The following summary is provided by my good friend and colleague Matt
Bergman, Esq. of Seattle, Washington}
On Thursday, May 22, Senator Orrin G. Hatch, Chairman of the Senate Judiciary
Committee, introduced S. 1125 (the "Fairness in Asbestos Injury Resolution
Act of 2003" or "FAIR Act of 2003"), which would substitute
an administrative compensation scheme for the "tort system."
This memorandum is a very summary description of the major provisions
of the bill.
Administration
The bill would establish
- a United States Court of Asbestos Claims to determine claimants' eligibility
for monetary awards and medical monitoring reimbursement and
- an Office of Asbestos Injury Claims Resolution to administer the Asbestos
Injury Claims Resolution Fund and to pay claims.
Court of Asbestos Claims
The Court of Asbestos Claims would be a specialized "Article I"
court, consisting of 5 judges appointed by the President and confirmed
by the Senate. § 101(a) (amending Title 28, U.S. Code, by inserting
§ 201(a)). These judges would serve 15-year terms and would be removable
only for cause.
Id. (inserting § 201(b)).
All "asbestos claims" would be submitted to the Court. §§
111(a), 403(b). "Asbestos claims" include all claims for personal
injury based, in whole or in part, on exposure to asbestos, including
loss of consortium and wrongful death, but not including claims for benefits
under workers' compensation or veterans' benefits programs (or
subrogation actions brought by employers or insurers by virtue of the
payment of workers compensation benefits). § 3(3). In effect, the
bill would completely displace the tort system with respect to asbestos claims.
The Court of Asbestos Claims would refer the case to a magistrate, who
in turn would refer it to a claims examiner for an initial review to determine
whether all necessary information was provided. § 114. The magistrate
would be required to render a recommended decision on a claim within 60
days after all required information is received, and a judge of the Court
would in turn be required to render a final decision on the magistrate's
recommendation within 30 days.
Id. If the claimant disagrees with the judge's decision, he is entitled to
de novo review by a 3-judge panel of the Court of Asbestos Claims.
Id. The panel's decision would be subject to review by the U.S. Court
of Appeals for the District of Columbia on an "arbitrary and capricious"
standard. § 301.
Office of Asbestos Injury Claims Resolution
The Office of Asbestos Injury Claims Resolution is responsible for administering
the Fund and for providing awards from the Fund to claimants who are determined
to be eligible. § 221. It would be managed by an Administrator who
would be appointed by the President with the advice and consent of the Senate.
Id. As explained below, the Administrator would, among other things, be responsible
for resolving administrative issues regarding the obligations of defendant
participants to the Fund.
Who Gets What?
The compensation system would be "no-fault" - i.e., it would
not be necessary to trace exposure to a responsible defendant. § 112.
Awards would be based on eligibility categories defined by diagnostic,
medical, exposure, and latency criteria. §§ 121-25. These eligibility
criteria are generally based upon the criteria for claims submitted to
the Manville Personal Injury Trust, as reformed in 2002. (The eligibility
criteria for each category are summarized in Appendix A.) The amount of
awards provided to people in each eligibility category is set forth in
Table 1. Claimants in Classes III and higher - who would generally be
regarded as "impaired" - would receive cash awards. People in
the "bottom" two classes - the unimpaired -- would not receive
cash awards but would receive reimbursement for medical monitoring costs
not covered by health insurance. These medical monitoring costs would
cover chest x-rays and pulmonary function (breathing) tests every 3 years.
§ 131(b)(2).
Table 1: Awards for Eligible Asbestos-Related Diseases |
Level |
Scheduled Condition or Disease |
Scheduled Value |
I |
Asymptomatic Exposure |
$0 - (Medical Monitoring) |
II |
Asbestos/Pleural Disease A |
$0 - (Medical Monitoring) |
III |
Asbestos/Pleural Disease B |
$40,000 |
IV |
Severe Asbestosis |
$400,000 |
V |
Other Cancer (stomach, esophageal, pharyngeal, laryngeal) |
$200,000 |
VI |
Lung Cancer I |
$0 (smoker) / $50,000 (nonsmoker) |
VII |
Lung Cancer II |
$100,000 (smoker) / $400,000 (nonsmoker) |
VIII |
Mesothelioma |
$750,000 |
Source: § 131(b)(1) |
Awards would be reduced by the amount of collateral source compensation
that a claimant has received, or is entitled to receive. § 134. Collateral
sources include (among other things) health insurance, disability benefits,
death benefits, and payments received from defendants in the tort system.
§ 3(7). However, workers compensation, veterans benefits, and life
insurance are
not collateral sources under the bill. § 3(7), § 134.
The bill includes a statute of limitations that requires claimants to file
a claim within two years of receiving a diagnosis of an eligible condition
or having information that should have led them to obtain such a diagnosis.
