    [Senate Hearing 109-594]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 109-594

        S. 3274: THE FAIRNESS IN ASBESTOS INJURY RESOLUTION ACT OF 2006

    =======================================================================

                                    HEARING

                                   before the

                           COMMITTEE ON THE JUDICIARY
                              UNITED STATES SENATE

                           ONE HUNDRED NINTH CONGRESS

                                 SECOND SESSION

                                   __________

                                  JUNE 7, 2006

                                   __________

                              Serial No. J-109-82

                                   __________

             Printed for the use of the Committee on the Judiciary

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                           COMMITTEE ON THE JUDICIARY

                     ARLEN SPECTER, Pennsylvania, Chairman
    ORRIN G. HATCH, Utah                 PATRICK J. LEAHY, Vermont
    CHARLES E. GRASSLEY, Iowa            EDWARD M. KENNEDY, Massachusetts
    JON KYL, Arizona                     JOSEPH R. BIDEN, Jr., Delaware
    MIKE DeWINE, Ohio                    HERBERT KOHL, Wisconsin
    JEFF SESSIONS, Alabama               DIANNE FEINSTEIN, California
    LINDSEY O. GRAHAM, South Carolina    RUSSELL D. FEINGOLD, Wisconsin
    JOHN CORNYN, Texas                   CHARLES E. SCHUMER, New York
    SAM BROWNBACK, Kansas                RICHARD J. DURBIN, Illinois
    TOM COBURN, Oklahoma
               Michael O'Neill, Chief Counsel and Staff Director
          Bruce A. Cohen, Democratic Chief Counsel and Staff Director

                                C O N T E N T S

                                  ----------

                        STATEMENTS OF COMMITTEE MEMBERS

                                                                       Page

    Feinstein, Hon. Dianne, a U.S. Senator from the State of
      California.....................................................     5
    Kennedy, Hon. Edward M., a U.S. Senator from the State of
      Massachusetts..................................................     4
        prepared statement...........................................    98
    Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont.     2
        prepared statement...........................................   103
    Specter, Hon. Arlen, a U.S. Senator from the State of
      Pennsylvania...................................................     1

                                   WITNESSES

    Cullinan, Dennis, National Legislative Service, Veterans of
      Foreign Wars, Washington, D.C..................................    18
    Engler, John, former Governor of Michigan and President, National
      Association of Manufacturers, Washington, D.C..................     6
    Ganz, Peter, Executive Vice President and General Counsel, Foster
      Wheeler, Clinton, New Jersey...................................     7
    Green, Eric, Founder, Principal, Resolutions, LLC, Professor,
      Boston University, Boston, Massachusetts.......................     9
    Green, Flora, National Spokesperson, Seniors Coalition, Fairfax,
      Virginia.......................................................    11
    Grogan, James A., General President, International Association of
      Heat and Frost Insulators and Asbestos Workers, Lanham,
      Maryland.......................................................    13
    Holtz-Eakin, Douglas, Director, Council on Foreign Relations,
      Washington, D.C................................................    15
    Kelly, Edmund F., Chairman, Liberty Mutual Insurance Company,
      Boston, Massachusetts..........................................    16

                           SUBMISSIONS FOR THE RECORD

    American Federation of Labor and Congress of Industrial
      Organizations, John J. Sweeney, President, Washington, D.C.,
      letter.........................................................    31
    American Insurance Association, Marc Raciot, President,
      Washington, D.C., letter.......................................    33
    Common Interest Group of Trusts, W.D. Hilton, Jr., Member of the
      Steering Committee, Washington, D.C., statement................    34
    Council for Citizens Against Government Waste, Tom Finnigan,
      Washington, D.C., press release................................    36
    Cullinan, Dennis, National Legislative Service, Veterans of
      Foreign Wars, Washington, D.C., statement......................    37
    Engler, John, former Governor of Michigan and President and Chief
      Executive Officer, National Association of Manufacturers,
      Washington, D.C., statement....................................    41
    Gantz, Peter, Executive Vice President and General Counsel,
      Foster Wheeler Ltd., Clinton, New Jersey, statement............    44
    Green, Eric, Founder, Principal, Resolutions, LLC, Professor,
      Boston University, Boston, Massachusetts, statement............    49
    Green, Flora, National Spokesperson, Seniors Coalition, Fairfax,
      Virginia, statement............................................    63
    Grogan, James A., General President, International Association of
      Heat and Frost Insulators and Asbestos Workers, Lanham,
      Maryland, statement............................................    67
    Holtz-Eakin, Douglas, Council on Foreign Relations, Washington,
      D.C., statement................................................    71
    Hopeman Brothers, Inc., David M. Lascell, Waynesboro, Virginia,
      letter.........................................................    78
    Keener, Mary Lou, Palm Coast, Florida, letter....................    81
    Kelly, Edmund F., Chairman, Liberty Mutual Insurance Company,
      Boston, Massachusetts, statement...............................    84
    Kemp, Jack, Washington, D.C., statement..........................    95
    National Federation of Independent Business, Dan Danner,
      Executive Vice President, Public Policy and Political,
      Washington, D.C., letter.......................................   105
    Peterson, Mark A., Legal Analysis Systems, Thousand Oaks,
      California, letter.............................................   107
    Property Casualty Insurers Association of America, Ernst Csiszar,
      President and Chief Executive Officer, Washington, D.C.,
      statement......................................................   113
    Reinsurance Association of America, Franklin W. Nutter,
      President, Washington, D.C., letter............................   115
    Veteran and military service organizations, Washington, D.C.,
      joint letter...................................................   117

        S. 3274: THE FAIRNESS IN ASBESTOS INJURY RESOLUTION ACT OF 2006

                                  ----------

                            WEDNESDAY, JUNE 7, 2006

                                  United States Senate,
                                    Committee on the Judiciary,
                                                      Washington, D.C..
        The hearing was convened, pursuant to notice, at 9:30 a.m.,
    in room SD-226, Dirksen Senate Office Building, Hon. Arlen
    Specter, Chairman of the Committee, presiding.
        Present: Senators Sessions, Cornyn, Coburn, Leahy, Kennedy,
    and Feinstein.

     OPENING STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM
                       THE STATE OF PENNSYLVANIA

        Chairman Specter. Good morning, ladies and gentlemen. The
    Judiciary Committee will now proceed to consideration of Senate
    bill 3274, which was introduced by the distinguished Ranking
    Member, Senator Leahy, and myself before the Memorial Day
    recess, which updates the Asbestos Reform bill which came out
    of the Judiciary Committee and has been on the floor of the
    U.S. Senate.
        There is a thoroughly established record about the need for
    reform on asbestos litigation. We have seen the situation where
    the Supreme Court of the United States, on a number of
    occasions, has called upon Congress to act because of the
    avalanche of litigation.
        We have seen thousands of victims of exposure to asbestos
    with deadly diseases like mesothelioma unable to collect
    because they had the exposure to asbestos in the military
    service or exposure in the employ of companies which have since
    gone bankrupt. Some 77 companies have gone bankrupt as a major
    threat to the economy.
        The Chamber of Commerce has projected the asbestos problem
    to be in the range of $500 billion. The Judiciary Committee has
    considered the issue at length on some occasions and, with
    Senator Hatch's leadership in the previous Congress, we came up
    with the trust fund concept, which has been modified very
    substantially.
        We have, after consideration, submitted revised legislation
    which is a significant improvement with stronger medical
    criteria.
        The revised bill now authorizes random audits of
    affidavits; it clarifies that a claimant's diagnosis must be
    made by a treating, rather than an examining, physician; it
    requires claimants to provide detail-specific and critical
    affidavits of proof of significant asbestos exposures; it has
    improved procedures for taking care of the sickest victims, yet
    has an improved allocation formula for companies who are called
    upon to pay, adopting Senator Kyl's amendment, which limits the
    contributions to 1.67 percent of the gross revenues in lieu of
    the earlier formula set forth in the bill; and it also provides
    for assistance and relief to the well-insured defendants who
    currently pay little or no out-of-pocket costs into the tort
    system. There are also tighter controls on leakage.
        The sponsors of the bill are, candidly, determined to
    succeed here. Senator Leahy and I, and others, have undertaken
    the process of going to Senators' offices in an unusual way,
    spending an hour at a time. It is unusual for Senators to do
    that.
        We have called in specific companies and have listened to
    their problems, and we have sought answers to their problems.
    We are going to do what it takes to pass this legislation. We
    are going to do what it takes to pass this legislation.
        We understand that there are substantial financial
    interests in opposition, but occasionally around here the
    public interest prevails and I think it is going to prevail in
    this situation.
        Just one word on a personal note. Since we last met, there
    has been the passing of Judge Edward Becker, who did
    extraordinary work in the development of this legislation.
        In his offices in August of 2003, he met with the so-called
    stakeholders and devoted countless hours to meeting with large
    groups where, in my conference room, 20 to 50 individuals
    assembled on dozens of occasions.
        He talked to Senators on an individual basis and was
    concerned about this legislation right up until his last days.
    When we talked when I visited him, the first thing he wanted to
    know was, beyond my own health, what was the health of the
    asbestos reform bill. He quoted George Gipp in that famous
    Notre Dame movie, ``Win one for the Gipper.'' So, we are pretty
    well motivated.
        Senator Leahy?

      STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE
                            STATE OF VERMONT

        Senator Leahy. Well, Mr. Chairman, I thank you for
    demonstrating, again, your commitment to making some
    constructive changes in the asbestos litigation system. It is a
    broken system. We can change it. We can fix it. It fell on a
    procedural maneuver without being voted on earlier this year.
    We can go back and get to a real vote and we can pass this.
        The Chairman mentioned Judge Becker, his friend of 50
    years, I believe.
        Chairman Specter. Fifty-six.
        Senator Leahy. Fifty-six years. Judge Becker, of course,
    was a distinguished Federal jurist. He had been Chief Judge of
    the Third Circuit, a member for years. I agree, without his
    extraordinary efforts, we would not have come as far as we did.
        I also commend the Chairman, who, through a recent illness
    of his own, kept working on this. I know, I tried to sneak off
    to my farm in Vermont and not think about asbestos, and the
    phone would be ringing as I was walking in the door.
        I think he had the place wired to know I was there, and
    say, Pat, you know, if we called Senator so and so, maybe we
    could get one more person. But what we did all the way through
    it, both Senator Specter and Judge Becker said, let us keep it
    bipartisan, which is what I have insisted on, and let us bring
    all the stakeholders to the table. We did that.
        We can have questions of tort reform, like insulating the
    makers of food products and things like this that are not going
    to go anywhere, and do divide us. But here we have a real
    problem that should be addressed, and we can do it.
        The Supreme Court has declared that the current system of
    asbestos litigation cries out for a legislative solution, and
    the court is right on that. You will not find a member of the
    court who will disagree. We can do that. We have an improved
    bill.
        We have been responsive to concerns of many interested
    parties, and we have refined the bill to accommodate many of
    these. We want to do what is right for the victims of asbestos
    exposure, and we want a bipartisan bill.
        In an increasingly polarized Congress, only things done in
    a bipartisan way actually are going to pass. But let us not
    lose focus of what we want. We want, first and foremost, fair
    compensation for those who have been injured or killed from
    exposure to asbestos.
        Some changes attempt to further balance the equities among
    the companies that have to contribute to the fund. I want to
    make it very clear, the medical criteria of the bill remains
    unchanged, but we put in further safeguards to ensure the
    integrity of the claims process.
        For example, a provision for random audits, both medical
    and exposure evidence submitted by claimants; a provision
    requiring a detail-specific affidavit from a claimant attesting
    to their exposure. We are doing this to prevent fraud.
        We also ensure that veterans who contracted asbestos-
    related illness during their service for this country can claim
    against the fund, with special status limitations for veterans
    who receive government benefits from the illness. So you remedy
    the situation of veterans being shut out from the tort system
    by virtue of government employees.
        We preserve more preexisting legal settlements between
    claimants and dependents by allowing a plaintiff's
    representative or an authorized corporate attorney to sign an
    agreement.
        There are a number of things in here. We make clear that
    civil rights of disability claims are not preempted by the
    legislation. We spent a lot of time, and we are doing it today,
    taking up things for partisan posturing, for show on the Senate
    floor.
        Here, we have an historic chance to make a difference in
    the lives of many Americans who have suffered so tragically. It
    is not something that makes for good political reading. It is
    not something that is going to be a show like some of the
    things we do on the Senate floor. But it actually helps and
    gives us a chance to relieve our Federal and our State judicial
    systems from the crushing weight of what the Supreme Court has
    described as an elephantine mass of litigation. So, I thank
    everybody who is here.
        Ironically, I am going to be required to go back to the
    floor to speak on what is the current political show on the
    floor. I want to get back to what is reality for this country,
    what we are looking at right here. Thank you, Mr. Chairman. I
    commend you. I also appreciate you mentioning Judge Becker the
    way you did. He deserves the praise.
        Chairman Specter. Thank you, Senator Leahy.
        Senator Kennedy, would you care to make an opening
    statement?

     STATEMENT OF HON. EDWARD M. KENNEDY, A U.S. SENATOR FROM THE
                         STATE OF MASSACHUSETTS

        Senator Kennedy. Just briefly, Mr. Chairman, and then I
    will include the statement in the record. But if I could say a
    brief word.
        I think all of us on the committee want to thank you, Mr.
    Chairman and Senator Leahy, for your hard work and diligence on
    this issue. It is enormously important, and I admire your
    perseverance on it.
        However, I do feel that the latest version of the asbestos
    trust fund does not correct the fundamental problems that made
    the original bill unacceptable. The new bill, 3274, would still
    create the trust fund that excludes many seriously ill victims
    of asbestos-induced disease from receiving compensation, and
    fails to provide a guarantee of adequate funding to make sure
    the victims who are eligible will actually receive what the
    bill promises them.
        As I said before, the real crisis which confronts us is not
    an asbestos litigation crisis, it is an asbestos-induced
    disease crisis. Asbestos is the most lethal substance ever
    widely used in the workplace.
        All too often, the tragedy these seriously ill workers and
    their families are enduring becomes lost in a complex debate
    about the economic impact of asbestos litigation. We should not
    allow that to happen.
        The litigation did not create these costs, exposure to
    asbestos created them. There is the cost of medical leave, the
    lost wages, of incapacitated workers, the cost of providing for
    the families of workers who died before their time, and those
    costs are real. No legislative proposal can make them
    disappear. All legislation can do is shift those costs from one
    party to another.
        So, I appreciate the enormous effort that Senator Specter
    and Senator Leahy have put into the issue. The latest proposal
    does not correct the basic flaws and earlier versions of the
    legislation.
        The trust fund is seriously, I believe, under funded. It
    lacks sufficient financial resources to pay all the victims of
    asbestos disease that the legislation promises to compensate.
        Major problems identified by the CBO are still present in
    the new bill. In addition, some of the changes in S. 3274 may
    actually create new problems for victims attempting to collect
    from the asbestos trust.
        Most of the burden of asbestos-induced disease is being
    shifted back onto the victims. The new legislation does not
    provide a fair and reliable solution to the enormous problems
    of compensating the asbestos victims. If S. 3274 were to be
    enacted, it is probably that the asbestos trust fund created by
    the bill would soon become insolvent.
        As Professor Green, who is with us today as one of our
    witnesses, states in his written testimony, ``In the end, it is
    highly likely that a choice will have to be made between
    bailing out the fund with Federal funds or abandoning future
    claimants. Either way, the perpetrators and the profiteers
    escape, while the needy and the innocent suffer.''
        It is not enough to say that there are serious inadequacies
    in the way asbestos cases are adjudicated today. That does not
    mean that any legislation is better than the current system.
    Our first obligation is to ``do no harm,'' and I regret to say
    that, despite the best intentions, this legislation would do
    harm.
        When the committee considered the original Specter-Leahy
    bill in May, it identified 10 areas in which the legislation
    was deficient, both unfair and unworkable. Unfortunately, all
    of those problems are still present in the latest version.
        I ask consent that my full statement be part of the record.
    I thank the Chairman.
        Chairman Specter. Your full statement will be made a part
    of the record, Senator Kennedy.
        [The prepared statement of Senator Kennedy appears as a
    submission for the record.]
        Chairman Specter. Senator Feinstein, do you care to make an
    opening statement?

      STATEMENT OF HON. DIANNE FEINSTEIN, A U.S. SENATOR FROM THE
                          STATE OF CALIFORNIA

        Senator Feinstein. Just a brief comment, Mr. Chairman.
    Thank you for all your work on it. As you know, I have been
    involved with this from the beginning. I do not know the
    particulars of the changes that have been made. I hope at some
    point that will become more apparent.
        I am concerned about the classifications and that this fund
    really only deal with victims of asbestos. Perhaps that is
    enough for now. I guess, as the months have gone on, I have
    become more concerned as to whether we can ever get the kind of
    support that is necessary to move a bill like this, because so
    much is unknown about the impact of it.
        Thank you, Mr. Chairman.
        Chairman Specter. Thank you very much, Senator Feinstein.
        There are unknowable factors, beyond any question, and we
    have sought to accommodate them with sunset provisions and a
    variety of safeguards. But we will continue to work.
        Will you all rise and take the oath, please?
        [Whereupon, the witnesses were duly sworn by the Chairman.]
        Chairman Specter. May the record show that each person has
    answered in the affirmative.
        Our first witness today is the distinguished president of
    the National Association of Manufacturers, Governor John
    Engler, a three-term governor from the State of Michigan, 20
    years in the State legislature, including 7 as State Senator
    Majority Leader. He graduated from Michigan State University,
    has a law degree from Thomas M. Cooley Law School.
        Thank you very much for joining us, Governor Engler. We
    have the clock set at 5 minutes.

        STATEMENT OF JOHN ENGLER, FORMER GOVERNOR OF MICHIGAN,
     PRESIDENT, NATIONAL ASSOCIATION OF MANUFACTURERS, WASHINGTON,
                                  D.C.

        Governor Engler. Thank you, Mr. Chairman. I am delighted to
    be here. Thank you for inviting me back to testify on behalf of
    the Asbestos Alliance of the National Association of
    Manufacturers.
        I want to begin, as you did, by paying tribute and honoring
    the memory of Judge Edward Becker, acknowledging his tremendous
    contribution in mediating this critical legislation. He is
    missed, and we honor his memory.
        I want to thank you, Mr. Chairman and Senator Leahy, for
    your unwavering commitment, and eloquently restated again this
    morning, to the passage of asbestos trust fund legislation.
        The new FAIR Act is a win-win-win for victims, for workers,
    and the economy. Only a trust fund approach that takes asbestos
    cases out of the courts could end the asbestos litigation
    nightmare.
        We recognize that some States have made progress in
    addressing some of the most egregious aspects of asbestos
    litigation, but State medical criteria legislation, while very
    welcome, does not prevent plaintiffs' attorneys from seeking
    out new, more friendly forums, as they have done for years.
        It also does not end the litigation lottery in which some
    victims do fine, but many others face delayed and reduced
    compensation. More fundamentally, keeping asbestos claims in
    the courts ignores other problems. It costs U.S. businesses
    $2.38 to provide $1 of compensation to asbestos victims.
        That is a lose-lose-lose proposition for victims, workers
    and the economy. In addition, plaintiffs' lawyers, in search of
    new pockets, will drag thousands of companies into court on the
    flimsiest basis, disrupting their business and sabotaging their
    credit.
        Reform of the tort system alone cannot address these
    problems. The only way to fix asbestos once and for all is by
    getting these cases out of the tort system and into a privately
    funded, no-fault administrative process.
        Along with ending the litigation for all companies, the
    trust fund bill will completely exempt SBA-eligible small
    businesses from paying into the trust fund; their asbestos
    litigation nightmare will finally be over and the companies
    contributing to the trust fund will have certainty about their
    financial obligations. The trust fund will also prevent future
    asbestos bankruptcies and their destructive impact on workers,
    their retirements, and their communities.
        Far from being a tax itself, the FAIR Act actually
    eliminates the asbestos support tax that American business has
    been paying now for 40 years. The companies that will
    contribute to the trust fund today face expensive litigation,
    which hampers their ability to raise capital and expand and
    create jobs. The FAIR Act lifts the constant threat that
    asbestos litigation poses to their operations, and sometimes to
    their very survival.
        S. 3274 is a major advance over previous versions of the
    FAIR Act. First, it incorporates, Mr. Chairman, as you
    mentioned, Senator Kyl's amendment, which limits the
    contribution of small- and mid-sized companies to 1.67 percent
    of their gross revenues and liberalizes the procedure for
    hardship adjustments. It also addresses the concerns of small,
    deeply insured companies in Tier II, like Foster Wheeler, from
    whom you will hear today.
        Next, Senate bill 3274 goes even further than the earlier
    bill to prevent fraudulent claiming. We commend Federal Judge
    Janice Jack for exposing all of the fraud rampant in silica
    litigation, but there are still hundreds of thousands of
    asbestos claims pending, and rampant fraud has been a problem
    for decades.
        If we keep asbestos cases in the courts, the profit motive
    remains for trial lawyers to recruit unscrupulous doctors to
    deliver bogus diagnoses. A key advantage of the trust fund bill
    is that it will stop this madness and ensure that only the
    truly sick receive the compensation they deserve.
        Another important improvement limits the filing of old or
    dormant claims with the trust fund for compensation. This will
    strengthen the fund's financial integrity.
        Finally, the new bill explicitly states that the trust fund
    will not increase the deficit, will not impose any burden on
    the taxpayer, and will not create any taxpayer obligation.
        The trust fund solution has always been based on private
    financing, with absolutely no obligation to the Federal
    Government to make up any shortfalls. S. 3274 also requires the
    Chief Financial Officer of the Department of Labor to certify
    annually that the fund will be financial solvent based on these
    private contributions.
        This strengthens the earlier bill, which made this the
    responsibility of the trust fund administrator who may have had
    a special interest in keeping the fund going.
        In short, the trust fund will ensure fair, fast, and
    certain compensation to victims, including many, many veterans.
    It will boost our economy. Navigant Consulting estimated it
    could create more than 800,000 jobs and increase economic
    growth by $64 billion.
        As the U.S. Supreme Court said twice, asbestos litigation
    defies customary judicial administration and calls for national
    legislation. After decades of trying, the solution is at hand.
    It is time to act. I urge this Senate committee to move the
    trust fund forward for full Senate consideration.
        Chairman Specter. Thank you very much, Governor Engler.
        [The prepared statement of Governor Engler appears as a
    submission for the record.]
        Chairman Specter. We now turn to Mr. Peter Ganz, Executive
    Vice President, General Counsel and Secretary of Foster
    Wheeler. Mr. Ganz is a summa cum laude graduate of Duke, and a
    magna cum laude graduate of the Harvard Law School.
        Thank you for joining us, Mr. Ganz. We look forward to your
    testimony.

