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Many businesses and insurance companies have been keeping a close eye on the progress of the Fairness in Asbestos Resolution Act of 2003, the asbestos reform bill that Sen. Bill Frist, R-Tenn., plans to schedule for a vote later this month. Senate Bill 1125 was introduced by Sen. Orin Hatch, R-Utah, in July as a proposed legislative solution to end what Congress has described as our national asbestos litigation “crisis.” While a majority of lawmakers agree that a legislative solution is needed to end the spiraling costs of asbestos litigation, they and their industry and labor constituents are sharply divided on how much money businesses and their insurance companies must contribute to a multibillion-dollar trust fund to be set up for asbestos victims under the act. Senate negotiations are currently stalled at a $114 billion contribution to the trust fund from business and insurers. While the primary focus of those monitoring the legislation and related Senate negotiations has been on the politically charged debate over how much money businesses and their insurance companies will be expected to contribute, not enough attention has been focused on the details and mechanics of the proposed 234-page bill, what its passage could mean for businesses (and their insurers) that are currently named defendants in pending asbestos lawsuits, and what these companies should do to prepare themselves for passage of the act. Under the act, workers who were exposed to asbestos would no longer be able to sue their former employers or the businesses alleged to have supplied asbestos-containing products to their work sites. All existing asbestos lawsuits would be immediately extinguished and the claims eligible to be transferred to and processed through a no-fault administrative system established in the U.S. Court of Federal Claims. Under S. 1125, victims who satisfy certain medical criteria that establish their asbestos-related injury or impairment would be entitled to compensation from the Asbestos Injury Claims Resolution Trust Fund. Payments to eligible victims from the trust fund would depend on the severity of their asbestos-related injuries, ranging from $20,000 to $1 million per victim, but without regard to any company’s fault or wrongdoing. Businesses and insurance companies that have each spent at least $1 million on past asbestos claims would be expected to privately fund 100 percent of the multibillion-dollar trust fund for at least 27 years, with additional contingency funding contemplated to make up for any future trust fund shortfalls. The act would thus enable businesses and insurers to accurately assess, allocate and manage their asbestos exposure risk, providing the industry with the certainty it has been seeking after years of unpredictable asbestos claims, lawsuits and trial verdicts. To be eligible for any award from the trust fund, claimants with existing asbestos suits would have to file their claims under the act within four years from either the date of its enactment or within four years after the date on which the individual first: (1) “received a medical diagnosis” of his or her asbestos disease or condition or (2) “discovered facts that would have led a reasonable person to obtain a medical diagnosis with respect to” such asbestos disease or condition. Depending on the severity of their asbestos disease or condition, individual claimants who have satisfied the prescribed medical and diagnostic requirements would be eligible to recover awards ranging from $20,000, for injury resulting from relatively mild asbestos exposure, to $1 million, for mesothelioma cases or others suffering from lung cancer (with asbestosis) or other extreme asbestos-related injuries. The trust fund administrator and his or her commission will assess the amount of contributions from businesses and insurance companies by assigning each entity and its “affiliated group” (defined under the act to include its “ultimate parent and any person whose entire beneficial interest is directly or indirectly owned by that ultimate parent on the date of enactment of this act”) to a specific tier and sub-tier that will determine that company’s total annual contribution to the trust fund. The act contains seven separate tiers levels, each with three to five sub-tiers. Annual contributions for companies assigned to tiers 2 through 7 (excluding bankrupt entities) would range from $100,000 to $25 million per year for each company over a 27-year period. The amount of a company or affiliated group’s annual contribution will be assessed based on its annual revenues and its total “prior asbestos expenditures,” which the act defines as “the gross total amount paid by or on behalf of a [company] at any time before Dec. 31, 2002, in settlement, judgment, defense or indemnity costs related to all asbestos claims against that [company].” These prior asbestos expenditures will also include any and all payments made by insurance carriers to or for the benefit of the company and/or its affiliated group. In addition, successors in interest of defendant companies deemed liable for contributions under the act would also be required to make contributions to the trust fund. Only companies with at least $1 million of prior asbestos expenditures are required to make contributions to the trust fund. The act also provides a contribution exemption for small businesses (as defined under � 3 of the Small Business Act (15 U.S.C. 632)). In addition, the United States, including state and local governments, is expressly exempted from the act’s requirements. The administrator will have the authority to issue subpoenas directly to companies in order to compel testimony, records and other information. The administrator will also have broad enforcement powers including the right to attach a government lien against the assets or property of any company that fails to make any payment voluntarily