People who have timely filed pending claims as of the date of enactment
have two years to file their claims with the Court. § 111(c).
Who Pays How Much?
The program would be funded by equal contributions from the insurance industry
and from participating defendants. The aggregate initial contributions
of insurers and defendants, respectively, would be $45 billion. §§
202(a)(2), § 212(a)(3)(A). In addition, the aggregate contribution
of mandatory participants is capped at $5 billion per year. § 223(b).
The bill would also establish minimum aggregate annual contributions for
defendant participants equal to $2.5 billion in the first 5 years, stepping
down to $250 million in year 27. § 204(h).
Defendant Participants
For defendants, the allocation scheme would be fixed in the statute. There
would be seven tiers. Tier I would consist of asbestos defendants currently
in bankruptcy, § 202(b), and Tier VII would consist of railroads,
with respect to their liabilities under the Federal Employers' Liability
Act (FELA), § 203(h). The remaining tiers would be determined on
the basis of "prior asbestos expenditures" (including costs
covered by insurance) for both defense and indemnity. § 202(d). Within
each tier there would be subtiers based on the defendant's revenues.
§ 203. Defendants would be assigned to tiers and subtiers in a proceeding
before the Administrator § 204(i).
For the first 5 years, each defendant would be required to pay an amount
fixed for defendants in its tier and subtier. § 204(a). The initial
contributions for Tiers II through VI (the solvent, non-FELA tiers) are
summarized in Appendix B. Thereafter, the payment obligation of defendants
in Tiers II-VII would be reduced over time in proportion to the reduction
in the annual aggregate contribution for all defendant companies together.
Id. That aggregate minimum contribution would be $5 billion per year for the
first five years and would step down to zero in the 28
th year as shown in Table 2. § 204(h).
Table 2: Minimum Aggregate Contributions |
Years 1-5 |
$2.5 billion |
Years 6-8 |
$2.25 billion |
Years 9-11 |
$2 billion |
Years 12-14 |
$1.75 billion |
Years 15-17 |
$1.5 billion |
Years 18-20 |
$1.25 billion |
Years 21-26 |
$1 billion |
Year 27 |
$250 million |
There would be exceptions to this general scheme. First, small businesses
as defined in the Small Business Act would be exempt from making any contribution.
§ 204(b). Second, the statute would authorize administrative reductions
in an individual defendant's allocation in cases of severe financial
hardship and demonstrated inequity. § 204(d). The hardship adjustment
would have a term of 3 years and would be renewable if it remained justified.
§ 204(d)(2). The total of all hardship allocations could not exceed
3% of all defendant contributions.
Id. Inequity adjustments would be based on a showing that a defendant's
allocation is "exceptionally inequitable when measured against the
amount of the likely cost to the defendant of its future liability in
the tort system in the absence of the Fund." § 204(d)(3)(A).
An inequity adjustment would remain in effect for the life of the program.
§ 204(d)(3)(B). The total amount of equity adjustments could not
exceed 2% of all defendants' contributions. § 204(d)(3)(C).
Except for corporate affiliates who elect to be treated as a single entity,
defendants would be liable for their own allocations only, and would not
be liable for the obligation of any other defendant participant. §
204(e). In essence, liability would be several and not joint and several.
Insurer Participants
The draft bill does not work out the allocation scheme for insurer participants.
The insurer allocation would be a percentage of the overall initial liability
of $45 billion as determined by an "Asbestos Insurers Commission."
§§ 211-217
How To Be Sure the Account Balances
The scheme set forth in the FAIR Act would be both a defined-benefit plan
- i.e., all claimants would be entitled to awards without regard to the
funds available - and a defined-contribution plan - i.e., participants'
obligation to fund the program would be fixed by the statute. There is
a risk, therefore, that the defined benefits will not match the defined
contributions.
The bill would deal with this problem in several ways. First, the Administrator
would have borrowing authority, which will enable him or her to deal with
a surge in claims in any given year. § 223(c).
Second, the Administrator is directed to impose a reasonable surcharge
on the amount of each participant's contribution to the fund. §
223(d). That surcharge would go to a guaranteed payment account to insure
against the risk of non-payment of required contributions. The guaranteed
payment account may only be used if the amounts in the Fund are insufficient
to pay claims due to non-payment by any participant.
Third, the bill would create an "Orphan Share Reserve Account."
§ 223(e). This account would be funded by the excess of funds actually
collected by the Fund in any year over the annual target amount. This
reserve may be used only (a) to the extent that a participant files a
Chapter 11 petition and cannot meet its obligations under the Act and
(b) to the extent that the Administrator grants a participant relief from
paying its full allocation because of severe hardship or inequity.
The borrowing authority addresses liquidity risk, and the guaranteed payment
account and Orphan Share Reserve Fund address shortfalls due to the non-payment
by participants - i.e., credit risk. None of these provisions fully addresses
the problem that would occur if a mismatch between funds and award obligations
were due to higher-than-expected obligations in the long run. How to address
this type of risk will be the subject of further discussions.