     STATEMENT OF PETER GANZ, EXECUTIVE VICE PRESIDENT AND GENERAL
              COUNSEL, FOSTER WHEELER, CLINTON, NEW JERSEY

        Mr. Ganz. Thank you, Mr. Chairman. I thank you, Senator
    Leahy, and the members of the committee for inviting me to
    provide testimony here today.
        By way of background, Foster Wheeler is a global
    engineering and construction contractor and power equipment
    supplier. Foster Wheeler and its predecessors have been in
    business for well over 100 years, and Foster Wheeler currently
    employs over 9,000 people worldwide.
        Over the course of its long history, Foster Wheeler
    designed, supplied, and erected numerous marine- and land-based
    steam generators and process plant facilities which required
    insulation, valves, pumps, and other equipment supplied by
    third parties to Foster Wheeler, or directly to Foster
    Wheeler's customers, which, in certain instances and in certain
    time periods--particularly World War II, I might add--may have
    contained asbestos.
        Like many American companies engaged in the businesses in
    which we participated in decades past, Foster Wheeler
    subsidiaries have confronted many thousands of asbestos claims
    throughout this country.
        In fact, we have resolved almost 300,000 asbestos claims to
    date, at a cost to the company and its insurers of almost $700
    million. As of March 31 of this year, we had approximately
    165,000 claims pending.
        Over the years, not only has Foster Wheeler sought to
    defend itself as best it could in the tort system, but it also
    worked diligently to marshall its available insurance assets
    and carefully protect and manage these extremely valuable
    resources.
        As a result, except for amounts allocated to insolvent
    insurers, we believe that substantially all of Foster Wheeler's
    asbestos-related expenses to date have been, or will be,
    covered by insurance. In addition, based upon current
    estimates, we expect that the bulk of our future asbestos-
    related expenditures would be covered by our insurance assets.
        While Foster Wheeler consistently has supported the concept
    of a Federal legislative asbestos solution and believes that
    there may be different possible approaches which could be
    effective, including a trust fund/medical criteria approach,
    Foster Wheeler did not support the solution set forth in S.
    852.
        We made it very clear that our principal, although by no
    means only, criticism of that version of the legislation was
    that we considered the allocation formula contained therein to
    be unfair to companies such as ours by requiring us to make
    annual payments into the trust that were far in excess of what
    we otherwise would expect to pay net of our future insurance.
        We believe that the allocation formula contained in S. 852,
    in effect, penalized us for having carefully collected,
    managed, and conserved our available insurance assets so that
    they would be available to us in the future.
        It is because of Foster Wheeler's concern over this
    critical issue of allocation that, as early as the fall of
    2004, we first reached out to other companies who might have
    similar concerns and, in early January of 2005, Foster Wheeler
    and these other so-called ``well insured'' companies
    communicated their position to the committee.
        At about the same time, these companies formed the nucleus
    of the Coalition for Asbestos Reform, or CAR, a group which
    later attracted insurers and others also critical of various
    aspects of S. 852.
        At this point, I would particularly like to express our
    appreciation for Senator Cornyn, who very early recognized the
    issue that we were raising about allocation and the fact that
    we were heavily insured, and, in fact, had drafted and was
    prepared to offer an amendment to the S. 852 that would have
    corrected that imbalance, and we appreciate it.
        Following the floor action on the bill, Chairman Specter
    and his staff invited our company, as well as others, to
    discuss possible revisions to the bill. Following what was
    clearly a lot of hard work on their part, Senator Specter,
    Senator Leahy, and their staffs incorporated a provision in the
    new bill which Foster Wheeler believes reflects a true
    recognition of our concerns on allocation and constitutes a
    fair and reasonable compromise on the issue.
        This provision essentially provides that many small- and
    medium-sized companies like ours which have relied on insurance
    will be eligible for an adjustment to their allocation so that
    they can expect to pay no more than 5 percent of their annual
    adjusted cash flow.
        While this solution is not perfect, it may still result in
    our company paying somewhat more out-of-pocket in any given
    year than we might otherwise have paid had we been able to rely
    upon our available insurance. We do support it as a fair
    compromise.
        It provides a company like ours with a manageable,
    predictable contribution to the fund, which should allow us to
    focus our management resources on running and growing our
    business.
        In conclusion, we thank Senator Specter, Senator Leahy, and
    their staffs for incorporating this provision which addresses
    the issue that we were so concerned about for so long. Thank
    you for this opportunity to express these concerns.
        Chairman Specter. Thank you. Thank you, Mr. Ganz.
        [The prepared statement of Mr. Ganz appears as a submission
    for the record.]
        Chairman Specter. Our next witness is Professor Eric Green,
    Boston University law faculty since 1977, graduate of Brown,
    law degree from the Harvard Law School.
        I thank you for coming in today, Professor Green. The floor
    is yours.

    STATEMENT OF ERIC GREEN, FOUNDER, PRINCIPAL, RESOLUTIONS, LLC,
        AND PROFESSOR, BOSTON UNIVERSITY, BOSTON, MASSACHUSETTS

        Mr. Green. Thank you, Senator Specter for the opportunity
    to testify on this important legislation. I thank Senator Leahy
    as well.
        As you know, I have testified on this bill previously. My
    perspective is that of the court-appointed representative of
    the unknown future claimants, those who are not represented in
    the tort system currently.
        I have never represented a plaintiff in the asbestos
    litigation. I have never represented a defendant. I have no
    personal stake in this matter whatsoever. Someone has to speak
    for the unknown future claimants who will be seriously affected
    by this legislation.
        The problems which existed in the original legislation have
    not been cured by the amendments in S. 3274. In fact, I believe
    some of these amendments, in an effort to pick up opposition on
    one side, have simply exacerbated the problem of there being
    illusory promises of adequacy of funds to pay these liabilities
    into the future, and in fact these amendments have created
    greater uncertainty about the sources of fund, and about what
    will happen to the victims on the back end of the fund.
        There are no assurances in this bill that the fund will
    have resources to timely pay claims. As a matter of fact, it is
    fairly certain that in a number of years the trust will have to
    go heavily in debt, and the cost of that debt service, when
    added to the predictions of what will be necessary to pay
    claims, indicates that there is a great probability that the
    trust will face an insolvency problem in the not-too-distant
    future.
        What happens when that occurs, of course, is extremely
    unclear. It has been attempted to be addressed with a very
    vague and Band-Aid solution in the form of this so-called
    master trust at the end.
        It sounds good, but really does not demonstrate any
    solution to the problem that I am concerned with, and that we
    all should be concerned with, because we may be gone in 10 or
    12 years. I do not know how much longer Senator Kennedy is
    going to represent my State.
        Senator Kennedy. Oh, that is a nice thought.
        [Laughter].
        What are you picking on me for?
        [Laughter].
        Mr. Green. I think you are one of the senior members of the
    Senate. We will be gone, but victims will not be. What a shame
    it will be when we leave them at the end with the mess that
    this legislation is going to leave them in. If there is not
    enough money at the end for the national trust that we are
    establishing to pay claimants, where does the money come from
    to fund this so-called master trust?
        If there are insufficient funds, will the victims not
    simply be forced to take less, or the taxpayers of the United
    States will be forced to come in and fund the money? To simply
    say that no taxpayer money is going to be used is not correct
    and it is not being truthful with the American taxpayers,
    unless you want to say, victims at the end of the line, you are
    going to get shafted by this legislation.
        I think it is incumbent upon our political leaders to face
    up to these problems honestly and not leave the least capable
    of fending for themselves with the problem at the end.
        With some of the other amendments which have provided
    relief to small businesses and others who may be well insured,
    it is a zero-sum game, Senator. If they are paying less,
    someone is paying more. Who is it? It is not made clear.
        I think that it is either going to be the taxpayers, it is
    going to be other companies and insurance companies, or, sadly,
    it may be the least powerful of them all, the victims. That is
    not consistent with our national values, it is not consistent
    with the promises we implicitly made to the workers who worked
    on the ships during World War II.
        It is not consistent with the promise we should be making
    to our soldiers fighting in Afghanistan and Iraq now with
    asbestos in materials over there. It is not consistent with the
    workers who are sick and who are dying now.
        I have nothing but the greatest respect for Judge Becker,
    who was a great jurist. But there are victims who have died
    also since our last hearing, Senator Specter, who should be
    mentioned. Larry Rice died May 13 of mesothelioma.
        There are common people with no one to protect them but
    either the courts, the existing trusts, or this body, who are
    also in dire straits. It is those people I urge this body to
    remember.
        Chairman Specter. Thank you, Professor Green.
        [The prepared statement of Mr. Green appears as a
    submission for the record.]
        Chairman Specter. Our next witness is Ms. Flora Green, who
    hails from Claysville, Pennsylvania. During World War II, she
    served as an overhead crane operator in a steel mill. How much
    did you weigh then, Ms. Green?
        Ms. Green. That is not fair!
        [Laughter].
        Chairman Specter. You expect me to withdraw that question?
        [Laughter].
        Ms. Green. Well, I do.
        Strike it from the record.
        [Laughter].
        Chairman Specter. She is here today representing the
    Seniors Coalition. Thank you very much for joining us, Ms.
    Green, and we look forward to your testimony.

