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After nearly 18 months of private negotiations by a senior federal appellate judge, business, labor and trial lawyers are down to the most difficult and contentious issues that will make asbestos reform “now or never,” in the words of the chairman of the Senate Judiciary Committee. Senate Judiciary Chairman Arlen Specter, R-Pa., is expected to introduce an asbestos bill this week, the result of those negotiations and the beginning of the next and most important round in the long-running asbestos effort. The Specter bill, “The Fairness in Asbestos Injury Resolution,” would create an asbestos trust fund of $140 billion from assessments of businesses and insurers, and provide front-end funding for the first five years of $40 billion, all in exchange for asbestos claimants giving up their right to sue. The funding amounts are the “outer limits” of what business is willing to accept, say their representatives. But those amounts are insufficient to pay expected asbestos claims and put a trust fund at risk of collapsing, say the trial bar and labor. The financial issues — the size of the trust fund and the amount of up-front financing — are “huge” issues. But so too are such consensus-lacking issues as what to do with so-called mixed dust (asbestos plus silica) claims; when to cut off pending claims during the transition to a trust fund; and whether to allow asbestos awards to be offset by workers’ compensation awards, health insurance payments or other collateral sources. During a Senate judiciary hearing two weeks ago, Senior Judge Edward Becker of the 3d U.S. Circuit Court of Appeals, a close friend of Specter who volunteered to work with the interested parties, flatly stated, “On some issues we won’t get consensus.” Specter responded by saying that “perfect is the enemy of the good.” A week later, Specter announced that he was ready to introduce a bill, and that he planned to put it on a fast track for committee markup and floor action. “The issues that remain as the biggest ones are extremely difficult,” said Patrick Hanlon, a partner at Goodwin Procter of Boston and counsel to the Asbestos Alliance, a coalition of companies and trade associations seeking a federal solution to the asbestos litigation crisis. “All of them pit core issues on each side. It will be a challenge for senators to work something that makes sense and has the necessary support,” Hanlon said. The first asbestos bill, he cautioned, was introduced in 1978. But there is a certain optimism and energy that come with the start of a new Congress and a new administration, and these bode well for the latest legislative effort, he and others said. “I think there is a better chance than in any of those earlier years,” said Hanlon. “A lot of work has gone into this, but there’s a long process here.” Any bill’s chances tend to deteriorate as the congressional session moves further away from the election season, he explained, adding, “If it isn’t this year, I don’t see it getting better.” STAKING POSITIONS Although Becker continued negotiations as recently as last week, it was clear at the Judiciary Committee hearing on Jan. 11 that the so-called stakeholders — businesses, insurers, labor and trial lawyers — had hardened positions on the core issues. Former Michigan Governor John M. Engler, now president of the National Association of Manufacturers, said the maximum size of the fund must be $140 billion and he called the front-end funding of $40 billion, with potential borrowing capacity of $20 billion more, “reasonable.” But Engler, who also spoke for the Asbestos Alliance, said the business community would not support any proposal that would allow a return to the tort system if there are delays in start-up of the trust fund program, which likely will be in the Department of Labor. “Provisions for a return to the tort system are counterproductive,” he insisted. “The bill must shut down the tort system.” He also called on the senators to ensure that claims values for lung cancer claimants who are current or former smokers reflect their smoking history so an asbestos bill does not become a “smokers’ compensation bill.” And he said a bill must “lock the back door” on trial lawyers seeking to convert “tens of thousands” of unimpaired asbestos claims into silica claims. “We cannot allow silica to be turned into the next asbestos,” he said. Craig Berrington, senior vice president and general counsel of the American Insurance Association, said his industry too opposes any return to the tort system. He said a bill should terminate the litigation system when it is signed into law, and there should be no possibility of returning before the fund is implemented. Proposals to “sunset” the fund if it runs out of money and return claimants to the tort system, Berrington said, assume failure. And that assumption, he explained, is based on the fear that smoking-related asbestos claims will swamp the fund. DIFFERENT TAKE The trial lawyers and labor, not surprisingly, saw these issues very differently. Michael Forscey of Washington’s Forscey & Stinson, representing the Association of Trial Lawyers of America, said the cost of compensating victims is “clearly greater” than $140 billion and could approach $200 billion. In the first five years, if all pending