Asbestos is shrouded in uncertainty. Potential plaintiffs do not know whether they have been exposed to or harmed by asbestos.
Corporate executives wonder whether their company will be the next defendant submerged in asbestos litigation and what their overall exposure will be. And the inability to predict asbestos liability or damages with any confidence creates challenges for providing adequate disclosure to the market and constructing long-range financial plans.
To ease the burden that asbestos liability has inflicted on American businesses and forestall a new round of asbestos lawsuits and bankruptcies, Congress is considering passage of the Fairness in Asbestos Injury Resolution (Fair) Act. The act would create a privately funded $140 bn national trust fund to compensate asbestos victims. Asbestos plaintiffs would be required to collect against the national trust and could no longer sue individual businesses.
To fund this national trust, the act would require contributions from two sources: companies that have made more than $1 mn worth of payments in ‘settlement, judgment, defense or indemnity’ related to asbestos personal injury claims; and insurers.
Companies that meet the threshold criteria for payment obligations and that are not otherwise exempt from payment would be required to make annual payments to the national trust for up to 30 years. The amount of annual payment would depend upon the amount of each individual company’s prior asbestos-related liability payments and its revenues.
In exchange for these payments, companies and insurers would receive the benefit of protection from liability for asbestos-related claims. Without the act, companies will continue to be forced to speculate on the amount of their asbestos liability. If the legislation is enacted, however, companies will be able to more accurately calculate future payments into the trust.
Of course, no-one knows whether the act will be passed into law or what features, once enacted, it might contain. In the last session of Congress a prior version of the Fair Act failed to survive a filibuster in the US Senate. Proponents of the legislation failed to muster the 60 votes needed to invoke cloture.
This year, the probability of securing 60 votes appears to be considerably improved following the results of the 2004 election and in the wake of the Senate’s passage of class action and bankruptcy reform legislation by comfortable margins. Moreover, as was the case with the class action and bankruptcy bills, the House of Representatives and President Bush appear poised to approve the Fair Act if it is passed by the Senate.
For now, corporate executives will want to keep abreast of the act’s status and focus on how the legislation will affect them. They should devote particular attention not only to the amount of their annual payment obligations but also to how they will be affected by the legislation’s complicated provisions preserving some of their remaining general liability insurance.
Executives will also want to keep an eye on the progress of the asbestos legislation for another important reason: if it is not enacted this year, the US economy can expect to suffer another wave of asbestos-precipitated corporate bankruptcies. Already, asbestos liabilities have led to 74 corporate bankruptcies and have burdened more than 8,400 companies.