       STATEMENT OF FLORA GREEN, NATIONAL SPOKESPERSON, SENIORS
                      COALITION, FAIRFAX, VIRGINIA

        Ms. Green. Well, thank you for giving me the opportunity. I
    never thought in my lifetime in Claysville that I would be
    sitting among such famous, wonderful people. I am looking
    around, and I am the oldest one in the room--just remember
    that--as I usually am.
        [Laughter].
        Ms. Green. Unfortunately, I have a little vision
    impairment, so bear with me. I come under the auspices of the
    Seniors Coalition and I speak with seniors daily. I have had
    many, many calls from seniors who are suffering from the
    terrible maladies caused by exposure to asbestos, something
    that we least suspected.
        You know, we did the job as we were required to do. We
    worked in defense factories. We were concerned about what was
    happening with our men and women overseas, so we did not care.
    We did the job. Then down the road, what happened? It is just a
    serious issue, and seniors are concerned.
        Of course, this issue, the Fairness in Asbestos resolution
    is of prime importance to seniors. Again, many are suffering,
    not being paid, do not know what to do, may lose their house,
    they are trying to get money, and they are in serious, serious
    trouble.
        As I said, I have spoken with many folks, and at their
    request I am urging the passage of the FAIR Act. This
    compensation issue has dragged on long enough. They are tied up
    in the court system and seem to go on forever. Many of us look
    around and think, well, are we going to live long enough to
    have the benefit of some compensation to care for us in our
    declining years?
        I am fortunate. I am 84 and in wonderful health. I do not
    know about my mind some days--
        [Laughter].
        Ms. Green. But folks out there care, and I care, and I am
    sure the members of this panel care about the seniors--I am
    addressing them, particularly--that do suffer and long for
    health.
        It seems to seniors that the whole issue is that the trial
    attorneys and the courts manage to eat up most of the
    compensation award, if it ever comes. That makes us pause. I
    wonder why? This needs to be addressed.
        As I understand it, the FAIR Act is not going to cost the
    taxpayers or the government to fund. It is going to come from
    companies that actually were at the base root of the issue.
        Now, another one of our members sent this to me. ``I know
    you talk to Members of Congress. Tell them this for me: act
    now. I may be dead and gone before I get any compensation. Just
    give them hell, Grandma.'' I have done my best to follow his
    advice.
        One last thought. I was a bill collector back in my real
    life before I came to Washington, and we had a phrase that was
    our golden rule. It was ``be firm, be fair, expect to be
    paid.''
        I am going to throw that right back to you. Just think: we
    have been firm, we expect you to be fair, and then we will be
    paid. What more can you ask? So, please bear with me in my
    observation, and I will tell you, shame on you if you do not
    pass this bill.
        I am a grandmother of 24 and great-grandmother of 28, and
    two more coming. Thank you.
        Chairman Specter. Thank you very much, Ms. Green. You are
    inspirational. Thank you. Thank you.
        [The prepared statement of Ms. Green appears as a
    submission for the record.]
        Chairman Specter. We are midway through a vote, so we will
    take a brief recess and reconvene.
        Senator Kennedy. Mr. Chairman, can I include the AFL-CIO
    letters in the record?
        Chairman Specter. Sure. We will be glad to have them made a
    part of the record.
        Senator Kennedy. Thank you.
        Chairman Specter. We stand in recess and we will be back
    shortly after the vote.
        [Whereupon, at 10:10 a.m. the hearing was recessed and
    resumed back on the record at 10:45 a.m.]
        Chairman Specter. I regret the delay. We will now proceed
    with the testimony of Mr. James Grogan, president of the
    International Association of Heat and Frost Insulators and
    Asbestos Workers.
        He serves as vice president of the Building and
    Construction Trades Council of the AFL-CIO, and served as
    president of the New Jersey State Building and Construction
    Trade Council for 14 years.
        Thank you very much for coming in, Mr. Grogan. We look
    forward to your testimony.

    STATEMENT OF JAMES A. GROGAN, GENERAL PRESIDENT, INTERNATIONAL
    ASSOCIATION OF HEAT AND FROST INSULATORS AND ASBESTOS WORKERS,
                            LANHAM, MARYLAND

        Mr. Grogan. Thank you, Senator. Good morning, Senator
    Leahy, distinguished Senators. I am Jim Grogan. I am president
    of the International Association of Heat and Frost Insulators
    and Asbestos Workers.
        Our union is a member of the Building and Construction
    Trades Department of the AFL-CIO. Our members insulate pipes,
    boilers, tanks, and equipment at powerhouses, oil refineries,
    pharmaceuticals, shipyards, and other major industrial
    locations across North America.
        From the 1920s to the 1970s, we applied asbestos pipe
    covering and asbestos block side by side with numerous trades,
    including the boilermakers, the pipe fitters, the electricians,
    and others.
        Our union comes before you once again to strongly support
    your continued efforts to pass a bipartisan bill, S. 3274, that
    will ensure true, fair, and just compensation to current
    victims and future victims of asbestos exposure.
        As we understand, today's substitute legislation is dealing
    with the ongoing developments on asbestos reform and is a
    continuation of the previous legislation that has encountered
    many obstacles and basically brought no relief.
        This legislation, as we read it, provides assurances of
    equitable compensation to asbestos victims and assurances to
    manufacturers and insurers to resolve asbestos claims with
    finality.
        Senator Specter and Senator Leahy have provided a thorough
    and fair process of negotiations for this detailed legislation.
    They have listened to all sides and have created a balanced
    compromise.
        For 30 years, solutions to the asbestos crisis have eluded
    Congress and the courts and penalized the victims. Even our
    U.S. Supreme Court has begged the Congress to fix this national
    asbestos litigation problem. Over 70 companies have gone
    bankrupt and thousands upon thousands of individuals exposed to
    asbestos have developed asbestos-induced diseases.
        For example, mesothelioma is a signal cancer for asbestos
    exposure unrelated to tobacco or other industrial carcinogens.
    Mesothelioma will cause over 2,500 deaths in the U.S. each year
    for the foreseeable future. Asbestos-induced lung cancer and
    asbestosis will account for thousands of additional deaths per
    year.
        We now know that exposure to asbestos, with as little as 3
    months' duration, is sufficient to cause mesothelioma. Today,
    wives and children of asbestos workers who grew up in the 1960s
    and 1970s are getting mesothelioma, not from washing their
    father's clothing, but just from living in the common house.
        From the 1930s to the 1970s, industry, insurance companies,
    and even our own government hid or suppressed information about
    the dangers of asbestos. Companies that suppressed, downplayed,
    or hid the information about the hazards of asbestos have not
    taken responsibility for their outrageous conduct. This
    legislation hopefully will bring that practice to an end.
        No one was more patriotic than those of us who were exposed
    to asbestos dust while constructing, repairing, or living
    aboard naval ships or building governmental facilities.
        If those who knew that asbestos was harmful would have told
    us of the dangers, we would have taken measures to protect
    ourselves. We never would have taken our asbestos-laden clothes
    home and exposed our families.
        Many ask why our union is involved in this legislation.
    They say there are remedies in the courts through the tort
    system. They also say people are being taken care of.
        While it is true that there is an asbestos litigation
    system out there, the system is broken. Many who cannot
    identify where they were exposed to asbestos recover nothing.
    The asbestos crisis is a national tragedy and we need a
    national legislative solution that is fair and equitable to
    all. That is what S. 3274 provides.
        There are other victims of asbestos litigation. Those
    victims are employees, retirees, shareholders, companies'
    savings and retirement plans, an entire group of individuals
    who are in a tidal wave of asbestos lawsuits.
        The most objectionable aspects of asbestos litigation, as
    cited by Senators Specter and Leahy, are that the dockets in
    both the Federal and State courts continue to grow. The same
    issues are litigated over and over. Only 42 cents of every
    dollar goes to the victims and their families. Attorneys fees
    and transaction costs exceed the victims' recovery by nearly
    two to one.
        We support this bipartisan solution to the asbestos
    compensation crisis, but we also caution that victims of
    asbestos disease must not be victimized again by passage of
    legislation that is unfair. Timely and full payments must be
    made to the asbestos victims, as S. 3274 provides.
        If that cannot be accomplished, access to appropriate State
    court forums must be preserved, specifically, a speedy return
    to the tort system if the trust fails to timely meet its
    obligations. We join with those Senators who are trying to
    bring about this bipartisan legislation that will help solve
    the national asbestos problem.
        We will continue to work in a constructive way with those
    of you who wish to see a fair, equitable, and adequately funded
    bill. If all fails, then we will fight for the right of any
    asbestos victim, union or non-union, through a trial of a jury
    of their peers. Fundamental fairness demands no less, and
    neither do we.
        Thank you for the opportunity to testify here today,
    Senator.
        Chairman Specter. Thank you, Mr. Grogan, for that very
    persuasive testimony.
        [The prepared statement of Mr. Grogan appears as a
    submission for the record.]
        Chairman Specter. We now turn to Dr. Douglas Holtz-Eakin,
    Director of the Maurice Greenberg Center for Geoeconomic
    Studies at the Council on Foreign Relations, and Director of
    CBO from February of 2003 to December of 2005. He has a
    bachelor's degree from Dennison and a Ph.D. from Princeton.
        The floor is yours, Dr. Holtz-Eakin.

        STATEMENT OF DOUGLAS HOLTZ-EAKIN, DIRECTOR, MAURICE R.
    GREENBERG CENTER FOR GEOECONOMIC STUDIES, PAUL A. VOLCKER CHAIR
       IN INTERNATIONAL ECONOMICS, COUNCIL ON FOREIGN RELATIONS,
                            WASHINGTON, D.C.

