The Hatch Asbestos Trust: A Fair Solution

In the last eight years, American courts have seen a dramatic increase in the filing of lawsuits over human exposure to asbestos. The increase is not related to a sharp rise in asbestos-related illnesses; American industries curtailed use of the material over 25 years ago and asbestos-linked cancer deaths have been declining since 1992.

Instead, the new suits appear to be the product of attorneys' searching for new plaintiffs by offering mass X-ray screening and concentrating thousands of claims in particularly plaintiff-friendly state courts (search). Many plaintiffs have little or no asbestos-related harm, but defendant companies settle their claims anyway because the companies would be at risk if they went to trial and lost thousands of cases at the same time.

This mountain of new litigation casts a shadow over the American economy. Already, 6,000 firms have been sued, some 80 firms have been forced into bankruptcy from asbestos (search) liabilities and $54 billion has been paid in damages. The new lawsuits could raise the awards total to more than $250 billion. Those are tough numbers at a time when the American economy is still searching for traction.

People who were wrongfully exposed to asbestos and who now suffer asbestos-related illnesses, especially those with devastating mesothelioma (search), have a just demand for compensation for being subjected to a material whose dangers have been known since the 1930s. Is there some way to treat asbestos victims fairly but at the same time protect the U.S. economy?

The U.S. Congress will try to do so this week when a Senate committee finalizes a bill sponsored by Sen. Orrin Hatch (search), R-Utah. Under the legislation, firms deemed responsible for exposing people to asbestos, along with the firms' insurers, would establish a trust fund to compensate asbestos victims. In exchange for financing the trust fund, the firms would be protected from future asbestos lawsuits.

The Hatch bill is the only approach on the table for resolving the asbestos litigation crisis. In the late 1990s, the U.S. Supreme Court rejected the possibility of combining all present and future asbestos lawsuits into a single class action (search) that would be resolved by a mass settlement. Because most asbestos litigation occurs in state courts, changes in state laws cannot resolve the crisis; if one state made changes that discouraged plaintiffs' lawyers from filing claims there, lawyers would simply shift their cases to other states with plaintiff-friendly laws. Individual companies can resolve their asbestos liabilities by filing for bankruptcy (search), but this option is extremely expensive and it increases the litigation pressure on non-bankrupt companies.

Doing nothing is the worst option of all because it threatens the solvency of the insurance companies that usually pay the damage awards (search). Asbestos defendants routinely sue their insurers to re-open old policies that have already been paid to their policy limits. In the future, this could lead to insurance company failures and a widespread insurance availability crisis that could threaten the U.S. economy.

The Hatch bill presents a promising alternative. In an arrangement that Hatch's staff hammered out with the staff of Sen. Patrick Leahy (search), D-Vt., businesses and insurers would contribute between $108 and $153 billion to a trust fund that finances payments to present and future asbestos victims. One version of the Hatch bill would provide $750,000 to claimants suffering from mesothelioma, $400,000 to non-smoking claimants with lung cancer (search), and smaller payments to victims with less serious diseases. The trust would pay compensation only to claimants who have significant occupational exposure to asbestos and satisfy specific medical tests for asbestos-related damage.

Critics of the Hatch bill note that those amounts are far smaller than the largest damage awards that juries have given asbestos plaintiffs. But only a small number of claimants receive large damage awards while over 99 percent of claims are settled out of court for much smaller amounts. The average asbestos claimant whose claim was tried in court over the past 15 years received a damage award of just over $1 million in current dollars, but the average claimant whose claim was settled out of court received only about $5,600. For most claimants, the Hatch bill offers speed, certainty and higher average compensation than they would receive in the courts.

Critics of the bill also warn that the trust fund could be exhausted before all future asbestos victims are compensated. Lawmakers could guard against that possibility by paying compensation in the form of annuities (search), with the payments adjusted upward or downward each year if the number of claims received is lower or higher than expected. That would prevent the fund from running out prematurely and would share the risk of lower payments across both present and future claimants.

Both the sufferers of asbestos-related illnesses and the U.S. economy need relief from asbestos's harms. Hopefully, Congress can provide that relief.

Michelle J. White is a professor of economics at the University of California-San Diego, and a researcher of the economics of asbestos litigation. This column is condensed from her article "Resolving the 'Elephantine Mass,'" which appears in the summer issue of Regulation magazine.