Commentary

The Hatch Asbestos Trust: Cleaning up the asbestos mess

By Michelle J. White
This article appeared in the National Review on July 22, 2003.

The dangers of asbestos became common knowledge more than a quarter-century ago, prompting American industries to stop using it and building owners to abate it. Yet, despite the many years of decreasing asbestos use, the court system has seen a dramatic recent increase in the filing of lawsuits over human exposure to the material.

The increase is not related to a sharp rise in asbestos-related illnesses; asbestos-linked cancer deaths have been declining since 1992. Instead, the suits appear to be the product of attorneys’ searching for new plaintiffs and the concentration of thousands of claims in particularly plaintiff-friendly state courts. Many of the new plaintiffs have little or no asbestos-related harm, but defendant firms settle their claims anyway to avoid the risks of losing thousands of cases in one court decision.

The 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 liabilities and $54 billion has been paid in damages. The new suits could raise the awards total to more than $250 billion. People who were wrongfully exposed to asbestos and now suffer asbestos-related illnesses, especially those with devastating mesothelioma, have an understandable demand for compensation. Is there some way to treat asbestos victims fairly but also protect the U.S. economy?

Federal lawmakers took an important step toward satisfying those goals last week when a Senate committee finalized the provisions of a bill sponsored by Sen. Orrin Hatch (R., Utah) that will establish a trust fund to compensate asbestos victims. Under the legislation, firms deemed responsible for exposing people to asbestos, along with the firms’ insurers, would pay between $122 and $153 billion to the trust in exchange for protection from future asbestos lawsuits. Victims would be compensated depending on their degree of injury, with the most serious mesothelioma sufferers receiving $1 million. The trust would pay compensation only to claimants who have significant occupational exposure to asbestos and satisfy specific medical tests for asbestos-related disease.

The bill, sponsored by Sen. Orrin Hatch (R., Utah), is the only approach on the table for resolving the asbestos-litigation crisis. In the late 1990s, the U.S. Supreme Court rejected a plan to combine all present and future asbestos lawsuits into a single class action that would be resolved by a mass settlement. Because most asbestos litigation occurs in state courts, changes in individual state’s laws would not resolve the crisis. Individual firms that declare bankruptcy in order to shed asbestos liabilities face grave expense and increase the litigation pressure on non-bankrupt companies.

Doing nothing would be the worst option of all because it threatens the solvency of the insurance companies that usually pay the damage awards. Asbestos defendants routinely sue their insurers to reopen 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. But it has been criticized for providing victims with amounts that are far smaller than the largest damage awards handed out by juries. That is true, 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 plaintiff 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 suit 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, 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. Her article on asbestos tort Resolving the “Elephantine Mass” appears in the summer issue of Regulation magazine, published by the Cato Institute.