[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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