claims are forced through the fund, as some have proposed, at least $60 billion will be needed, he said. Forcing pending claims into the fund, he said, also produces a substantial cost-shift away from those with vast current liability to those with relatively few current claims. Forscey said there is no evidence that mixed-dust cases — asbestos and silica — burden the courts. Asbestos legislation should not address those cases, he said. Margaret Seminario, director of safety and health for the AFL-CIO, echoed Forscey’s concerns about the size of the trust fund, and called for an updated study of projected claims and costs. Any legislation, she said, should provide for upward adjustments in awards based on a victim’s age and the number and age of any dependents. Contrary to business’s position, she said, claimants must be allowed to retain the full value of their awards with no collateral offsets, such as for workers’ compensation. The legislation also should extinguish any liens or rights of subrogation by other parties, she added. Absent an evergreen fund — one that is replenished as needed — Seminario said claimants must be permitted to return to court if the fund collapses. “No one who is honestly committed to establishing this asbestos compensation fund wants to see claims revert to the tort system,” she said. “But there must be a safety valve to protect future claimants.” GOING FORWARD There is still hope that some of these issues may be resolved, said Jan Amundson, senior vice president and general counsel of the National Association of Manufacturers. “If anybody thought there’d be consensus on all of the issues delineated by Judge Becker as outstanding ones, that would be difficult to imagine,” she said. “At some point on some of these issues someone will say, ‘This is it.’ Is that fatal? Absolutely not. “The other point is to get to a bill and then do the markup,” she added. “Amazing things can happen on markup. Once it gets out of committee, we will have to reassess it.” Some Senate Democratic staffers and groups working with them said they had hoped more issues would be resolved before Specter introduced his bill. And if that had happened, they added, there may have been bipartisan support on the bill’s introduction. For Democratic senators, the $140 billion trust fund amount is likely to stick because it was negotiated last fall by Senate Majority Leader Bill Frist, R-Tenn., and then-Senate Minority Leader Thomas Daschle, D-S.D. But some raise concerns about the amount of funding in the first five years when the greatest stress is placed on the fund. Although Becker said that an additional $20 billion would be available in loans if necessary, some staffers said those assurances are not in writing from any source of the funds, and interest costs, which could have a major impact on the fund, are unknown. OTHER CONCERNS Other concerns raised about where a Specter bill may be heading include suggested definitions of an asbestos claim that are broad enough to pre-empt tort suits by black-lung claimants, mixed-dust claimants and “God only knows what else,” said one staffer. “There will be no Democratic support for what the AFL-CIO opposes,” predicted another staffer. Trust fund proposals are not new, but they do not succeed politically because of a problem that cannot be negotiated, said one business lobbyist involved in tort reform, but not the asbestos issue. “Business wants a trust fund generally for the certainty it provides,” he explained. “They want to go to Wall Street and say, ‘this is our liability and after X number of years,’ they can walk away from it. The market can accept a high price tag if it’s getting certainty,” he said. “That very certainty is the reason that labor and the trial bar can never accept the trust fund. They can’t risk that at the end of the day the projections are insufficient and they’re left holding an empty bag.” Although important issues have been resolved in negotiations with Becker, this lobbyist and others said that the parties are now “down to the guts” and the reason why trust funds have not succeeded in the past. STILL DIVIDED Manufacturers and insurers are still divided on some issues, they said, and insurers are divided among themselves on other issues. Unless those divisions are healed, any asbestos bill faces a very rocky road on the Senate floor, they added. “I don’t see how a divided business community will ever muster enough votes to defeat a unified and energized ATLA and labor,” said one lobbyist. “It is possible to beat ATLA [in the Senate] but only if the business community is unified.” Right now, the focus is on getting a bill out of committee, said Goodwin Procter’s Hanlon. “Then there is the Senate floor and getting it to the other house, which I’m sure will have something to say,” Hanlon said. “There’s a lot of process yet to go. That has its good side — the bill doesn’t have to be perfect when it comes out of committee. “On the other hand, this is not a quick strike, such that by Valentine’s Day, you’ve got legislation,” he said. “As other tensions emerge in the legislative process, this, as well as a lot of other things, are likely to get caught up in it. This bill is competing with other tort bills and other bills. It’s a slog.”

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