        Mr. Holtz-Eakin. Mr. Chairman and members of the committee,
    thank you for the chance to be here today.
        Injury from asbestos exposure and the cost of asbestos
    litigation are an important public policy problem and the
    committee, and the Chairman in particular, are to be commended
    for their attention to this matter.
        As my written statement makes clear, my focus on S. 3274 is
    on its budgetary impact and its fiscal policy merits. The
    strategy, as outlined in the bill, is to isolate from broad
    budgetary consideration particular Federal revenues and
    particular Federal mandatory spending identified with the
    asbestos fund, and then attempt to cease operations when the
    former are insufficient to cover the latter.
        The impact of such legislation, I think, would be very
    different. As a broad budgetary matter, it is generally not
    desirable to take particular revenues or spending off the level
    playing field for policy consideration, and it is not obvious
    that S. 3274 contains an automatic sunset of such a fund.
    Instead, discretion will be left with an administrator and the
    judgment required to terminate the fund in a timely fashion.
        This is important because the administrator will
    necessarily have to borrow at the start-up of the fund as a
    matter of economic reality. There will be tremendous
    uncertainty regarding the overall scale of claims, with most of
    the likely risk on the up side, given the difficulties in
    anticipating take-home exposures, dormant claims, and other
    episodes like Libby, Montana, and the like. There will be
    comparable uncertainty on the revenue side, with all of the
    risks on the down side, falling short of the $140 billion.
        So as a technical matter, any such administrator will have
    a difficult time judging the appropriate sunset. However, the
    most certain part of the future is that there will be political
    pressure to continue the spending.
        The structure of the fund, as I mentioned in my written
    testimony, is very similar in spirit to the Pension Benefit
    Guaranty Corporation, which, in principal, places the taxpayer
    at no risk to additional funding.
        However, in practice, the promise of pension benefit
    insurance is a powerful one and it is extremely unlikely that
    any future Congress would let future retirees go short of their
    pensions.
        In the same way, having made the commitment to compensate
    victims of asbestos exposure, I find it extremely unlikely that
    a future Congress will stop and allow such a fund to terminate.
    It will be fundamentally unfair as a matter of timing, and very
    difficult to resist as a matter of politics.
        What does this mean? It means that we will now have on the
    books a new Federal mandatory spending program at a
    particularly bad time. As I hope the members of the committee
    are well aware, our primary fiscal challenge in the United
    States is to scale back, not to expand, mandatory spending at
    the Federal level.
        To pick the most dramatic examples, under what I would
    consider optimistic projections for the future of Social
    Security, Medicare and Medicaid, those three programs alone
    will rise from about 9 cents on the national dollar at this
    time to nearly 20 cents on the national dollar over the 50
    years envisioned in the consideration of this fund.
        That would bring those three programs alone to the current
    size of the entire Federal Government. It is incumbent upon the
    Congress to scale back, not to expand, mandatory spending at
    this point in time.
        One might think that mechanical measures are a good
    approach to this, but I think the experience of things like the
    sustainable growth rate mechanism, in which Congress relies on
    an automatic mechanism to cut back on physician payments in
    Medicare, the experience has been, again and again, the
    Congress cannot find itself the power to do that. Instead, we
    see physicians getting updates in Medicare that are in excess
    of what the formula provides.
        Instead of relying on mechanical sunsets and mechanical
    cut-backs, it is incumbent upon the Congress to broadly put all
    spending on a level playing field, consider the public policy
    merits, and be the force itself for slower growth in spending
    over the next five decades.
        I thank you for the chance to appear here today, and I look
    forward to the chance to answer your questions.
        Chairman Specter. Thank you, Dr. Holtz-Eakin.
        [The prepared statement of Dr. Holtz-Eakin appears as a
    submission for the record.]
        Chairman Specter. Our next witness is Mr. Edmund Kelly,
    president and chief executive officer of Liberty Mutual Group,
    a graduate of Queens University in Belfast, Ireland, with a
    Ph.D. from MIT.
        Thank you for coming in today, Mr. Kelly. We look forward
    to your testimony.

        STATEMENT OF EDMUND F. KELLY, CHAIRMAN, LIBERTY MUTUAL
                INSURANCE COMPANY, BOSTON, MASSACHUSETTS

        Mr. Kelly. Good morning, Mr. Chairman. I thank you for the
    opportunity to testify.
        Liberty Mutual is a member of the PCI, the Property and
    Casualty Insurers Association of America, and a member of CAR,
    the Coalition for Asbestos Reform. Both organizations join in
    supporting my testimony today.
        The question we have all wrestled with, is would a trust
    fund work? We at Liberty worked long and hard to try to come up
    with a trust fund that would work.
        As we look at this, we need to look at four issues: 1) is
    the trust fund proposal in the bill fair and equitable? 2) does
    it provide an exclusive remedy for all asbestos claims? 3) is
    it viable and sustainable? 4) is there a better alternative?
        First, is the trust fund that is proposed fair? Fairness
    requires that each participant pay approximately its relative
    share of liability in the tort system. This core principle of
    fairness cannot be met through the trust fund in S. 3274. In
    fact, it guarantees billion-dollar windfalls to some Fortune
    100 companies.
        For example, the reported settlements of Owens Corning and
    USG. There, if the trust fund is enacted, billions of dollars
    of liability for those two companies will be eradicated, and
    obviously, since it is a zero-sum game, picked up by all the
    participants in the trust fund.
        Ms. Green has said that the trust fund approach would
    allocate costs to the people who are the base root of the
    problem. Clearly, the Owens Corning and USG example shows that
    this bill does not meet that standard.
        The next question: does the trust fund provide exclusive
    remedy, as promised, for all asbestos claims? Unfortunately, we
    believe the answer is no. There are far too many exceptions
    that allow asbestos claims to continue outside the trust fund,
    thereby violating this bedrock principle.
        One particularly egregious example is in Worker's
    Compensation. By preventing the operation of State Worker's
    Compensation lien laws, the FAIR Act guarantees double payment
    of claims, adding billions of dollars of new liability to
    employer insurance obligations. It is estimated that this
    additional liability is in the range of $39 to $88 billion.
        Current law in most States prevents ``double-dipping.''
    This overriding of State law increases insurers' potential
    liability to $65 to $80 billion, far in excess of the explicit
    $46 billion mentioned in the bill.
        The next key question is, is the trust fund sustainable and
    viable? I believe several other witnesses have addressed this
    sufficiently. Suffice it to say, solvency will be threatened
    before very long.
        So the final question for us is, is there a viable
    alternative, a better alternative to the trust fund? As we look
    around, the answer can be found in the growing list of State
    medical criterion venue reforms, as well as good judicial case
    management orders that, together, are changing the face of
    asbestos litigation.
        In addition to the comprehensive medical criteria laws in
    Ohio, Texas, Florida, Georgia, Kansas, and South Carolina, a
    dozen other States are addressing asbestos abuse through venue
    reform, inactive dockets, and related legislative and judicial
    activities.
        The impact has been truly extraordinary. In the three
    States that account for 80 percent of the asbestos claims filed
    against Liberty Mutual's insureds, the claim decrease following
    reform has been 90 percent in Mississippi, 65 percent in Texas,
    and 35 percent in Ohio.
        These numbers are substantial evidence that State-driven
    initiatives are working, and should be allowed to continue to
    work and not be negated by the passage of the FAIR Act.
        To the contrary, these efforts could be replicated at the
    Federal level, as proposed in Representative Cannon's
    legislation, H.R. 1957.
        In conclusion, we at Liberty Mutual very much support
    asbestos litigation reform. However, we unfortunately are led
    to believe that the trust fund embodied in the FAIR Act is not
    the solution, as it fails to meet the test of fairness,
    exclusive remedy, and sustainability. There is a better
    solution, one that has proven itself as we speak, in the State
    courts and the State legislation, medical criteria and venue
    reform.
        Thank you, Mr. Chairman.
        Chairman Specter. Thank you very much, Mr. Kelly.
        [The prepared statement of Mr. Kelly appears as a
    submission for the record.]
        Chairman Specter. Our next, and final, witness is Mr.
    Dennis Cullinan, Director of the National Legislative Service,
    Veterans of Foreign Wars. He served in the U.S. Navy on the
    U.S.S. Intrepid, with three tours in Vietnam. He did his
    undergraduate work in the State University of New York at
    Buffalo.
        Thank you very much for coming in today, Mr. Cullinan. We
    look forward to your testimony.

      STATEMENT OF DENNIS CULLINAN, NATIONAL LEGISLATIVE SERVICE,
               VETERANS OF FOREIGN WARS, WASHINGTON, D.C.