to the administrator after demand and 30 days’ opportunity to cure the default. The administrator would also have the ability to institute a civil action in U.S. District Court for the District of Columbia, and to assess further statutory penalties against companies who refuse or neglect to pay their trust fund assessments. The act provides for two types of potential adjustments to decrease the annual contribution amount initially determined by the administrator. The first is a financial hardship adjustment that a company can apply for at any time during the life of the trust fund by demonstrating that the amount of its contribution under the assigned tier group allocation would constitute a “severe financial hardship.” A financial hardship adjustment reduction would last only three years, but could be reapplied for, if justified. The second, is an inequity adjustment available to companies that can demonstrate that the amount of their assessed contribution is “exceptionally inequitable” when measured against: (1) the amount of the likely cost to the company of its future liability in the tort system in the absence of the fund, or (2) when compared to the median contribution amounts of companies assigned to the same tier group, or (3) when measured against the percentage of prior asbestos expenditures by the company for claims that neither resulted in judgment nor settlements against the company. Applications for both forms of adjustment would be made to a special advisory panel appointed by the administrator. Any appeals of the administrator’s determinations or other final decisions of the U.S. Court of Asbestos Claims (en banc panels of judges from the U.S. Court of Federal Claims) must be filed within 30 days with the Federal Circuit U.S. Court of Appeals, which will have exclusive jurisdiction to review all final decisions. The administrator will refer directly to the EPA and/or the U.S. attorney’s office future violations of the Toxic Substances Control Act (15 U.S.C. 2601, et seq. and 2616), the Clean Air Act (42 U.S.C. 7401 et seq. and 7413), and/or the Occupational Safety and Health Act of 1970 (29 U.S.C. 651 et seq.). S. 1125 also includes a future ban on the manufacture, processing and distribution in commerce of all “asbestos-containing products,” with limited exceptions for governmental uses with demonstrated necessity. In the event the act is passed this term, it would be prudent for companies that are currently defendants in existing asbestos lawsuits and their insurers to do some work ahead of time to prepare themselves since within 30 days of the act’s passage, the administrator will be requesting that each business and insurance company provide the commission with detailed financial information. First, businesses and insurance companies should conduct an internal analysis to determine exactly how their particular company and its affiliated group would be defined under the act. This is important because the amount assessed for contribution to the trust fund will be based on the company or its affiliated group’s total prior asbestos expenditures and total annual combined revenues. Once the company or affiliated group is determined, the second step should be to ascertain the company or affiliated group’s total prior asbestos expenditures. Remember that included within such expenditures is the “gross total amount paid” before Dec. 31, 2002 (this may change to Dec. 31, 2003) “in settlement, judgment, defense or indemnity costs” related to all prior asbestos claims. Because the costs of defense are not excluded from this definition, a good argument can be made for an inequity adjustment in cases where contribution assessments would be based predominantly on a company’s prior defense costs as opposed to payments of adverse asbestos verdicts or settlements. This would prevent inequitable treatment of companies that have incurred large legal fees and costs in defending themselves for decades against scores of asbestos lawsuits that were ultimately dismissed for lack of evidence against the company. Because prior indemnity costs are also included in determining prior asbestos expenditures, companies must be sure to include in their calculations any indemnification amounts paid by the company for asbestos claims brought against other entities. Third, after analyzing the information gathered concerning prior asbestos expenditures and annual revenues, a company and its affiliated group should internally assess their likely tier and sub-tier group assignments. Once calculated, companies should then determine how the initial and future annual payments of such contributions would effect their short- and long-term operations, financial condition and strategic plans. Company financial and public disclosure obligations in this regard should also be considered. Fourth, businesses should consider whether their own circumstances would warrant either a hardship or inequity adjustment to reduce the amount of their required contributions to the trust fund and then gather the information and documents necessary to demonstrate the need for such adjustment. Finally, companies that are currently defendants in existing asbestos suits and their insurers should make sure to select and retain competent counsel who will be able to assist them prepare and present the information and documentation described above to the administrator and help that person navigate through the commission’s new administrative process to be established in Washington, D.C. Lawrence S. Sher is a partner in Blank Rome’s Washington, D.C., office and has more than a decade of experience defending companies in commercial and asbestos products liability matters and representing clients before the U.S. Court of Federal Claims. He can be reached at [email protected] If you are interested in submitting an article to law.com, please click here for our submission guidelines.

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