Appendix A: Summary of Medical Criteria
Level I: Asymptomatic Exposure
- Diagnosis of bilateral asbestos-related non-malignant disease (based on
chest x-ray of at least 1/0 on the ILO scale or an x-ray showing bilateral
pleural changes) or diagnosis of asbestos related malignancy (except mesothelioma);
- Meaningful and credible evidence of 6 months of occupational exposure to
asbestos before December 31, 1982; and
- 10 years' latency.
Level II: Asbestosis/Pleural A
- Diagnosis of a bilateral asbestos-related non-malignant disease (based
on chest x-ray of at least 1/0 on the ILO scale or an x-ray showing bilateral
pleural changes) by B-reader certified chest x-rays;
- Meaningful and credible evidence of -
- 6 months of occupational exposure to asbestos before December 31, 1982, and
- significant occupational exposure; and
- 10 years' latency.
Level III: Asbestosis/Pleural Disease B
- Diagnosis of asbestosis by B-reader certified chest x-ray showing bilateral
pleural disease of B2 or greater, or pathological evidence of asbestosis;
-
Pulmonary function testing that shows
- TLC<80% of predicted
-
FVC<80% of predicted and FEV
1/FVC>=65%;
-
Meaningful and credible evidence of -
- 6 months of occupational exposure to asbestos before December 31, 1982, and
- significant occupational exposure;
- Supporting medical documentation establishing asbestos exposure as a contributing
factor in causing the pulmonary condition in question; and
Level IV: Severe Asbestosis
- Diagnosis of asbestosis by B-reader certified chest x-rays of ILO Grade
2/1 or greater, or pathological evidence of asbestosis;
-
Pulmonary function testing that shows
- TLC<65% of predicted
-
FVC<65% of predicted and FEV
1/FVC>=65%;
-
Meaningful and credible evidence of -
- 6 months of occupational exposure to asbestos before December 31, 1982, and
- significant occupational exposure;
- Supporting medical documentation establishing asbestos exposure as a contributing
factor in causing the pulmonary condition in question; and
Level V: Other Cancer
- Diagnosis of primary laryngeal, esophageal, pharyngeal, or stomach cancer;
- Evidence of underlying bilateral asbestos-related nonmalignant disease;
- Meaningful and credible evidence of -
- 6 months of occupational exposure to asbestos before December 31, 1982, and
- significant occupational exposure;
- Supporting medical documentation establishing asbestos exposure as a contributing
factor in causing the pulmonary condition in question; and
Level VI: Lung Cancer One
- Diagnosis of primary lung cancer;
- Meaningful and credible evidence of 6 months occupational exposure to asbestos
before December 31, 1982;
- Supporting medical documentation establishing asbestos exposure as a contributing
factor in causing the pulmonary condition in question; and
- 10 years' latency.
Level VII: Lung Cancer Two
- Diagnosis of primary lung cancer;
- Evidence of underlying bilateral asbestos-related nonmalignant disease;
- Meaningful and credible evidence of -
- 6 months of occupational exposure to asbestos before December 31, 1982, and
- significant occupational exposure;
- Supporting medical documentation and certification by or on behalf of the
claimant establishing asbestos exposure as a contributing factor causing
the relevant lung cancer; and
- 10 years' latency.
Level VIII: Mesothelioma
- Diagnosis of mesothelioma; and
- Meaningful and credible evidence of exposure to asbestos before December 31, 1982.
Appendix B: Defendants' Tiering
Solvent, Non-FELA Tiers (II through VI)
Tier II: Prior asbestos expenditures $75 million or greater |
Subtier 1 |
$25 million |
Subtier 2 |
$22.5 million |
Subtier 3 |
$20 million |
Subtier 4 |
$17.5 million |
Subtier 5 |
$15 million |
Tier III: Prior asbestos expenditures between $50 million and 75 million |
Subtier 1 |
$15 million |
Subtier 2 |
$12.5 million |
Subtier 3 |
$10 million |
Subtier 4 |
$7.5 million |
Subtier 5 |
$5 million |
Tier IV: Prior asbestos expenditures between $10 million and $50 million |
Subtier 1 |
$3.5 million |
Subtier 2 |
$2.25 million |
Subtier 3 |
$1.5 million |
Subtier 4 |
$.5 million |
Tier V: Prior asbestos expenditures between $5 million and $10 million |
Subtier 1 |
$1 million |
Subtier 2 |
$.5 million |
Subtier 3 |
.2 million |
Tier VI: Prior asbestos expenditures between $1 million and $5 million |
Subtier 1 |
$.5 million |
Subtier 2 |
$.2 million |
Subtier 3 |
$.1 million
|