        Mr. Cullinan. Thank you very much, Chairman Specter.
        Chairman Specter, distinguished members of the committee,
    it is a great honor to appear before you today representing the
    2.4 million men and women of the Veterans of Foreign Wars of
    the United States, and our auxiliaries.
        Founded in 1899, the VFW is this Nation's largest
    organization of combat veterans. Our members come from across
    the country, and even around the world.
        Thank you for this opportunity to testify on the Fairness
    Act. I want to especially thank Chairman Specter and Senator
    Leahy for their recognition of veterans' stake in this critical
    piece of legislation, and the many provisions included in the
    legislation, including important changes incorporated into the
    newly introduced bill which are specifically intended to ensure
    that this bill will provide much-needed relief to veterans who
    are seriously ill because of their exposure to asbestos during
    their military service.
        Tragically, tens of thousands of veterans who served
    between World War II and Vietnam were unknowingly exposed to
    asbestos during their tours of duty. Because of the long
    latency period of asbestos-related diseases, many veterans who
    served before the mid-1970s are just now being diagnosed with
    life-threatening asbestos-related diseases.
        Veterans and other asbestos victims face countless, and
    sometimes insurmountable, hurdles in their pursuit of fair
    compensation under the current tort system. A flood of asbestos
    claims is overwhelming the court today, with as many as 300,000
    or more claims currently pending, according to one recent study
    by the actuarial firm, Towers Perrin.
        Today, truly ill asbestos victims are forced to compete in
    the court system with unimpaired claimants, many of whom will
    never get sick, for scarce space on court dockets. Too often,
    the sick die waiting for their day in court, while many of
    those who do receive awards or settlements receive only pennies
    on the dollar of the true value of their claims.
        Veterans are also faced with the other particularly unique
    obstacles under the current system. First, because they were
    employed by the Federal Government during their military
    service, they are restricted in their ability to recover from
    the government as a result of sovereign immunity.
        Second, most of the companies that supplied asbestos to the
    Federal Government have either gone out of business altogether
    or have gone into bankruptcy and are able to provide only a
    fraction of the compensation that should be paid to asbestos
    victims, if anything at all.
        Finally, even if there is a solvent defendant to sue for
    relief, there remains the time-consuming, expensive, uncertain,
    and emotionally draining ordeal of filing a court case and
    getting a trial. Once at trial, the plaintiff bears a difficult
    burden of proof--that has often proven impossible--to prove
    which defendant's product caused their injuries.
        The VFW testifies here today because veterans with
    asbestos-related disease desperately need relief in the current
    system, which is not taking care of their needs, nor treating
    them fairly.
        We support the FAIR Act because we strongly believe it is
    the only viable means to provide veterans and other asbestos
    victims with the long overdue relief that they need and
    deserve.
        S. 3274 is not only a fair solution for veterans, it is, in
    our view, the only solution that will effectively address their
    unique plight. The so-called medical criteria solution, whether
    at the State or Federal level, which some promote as an
    alternative to the solution embodied in the FAIR Act, will do
    nothing to help veterans who, as I have already explained, have
    little or no fair avenue for receiving fair compensation under
    the current broken system, a system which a medical criteria
    solution would leave largely unchanged.
        We believe the national trust fund solution embodied in
    FAIR can deliver certainty to our members afflicted with
    asbestos-related disease and provide the fairest outcome so
    that the right people are fairly compensated with the greatest
    speed and the lowest transactional cost.
        Mr. Chairman, we have highlighted in our written in some
    detail the many provisions that are included in the FAIR Act
    that will particularly benefit the needs of veterans and other
    asbestos victims.
        Again, thank you and Senator Leahy, and the committee, for
    recognizing and addressing their special situation.
        Finally, Mr. Chairman, I would like to submit for the
    hearing a copy of a letter the VFW and several other veteran
    service organization and military service organizations have
    recently sent to the Senate Majority Leader, requesting that
    the legislation be brought up again before the full Senate as
    soon as possible.
        Again, thank you for providing me and the Veterans of
    Foreign Wars in this Nation the opportunity to appear before
    this committee.
        Thank you very much.
        Chairman Specter. Thank you, Mr. Cullinan.
        [The prepared statement of Mr. Cullinan appears as a
    submission for the record.]
        Chairman Specter. We now go to the 5-minute rounds by
    members.
        Let me begin with you, Dr. Holtz-Eakin. I am a little
    surprised by the difference in your testimony today from the
    materials submitted by you when you were Director of the
    Congressional Budget Office.
        The statement which you submitted as head of CBO said,
    ``CBO expects the value of valid claims likely to be submitted
    to the fund over the next 50 years can be between $120 billion
    and $150 billion.''
        In the written statement which you submitted for today's
    hearing, you say, ``Both the scale of the mandatory spending
    and the size of the revenues are highly uncertain.''
        There is a 180-degree difference between what you said when
    you were head of CBO, that the claims would be between $120 and
    $150 billion, very close to the $140 billion mark, contrasted
    with what you say now, that ``mandatory spending and the size
    of the revenues are highly uncertain.'' We know what the
    revenues are going to be.
        When you submitted your testimony to this committee last
    year, your statement was, referring to Section 406, ``The
    legislation would not obligate the Federal Government to pay
    any part of an award under the bill if the asbestos funds are
    inadequate because, as we know, we revert to the tort system,''
    contrasted to your testimony submitted today, that a future
    Congress and administration are guaranteed to turn to the
    taxpayer to make up the shortfall.
        Now, that is palpably untrue and directly in variance with
    what you said before. Now, I note that since leaving CBO, you
    have become the director of the Maurice R. Greenberg Center.
    Mr. Greenberg is an outspoken critic of this bill, and has been
    since before the bill was even written. He is an outspoken
    critic of the trust fund, and AIG has a very material financial
    interest in opposing the bill.
        Now, is the difference between your statements then and now
    attributable to your position working for the Greenberg Center,
    and in effect, AIG?
        Mr. Holtz-Eakin. Let me do those in reverse order. First, I
    am the director of that center. I am funded by the Council on
    Foreign Relations. My funding is from the Paul Volcker Chair in
    International Economics. I receive no funds from AIG, and my
    views today are my own.
        Chairman Specter. Well, let us take up your own views, if
    you are not influenced by these other factors. How do you
    account for the statement that you make here that there is
    mandatory spending, and how do you account for the fact that
    you say ``a future Congress and administration are guaranteed
    to turn to the taxpayer.'' How can you say that?
        Mr. Holtz-Eakin. Let me explain. The first statement, when
    I was Director of CBO, remains true today. It is the case that
    this will be mandatory spending in the Federal budget. It will
    not be subject to appropriation. It will fit every common-sense
    definition of mandatory spending.
        Chairman Specter. It is mandatory until it runs out, Dr.
    Holtz-Eakin.
        Mr. Holtz-Eakin. It will be the case that the legislation
    provides for a sunset--that is what I said, and that remains
    true today--automatic, or at the discretion of the
    administrator, depending on the eyes of the--
        Chairman Specter. Well, is there mandatory spending after
    the fund runs out?
        Mr. Holtz-Eakin. There is a program in place that requires
    money to be spent.
        Chairman Specter. Wait a minute. Does it require--
        Mr. Holtz-Eakin. My judgment--
        Chairman Specter. Wait a minute. Does it require the money
    to be spent or does it require Congress to act? Now, you say in
    your oral testimony here, ``there will be political pressure to
    spend'' and you challenge the Congress on any fiscal restraint.
        How can you say what a Congress in the future will do?
    Congress will not be obligated to spend the money once the $140
    billion is gone, will it?
        Mr. Holtz-Eakin. The administrator will have the option to
    terminate the fund, is my reading of it. We can debate whether
    you think that is correct reading. It is my judgment, and my
    judgment alone, that in the future Congress would continue this
    program and an administrator would have an enormous technical
    difficulty in sunsetting it at the appropriate time. It would
    be very hard to forecast. The uncertainties associated with
    this bill with not disappear with its passage.
        As a result, there will be people who have been promised
    payments that may not be able to receive them from the $140
    billion. It is my judgment--and the word ``guarantee'' is my
    judgment--that a future Congress will, in fact, continue the
    program. That is not in the law, and cannot be.
        Chairman Specter. Well, my red light is on, so I will not
    ask another question. I will return after Senator Cornyn
    comments. But it seems highly, highly presumptuous for you to
    put your judgment, and your judgment alone, impugning what good
    sense a future Congress may have. Maybe this Congress has no
    good sense, but let us not sell every Congress in the future
    short.
        [Laughter].
        Senator Cornyn, you are one of the exceptions to any
    question about good sense.
        Senator Cornyn. Thank you, Mr. Chairman. Let me say, again,
    you have demonstrated that you are not easily deterred by the
    difficulty of the subject matter. I congratulate you on this
    effort to try to move a resolution to this issue forward.
        I continue to be concerned about the sheer complexity of
    the trust fund proposal and the necessarily speculative nature
    of whether it will actually be adequate to solve the problem in
    the way that we are trying our very hardest to manage.
        The goal all along, I think for all of us, is to make sure
    that sick people get paid, and those who are not sick do not
    get paid. Of course, I am also very sympathetic to Mr.
    Cullinan's comments about the veterans.
        Let me just ask you, Mr. Cullinan, is it your position that
    the only way that veterans can be compensated for exposure to
    asbestos is through the trust fund?
        Mr. Cullinan. Thank you, Senator Cornyn. As a practical
    matter, as it stands right now, veterans who are sick with
    various asbestos-related disabilities are not getting
    compensated. I think it is only one out of three claims,
    through the Department of Veterans Affairs, for compensation
    for an asbestos-related disability is granted. It is a very
    rare occasion.
        The experience in the court system, as I have testified,
    has not been good, the majority of those. So, yes, this seems
    to be best, and the surest means of providing redress to those
    veterans.
        Senator Cornyn. I think you would agree with me that
    Congress has shown itself to be both very appreciative and very
    receptive to our veterans and their service, and very receptive
    to suggestions about how we can address their concerns,
    whatever they may be, as a result of their service to our
    Nation.
        It seems to me that we should not exclude the possibility
    that there is some other mechanism that might be able to be
    created or that would address those concerns directly. I
    appreciate your testimony about what the present obstacles are,
    but maybe there is some other way to get at that.
        Dr. Holtz-Eakin, let me ask you, this current version of
    the bill specifically identifies victims of 9/11 and Hurricanes
    Katrina and Rita to apply for the Exceptional Medical Claims
    provision.
        Notwithstanding the merits of covering these individuals in
    the fund, is it fair to say that such a provision adds
    significant costs to the fund which jeopardize its ability to
    satisfy the claims of those who have been exposed to, and are
    sick from, asbestos-related diseases?
        Mr. Holtz-Eakin. It certainly raises the pool of claimants.
    I do not have a particular number on the scale of the
    additional costs that that might imply, but it adds to the
    numbers that are out there already. Those numbers already did
