Asbestos peace may come with unfair price for some

5/16/2003

Everyone in America and many people overseas could soon be paying what amounts to an asbestos tax. And that is the good news.

Some time this week - or perhaps next week or the week after that - legislation is likely to be introduced in the U.S. Senate by Senators Orrin Hatch (R-Utah) and Patrick Leahy (D-Vt.) for a cut-price resolution to the asbestos crisis.

For a cool $100 billion, give or take a few digits, America may have the chance to buy peace in the asbestos wars. If all goes well - which it probably will not - the biggest companies and their insurers would put that money into a trust fund, so that those innocently made sick by asbestos can get paid before they die.

Everybody in America would pay what amounts to an asbestos tax (in the words of Anthony Sebok of Brooklyn Law School). Through lower profits, higher prices and jacked-up insurance premiums, we would all contribute. But we would not all reap the same peace dividend.

As many as 3 million people might harvest a windfall from the fund: payments of $1,000 each to people who were exposed to asbestos but not made sick. Justice, in its purest form, would surely not be served by such a deal.

It would allow people who are not sick to claim money from companies that did not make a dangerous product - the same absurd situation that currently prevails, with healthy plaintiffs suing companies whose connection to asbestos is either tangential or accidental.

But rough justice is better than none at all and certainly better than the current system, in which the wrong plaintiffs often recover from the wrong defendants, while lawyers' fees and costs consume some 61 percent of the total pot.

Faced with a tort system that has failed to deliver either justice or efficiency, a coalition of business, labor, and lawmakers has come together to try to deliver more of both.

Rather than try to correct the flaws in asbestos litigation, they have settled on the quintessentially un-American idea of a trust. For the first time since the dawn of the asbestos era, there is a slim hope victims may get paid without causing bankruptcies, which would eliminate litigation altogether.

Funds would be paid out of a no-fault compensation scheme that would operate almost mechanically. Victims would lose their right to sue. Such a fund would not be unprecedented in American law. Similar compensation schemes have been set up to pay victims of the Sept. 11, 2001, disaster, black lung disease, and workplace injuries.

But it takes a crisis of colossal proportions to persuade Americans to repudiate the tort system. Asbestos is such a crisis.

Corporate America remains divided over how to solve the crisis, but those who support a no-fault solution include companies such as General Motors and General Electric.

They want a trust primarily to provide closure and are prepared to pay a price to fix a limit on asbestos liabilities for all time. An asbestos trust would do that, if it were close-ended: Business would pay once to dispose of all asbestos claims.

Labor likes the fund because it would ensure that all really sick workers get paid and their not-so-ill brethren get enough cash to keep them quiet.

And everyone likes the idea that more money should go to victims instead of lawyers. Except, of course, the plaintiffs bar. They have kept strategically silent up to now, perhaps hoping the trust will die before they need to take steps to eliminate it. Death could well be its fate.

The trust fund proposal has a better chance of becoming law than any other in a generation. But that does not exactly make it an odds-on bet.

Those who must agree to it - business, labor and a bipartisan group of legislators - unite on generalities: that the problem of asbestos must be urgently solved. But they disagree on who should pay how much, and who should claim how much.

And even if they make peace on these issues, a larger problem lurks: What if the trust runs out of money before everyone gets paid?

Labor wants a guarantee of last resort from the government, but Republicans are adamantly opposed. The trust fund will have multiple opportunities for failure before it ever becomes law - not to mention afterward.

But for the first time since the dawn of the asbestos era, there is at least a slim hope that victims may get paid without causing bankruptcies throughout the U.S. economy.

It is worth cutting some corners on fairness to achieve that result. There may not be another chance.

This column was published May 12 by the Financial Times