

Doug Bandow is a Senior Fellow at the Cato Institute. A graduate of Stanford Law School, he is a member of the California and D.C. bars.


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