    not include a number of potential claims on the fund from
    exceptional medical claims, and others.
        Senator Cornyn. So essentially this expands the universe of
    potential claimants under the fund.
        Mr. Chairman, if I may ask unanimous consent, I have four
    documents that I would like to ask be made part of the record.
    One, is a statement from a constituent of mine, Mr. W.D.
    Hilton, who manages two asbestos settlement trusts. Second, is
    a letter from Mark Roscoe, president of the American Insurance
    Association. Third, is from the Reinsurance Association of
    America, Franklin Nutter. Fourth, is the statement of Hopeman
    Brothers, Incorporated.
        Chairman Specter. Senator Cornyn, without objection, those
    will all be made a part of the record.
        Senator Cornyn. Thank you.
        I do not have any other questions at this time, Mr.
    Chairman. Thank you very much.
        Chairman Specter. Thank you very much, Senator Cornyn.
        Mr. Grogan, in our workings with the AFL-CIO, Mr. John
    Sweeney and Mr. Richard Trumpka, we have gone over a great many
    issues, trying to determine and nail down a great many
    questions. I think we made considerable progress. Candidly, we
    are not there yet, but we are still working to try to win the
    approval of the AFL-CIO.
        But in the large grouping in your labor organization, you
    speak for a very unique group. You speak for the asbestos
    workers who have the direct exposure and have obviously
    suffered the most.
        What has been the impact with your workers and the many,
    many bankruptcies which have occurred precluding any meaningful
    recovery for the people who have been exposed to asbestos and
    their employers that have gone under?
        Mr. Grogan. Well, obviously, Senator, our members have been
    devastated by the causes of asbestos illness, and others--many
    others--that worked right alongside them. We are in a situation
    where, because of many class action suits that precluded many
    people who were unaware, and bankrupt companies where, if just
    the people who were sick were taken care of, those companies
    might not have gone bankrupt and they would be viable and able
    to pay out compensation to our workers.
        There is a never-ending debate within the AFL, back and
    forth amongst us, on the issue of who should be compensated and
    who should not. I am here to say to you, the people that are
    sick are the ones that need to be compensated.
        Not questionable claims, not claims that cannot be
    substantiated, because that is part of the problem of what
    happened, in my opinion, in the tort system. That is why it has
    everything all tied up.
        So, in addition, we have members who, because of the
    latency period, and then come down with mesothelioma, their
    wives do not know exactly where they worked, who they need to
    go after to get compensated for the death of their loved ones,
    and a lot of times fall right through the cracks and get no
    compensation whatsoever.
        I think the legislation that you have brought forth and are
    working hard to get passed at least gives fairness to those who
    are sick.
        Chairman Specter. Thank you very much, Mr. Grogan.
        Mr. Ganz, you are general counsel for Foster Wheeler, and
    executive vice president. You took the lead in forming the
    Coalition for Asbestos Reform, as I understand it, your company
    and some others. As you have explained it, you had a concern
    about the obligations under the bill, contrasted with your
    being insured.
        I think it would be useful for you to amplify our approach
    as illustrative of what the committee and our staff have been
    trying to do to deal with individual companies. We understand
    the impact is more than just a generalized language and a very
    complicated bill. And it is complicated, because we are dealing
    with a very complicated subject.
        But we have dealt with your company, as we have dealt with
    many companies. Your company is illustrative of what we are
    trying to do, and we are still open to do, to deal with the
    individual needs and to try to find some allocation.
        Your company would have much less exposure than, say, some
    of the giants, where you have Tom Donahue, head of the Chamber
    of Commerce, projecting a loss as high as $500 billion, half a
    trillion dollars. But I would like you to amplify for the
    record just what we did with you and the extent we went to try
    to, and finally did, solve your problem.
        Mr. Ganz. Certainly. I would be glad to, Senator.
        Yes. As you said, our position has been consistent
    throughout this very complicated debate, that we are in favor
    of an asbestos legislative solution on the Federal level, if
    one can be constructed that is fair and equitable.
        We made it very clear, as the trust fund was in the initial
    stages of being developed, that because of our position--and it
    is not unique to us--a position that we had carefully
    marshalled, conserved, and managed our insurance assets so that
    it would last us through the asbestos litigation era, and that
    was a preeminent concern to us, that whatever solution was
    constructed, that that be taken account of. That was our
    consistent position. We were one of the founders of CAR, and
    that was what we were trying to bring to the fore.
        Obviously, there were some discussions along the way. It
    was not in 852 in terms of an adjustment for our situation, and
    we opposed 852. To your tremendous credit, the credit of your
    staff, and Senator Leahy and Senator Leahy's staff, after
    February, you all and your staffs approached us and other
    companies to say, please come in, let us talk about the issues
    that are of concern to you. We did, and we explained them. You
    listened to us.
        Chairman Specter. Did you get tired of talking to me about
    the subject?
        Mr. Ganz. Never got tired of talking to you, Senator. Not
    at all.
        Chairman Specter. Getting close, we have so many meetings.
        Mr. Ganz. We had a lot of meetings, and a lot of hard work
    by your staff, I know. You all suggested a compromise. It is
    not a perfect fit. Nothing in this bill, I think, is perfect.
    But it is reasonable and fair and it would take account of our
    situation. It was creative. It allows us to budget, allows us
    to predict our asbestos payments and allows us to manage our
    business.
        Our net out-of-pocket expenditures some years may be
    somewhat more than we would pay if we had been allowed to keep
    our insurance in the tort system, some years it might be
    somewhat less, but what you have given us is predictability,
    and that is important and it is manageable. We support that. We
    strongly support moving the bill forward with this provision in
    it.
        It does not mean that there could not be other changes and
    work on the bill as it moves through the process, but we do
    think that you have answered what we said very early on and
    consistently was our preeminent concern, that the allocation to
    us needed to be something that was fair and equitable to our
    situation. You and Senator Leahy have done that, and we
    appreciate that and we thank you.
        Chairman Specter. Thank you for that amplification, Mr.
    Ganz.
        Senator Coburn? Before Senator Coburn begins, let me pay
    special tribute to his contribution to the committee on many
    subjects, but especially this one. Senator Coburn is also Dr.
    Coburn, and raised issues which we submitted to the Institute
    of Medicine--just had a report yesterday--ruling out finding
    insufficient evidence on a number of categories of cancer,
    trying to compensate the people who were injured.
        As yuo said, Mr. Grogan, right now you can collect if you
    have asbestos exposure and a jury makes a determination that
    you will be injured in the future, which is highly speculative.
    But this bill only compensates people who are currently sick,
    really sick, and with a causal connection.
        Senator Coburn raised a number of issues, which we took to
    the Institute of Medicine, and found that the liability is not
    genuinely there, and makes available funds to pay other people
    who are not sick.
        Senator Coburn?
        Senator Coburn. Thank you for your kind words, Mr.
    Chairman, and your leadership.
        Dr. Holtz-Eakin, I just want to kind of visit with you for
    a few minutes on your feelings. I have read your testimony.
    Give us a feeling, with the changes in this bill as compared to
    what we had before, what do you see are the major differences
    in terms of the cost of the trust fund, the early run-out of
    the cost of the trust fund, the borrowing cost of the trust
    fund, and the long-term liability if, in fact, assessments are
    attempted to be made and are not collected?
        Mr. Holtz-Eakin. In its structure, the trust fund has
    always been very sensitive to timing, with the broad
    anticipation being that most of the claims--over half--would
    arrive in the first 10 years, the revenue being distributed
    much more evenly over a longer period.
        That requires borrowing up front, the accumulation of
    interest costs which are charged against the total collected in
    assessments. The most recent changes allow for hardship, which
    reduces things coming in. It allows for these changes for those
    who have got insurance, and that changes the assessments.
        To the extent that that reduces the total that comes in up
    front, you have got more borrowing costs--and again, my
    judgment is that the Congress will not renege on honoring the
    borrowing costs--in the continuation of the program.
        If it is the case that the administrator makes up for the
    shortfalls relative to the schedule in some way, that places
    firms at an unknown risk for paying more in assessments. It
    strikes me as a source of uncertainty in business planning.
        So, I think there is a long-term liability, most likely
    present to the taxpayer. To the extent that it is not picked up
    by the taxpayer, it will be picked up by the private sector in
    the form of an unanticipated higher payment by a firm
    somewhere. Both of those strike me as problematic at this point
    in time.
        Senator Coburn. Somebody is going to pay for it.
        Mr. Holtz-Eakin. Certainly. All the money is in the private
    sector. It has to come from there.
        Senator Coburn. You also made a comparison between this
    fund and the Pension Benefit Guaranty Corporation, for which we
    are presently struggling with to try to straighten out because
    there is a significant long-term liability to the American
    taxpayer with that.
        Could you offer any constructive criticism of the bill to
    where we would not get in that situation with this bill, where
    we would not bring it eventually to the American taxpayers so
    the cost would be attributable to those that were responsible
    for the costs?
        Mr. Holtz-Eakin. I think a fair reading of the history of
    the PBGC is one that, importantly, nobody broke the law. We
    find ourselves in the situation where a sensible estimate of
    the PBGC under-funding is $100 billion, so over a 10-year
    horizon.
        How could that happen? It happens when there is
    insufficient transparency about the actual funding status. The
    PBGC is very hard to understand. It happens when the funding
    formulas are complicated or at variance with economic reality.
    You get credit for things that do not really exist, they are
    only on paper.
        In moving to any new system that involves a trust fund, I
    think it is imperative that there be tremendous amounts of
    transparency up front about what will go in and what will come
    out, and those get updated to reflect economic reality each and
    every time you have more information. Those are the keys to
    making us more immune from situations like the PBGC.
        Senator Coburn. So your suggestion is, we could improve
    this bill by putting those two components into the trust fund.
        Mr. Holtz-Eakin. It would certainly improve the bill. It is
    very difficult to anticipate what will go on in this bill as it
    plays out, should it be enacted.
        Senator Coburn. Let me ask anybody that would want to
    comment, what about the position of the fact that there have
    been trust funds established for asbestos liability now, and
    the impact of this bill on those trust funds? Does anybody want
    to comment on that?
        Mr. Green. Senator, I will take a crack at that. I have
    been involved as the legal representative in the formation of
    four of them. Two of them are up and running and paying claims,
    doing quite nicely. One of them, the Haliburton Fund, the
    Dresser Fund, is paying 100 cents on the dollar.
        Of course, the impact of this legislation on those trust
    funds would be, they would be wiped out, terminated, and their
    funds taken and subsumed in this bill, staffs would be
    disbanded, the trustees would be fired. I guess they would
    close up. Claimants who are receiving compensation from, or who
    expect to receive compensation from them, would have to wait
    for this fund to be up and running and available.
        There are also many others in the pipeline that we have
    spent several years in, working, creating, and negotiating on
    that are about to come into the system, providing billions of
    dollars of compensation to victims.
        The companies that were responsible for creating those
    liabilities are compensating their victims by putting in stock,
    insurance proceeds, or borrowing in cash for those. I do not
    think they have had any negative effect on the other legitimate
    operations of these companies. They are doing fine.
        But I think the elimination of these trusts is a serious
    problem. I know that the trustees of some of these trusts plan
    to mount challenges to this legislation, even constitutional
    attacks.
        Senator Coburn. That was going to be my next question. Does
    anybody on our panel of witnesses anticipate that there will be
    legal challenges to this trust fund so that it will not be
    implemented?
        Mr. Green. I can guarantee that there will be. I have been
    involved in those discussions. I am not taking the lead in any
    of those, but I know that Mr. Hilton, who apparently sent a
    letter to Senator Cornyn, is very much involved in that.
        They are lining up the legal talent to bring such a
    challenge and take it all the way to the Supreme Court. So,
    that is going to happen, Senator. I do not know what the
    outcome of that will be, but that is another complicating
    factor.
        Senator Coburn. All right.
        Mr. Chairman, thank you.
        Chairman Specter. Thank you very much, Senator Coburn.
        Just a couple more questions. You have all been very
    patient.
        Mr. Kelly, I am advised that Liberty Mutual has increased
    its asbestos reserves by in excess of $200 million annually
    over the past 6 years, and stated in its 2005 annual report
    that there have been ``significant increase in the number of
    asbestos-related claims filed,'' and you specify a number of
    circumstances causing the increase in filing.
        But your written testimony today says ``across all States,
    from 2004 to 2005, we have seen a 50 percent decrease in the
    number of new claims filed, a trend that continued in 2006.''
    Which is accurate, Mr. Kelly?
        Mr. Kelly. Thank you, Mr. Chairman. Actually, our liability
    reserves for asbestos are approximately $1 billion, and we did
    increase them twice significantly in the last several years
    based on a bottom-up study.
        My testimony is quite clear. We did see a large and
    dramatic influx of claims, particularly from the State of
    Mississippi. There was some forum shopping. As I mentioned and
    made clear, it has made us extremely optimistic.
        But the current situation is, in fact, with the reforms in
    Mississippi, Texas, and Ohio, we are seeing a significant--a
    significant--drop in those claims, in fact, because they are
    deemed without merit. So the current system is working to
    reduce that large influx that did emerge, particularly four or
    5 years ago.
        Chairman Specter. Mr. Kelly, I do not understand. Your
    written statement does say that ``across all States, from 2004
    to 2005, we have seen over a 50 percent decrease in the number
    of new claims filed, a trend that continued to 2006.'' Is that
    accurate?
        Mr. Kelly. That is accurate.
        Chairman Specter. That is accurate.
        Well, how about the statement which I am told appears in
    your 2005 annual report, that there is ``a significant increase
    in the number of asbestos claims filed.'' Is that accurate?
        Mr. Kelly. I will stand by our annual report. The 2005
    annual report would have been based on a protracted period
    where we look at our overall liabilities. Now, we are looking
    at the emergence of claims over a significant period of time to
    determine liabilities. What we are seeing in recent history is
    a significant decline in those States where there has been
    legislative or judicial reform addressing this issue.
        Chairman Specter. Well, the 2005 annual report does not
    talk about liability, it talks specifically about the number of
    asbestos-related claims, ``a significant increase in the number
    of asbestos-related claims filed.'' Are you saying that while
    there has been a decrease across the country, when I ask
    Liberty Mutual, your company, there has been an increase?
        Mr. Kelly. No Sir: You have to look at asbestos over the
    longer haul. There have been roughly four surges in asbestos
    claims overall in a 25- to 30-year period. There was a
    significant surge started in the late 1990s and peaked in more
    recent years.
        But it is fair to say that there is no question, from the
    1990s up through around, say, 10 years earlier, there was a
    dramatic increase in claims. That led us all in the industry to
    look at our reserves, to hire outside experts to make sure
    that, where properly, we have a financial obligation.
        In fact, we stand proudly behind, and we are most of the
    insurance behind, Mr. Ganz's company. We are the insurer that
    makes sure Mr. Ganz has very little to pay. It is that sort of
    discipline and that sort of recognition of financial liability
    that made us look at emerging claims over that period of time.
        I can say happily, in recent years--in the last 2 years,
    and particularly in the last year since the enactment of reform
    in Mississippi, there has been a dramatic decrease in claims.
        Chairman Specter. When this bill is passed, Mr. Ganz will
    not need your insurance, will he?
        Mr. Kelly. No. But if this bill is passed, not only will we
    have to pay the liability, which we have now under the current
    system estimated on a moderately conservative basis, our belief
    is, given the uncertainty in the nature, that in fact our
    liability will dramatically increase.
        Additionally, you will create, by abrogating State law, an
    additional liability on the workers compensation side that may
    be--may be--equal to the liability under asbestos.
        Chairman Specter. Well, I do not understand. If this bill
    were passed, would Mr. Ganz's company need your insurance or
    would he not need our insurance?
        Mr. Kelly. No, he will not need our insurance. It is all
    paid for, fully reserved for and we fully recognize that in our
    financial statement. It is fully funded and those funds are now
    being paid. You will transfer those funds from Mr. Ganz to the
    trust fund, but it does not change our financial obligations.
        Chairman Specter. All right. So Mr. Ganz's company would
    not need your insurance.
        Mr. Kelly. Mr. Ganz's company would not need our insurance.
    However, you would take our assets. Additionally, you would
    create a new liability in the Worker's Compensation system
    additionally, over and above our current estimate, which is
    based on a moderately conservative views of outside experts.
    Our belief, looking at the numbers and the uncertainty, that it
    would, in fact, increase our liability.
        So we have fully allocated in the financial statements for
    the current liability. You will create new liability, in
    essence, taking up our assets to pay a liability for which we
    are not currently responsible under the current system.
        Chairman Specter. But as you say, there is uncertainty.
        Mr. Kelly. The uncertainty, unfortunately, is all in one
    direction, Mr. Chairman.
        Chairman Specter. The uncertainty might not lead to
    decreasing your responsibility?
        Mr. Kelly. In our opinion, there is no way that our
    liability, under S. 3274, will be less than our current
    liability.
        Chairman Specter. All right. You have accurately described
    your opinion. But I am coming back to these two statements
    about an increase or decrease in asbestos claims filed. I still
    do not understand. You have amplified your answers to my
    questions, and quite candidly, I got lost.
        Mr. Kelly. All right. We are comparing different periods of
    time.
        Chairman Specter. Wait. Let me pose a question.
        Mr. Kelly. Sure.
        Chairman Specter. Is your written testimony accurate that
    ``across all States, from 2004 to 2005, we have seen a 50
    percent decrease in the number of new asbestos claims filed, a
    trend that continued to 2006'' ?
        Mr. Kelly. It is accurate.
        Chairman Specter. All right.
        Now, my next question is, is it accurate, in your 2005
    annual report, that there has been a ``significant increase in
    the number of asbestos claims filed''? Is that accurate?
        Mr. Kelly. It is, but we are comparing different periods.
        Chairman Specter. Wait. How are you comparing different
    periods when it is the 2005 annual report, and your written
    testimony covers 2005 and 2006?
        Mr. Kelly. What the 2005 annual report is, it is based on,
    looking financially at the end of 2005, what we had to
    establish for liability, financially. Over that period, we have
    to look at longer term trends. We do not establish liability
    based on recent periods.
        As we have learned, unfortunately, in an asbestos claim,
    one has to take a very long-term view. But if you compare the
    period from 2000 through 2005 and the period of 1995 through
    2000, there was a huge increase in claims. That, of course, is
    what led to the bankruptcy trusts we have alluded to here.
        Chairman Specter. One other question. When you had in your
    annual report that the increase was due to a number of factors,
    ``intensive advertising by lawyers seeking asbestos
    claimants'', in this bill we have reduced lawyers' fees to 5
    percent, and under some circumstances it can go to 10 percent,
    rather than the typical 30 to 40 percent, or sometimes even
    higher, contingent fees.
        We are looking at a situation where the transaction costs
    and attorneys fees on both sides amount to more than 40
    percent, and that the claimants ended up with about 58 cents on
    the dollar.
        Would you not think that if you reduced the attorneys'
    fees, as this bill does, that there would be less motivation
    for, as you put it, ``intensive advertising by lawyers seeking
    asbestos claimants''?
        Mr. Kelly. I believe, in the bill, it is 5 percent.
    Obviously the bill is complex; we are all digesting it. Again,
    as I stated before, I admire the determination with which you
    have pursued this. But our understanding at this moment is, the
    5 percent is hardly a hard cap. But it is significantly lower
    than the 40 percent.
        Chairman Specter. Do you think 5 percent is too much?
        Mr. Kelly. Well, some of my best friends are lawyers.
        [Laughter].
        Mr. Kelly. No. I am not saying 5 percent is too much.
        Chairman Specter. I am trying to find some best friends in
    the insurance industry.
        [Laughter].
        Mr. Kelly. Well, we will always be good friends. You are
    admired. Despite the fact that we have seen some of these
    issues differently, I admire the grace you have approached this
    with, and thank you.
        Chairman Specter. Let the record show, I spent every bit as
    much time with Mr. Kelly privately as with Mr. Ganz.
        Mr. Kelly. You absolutely did.
        Chairman Specter. I even bought him lunch 1 day. That is
    sort of a violation of the Senate Code of Ethics for a lawyer
    to buy a corporate executive or a lobbyist lunch, but I do it
    any way from time to time.
        Mr. Kelly. Well, let the record show that my opinion was
    not changed by the delicious lunch.
        [Laughter].
        Chairman Specter. Well, let us hope we are all laughing
    when this bill is finished.
        [Laughter].
        Chairman Specter. For the record, I want to introduce a
    number of documents. First, the testimony of former Congressman
    Jack Kemp, a strong supporter of this bill. Congressman Kemp,
    regrettably, has some medical issues which keep him from
    testifying today.
        Also, a letter in support from the NFIB, a letter in
    support from 24 veterans group to support what Mr. Cullinan has
    had to say here, a letter from the wife of a veteran, Ms.
    Marylou Kenner, and a statement in support by the Citizens
    Against Government Waste.
        We are going to try to meet the concerns that Mr. Kelly has
    registered and that Professor Green has registered, and that
    Dr. Holtz-Eakin has registered. We are still open for business
    to try to find a way to bring as many parties together as we
    can.
        A comment?
        Senator Coburn. I just had one additional question. I
    wondered if any of the panelists might respond. Are any of the
    panelists concerned at all with the use of a CAT scan in the
    diagnosis, or qualification of using CAT scans to create a
    diagnosis of asbestosis and how it might play out in the costs
    associated with the trust fund? Any comments on that? [No
    response].
        Thank you.
        Chairman Specter. Thank you, Senator Coburn.
        Well, ladies and gentlemen, thank you all very much. We are
    going to continue to work on this matter. We are very much
    concerned with all the injured people, especially the asbestos
    workers, frankly, and the veterans. Mr. Pat Eidinger, president
    in Philadelphia, has been very, very helpful. I want to note
    that for the record.
        That concludes the hearing. Thank you all.
        [Whereupon, at 11:43 a.m. the hearing was adjourned.]
        [Submissions for the record follow.]
        [Additional material is being retained in the Committee
    files.]

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