Congressional Record, Volume 150 Issue 51 (Tuesday, April 20, 2004)

[Congressional Record Volume 150, Number 51 (Tuesday, April 20, 2004)]
[Senate]
[Pages S4103-S4111]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

ASBESTOS LITIGATION REFORM

Mr. FRIST. Mr. President, for Senators who are going to be here for
morning business, it will probably be another 20 minutes or so, total
time between the two leaders' time, before morning business begins.
As I said in my opening comments, our intention is to go to asbestos
and to bring to closure a very important piece of legislation that a
lot of people across the aisle have worked on and are dedicated to
addressing.
I believe now is the time to do that. I want to briefly introduce my
view of the current status of the asbestos litigation debate and how I
think we can bring that debate to closure.
This body--both sides of the aisle--has recognized that asbestos
litigation has run amok. It is time to fix what has become an
embarrassing, inadequate system that we have, the purpose of which is
to compensate victims. The current system is broken. It fails to
compensate victims fairly, while at

[[Page S4104]]

the same time imposes huge costs on our economy and thus on jobs and
job creation.
We now have a choice, and it is a choice I very much think we should
face right now, and that is to either leave the sick asbestos victims
to suffer the vagaries of this system as it works today or put our very
best work together to give them a better and more reliable and more
secure system. There will be a lot of comments made over the course of
the day and the week, but I think it is important to understand that we
have made substantial progress, meaningful progress toward creating a
better system. With all of this progress, it is now time to bring it to
a focal point and bring it to closure.
The chairman of the Judiciary Committee, Chairman Hatch, has brought
S. 1125, the FAIR Act, the Fairness in Asbestos Injury Resolution Act,
from its introduction through that Judiciary Committee, and a number of
parties have participated in the various negotiations to get it to the
floor.
Now is the time to take very deliberate action--it is going to be
difficult over the next several days to do that--and to finish the
process and bring relief to victims and stop the devastating impact the
current system is having on our economy. Although we have made real
breakthroughs and we have moved forward through a lot of continued
discussions among the various stakeholders and various Senators, a lot
of which has occurred since Senator Hatch's work with the committee,
there are still a lot of calls to delay and put things off until some
indefinite time in the future. Since I have been involved, pretty much
after it came out of committee, there have been calls for delay--we
need another week or 4 days or month or 2 months or 3 months. Now we
need to stop talking about it and actually do it. We need to fix the
system, which we know--I think there is a general consensus--is broken;
that it is unfair and it hurts the economy. It is a detriment to our
economy.
I have made it a leadership priority for the Senate to help resolve
this issue. We have given parties, again and again, additional time to
work out some of the issues. But now we need to take decisive action.
As I said, there is wide agreement. If you look at the problem itself--
that the current system is a disaster for victims and for jobs and a
disaster for the impact on the economy--we are pouring vast amounts of
money into this defunct system. But as we pour money into it, the
system is getting worse and worse. More than 700,000 individuals have
filed claims and, right now, there are 300,000 claims out there
pending--300,000 claims. We have spent $70 billion trying to resolve
these claims.
You must ask, with 300,000 claims out there and having spent $70
billion, what do we have to show for it today? Well, we have a system
where sick victims of asbestos exposure have to wait in line with
thousands of unimpaired claimants. We have the sick and people who have
not been hurt at all, and they are all waiting. Sick victims wait too
long for an award. The ones we need to focus on, the ones who are sick,
now have to wait a long time. It is almost like a lottery system where
few claimants--there are a few who get very large awards, but many get
little, often based on simply where, for example, the claim was filed.
The big winners are always the trial lawyers who have taken billions of
dollars out of the system, which is money that should be going to the
sick victims.

As much as half of every dollar spent in the system goes to the trial
lawyers and to other expenses. If we say there is $70 billion, we say
half is not going to the victims, the people being hurt, not to the
potential victims. Obviously, it is clear that system needs to be
fixed. It is inequitable, a wasteful system, and nothing is being done
to make it better. In fact, you can see it is getting worse.
Future funds that should be preserved to compensate sick victims are
simply being drained away by frivolous claims today. I keep hearing
more and more of the large number of unimpaired claims that are filed
based on questionable, so-called ``diagnoses'' that are obtained
through these mass screenings. That process simply has to come to an
end.
As business after business has gone bankrupt paying these claims,
sources of revenue to pay the claims are drying up. Already more than
70 companies have filed for bankruptcy after being flooded by asbestos
claims. The companies that actually manufacture asbestos products have
long been bankrupt. Today we have the lawyers zeroing in on new
companies in order to keep funding their suits. Many of these companies
have little to do with asbestos. Right now, 8,400 companies have been
named in asbestos suits. That includes mom-and-pop companies all the
way to Fortune 500 firms. That is 8,400 companies that have been named
right now in asbestos suits.
When companies collapse under this asbestos suit pressure, not only
do resources for the sick victims dry up, for the people who have been
affected physically by asbestos, but now there is a whole new class of
victims that has been created. This new class of workers at these
companies lose their jobs and lose not only current payments but also
their retirement savings. Bankruptcies have affected 200,000 people who
worked at bankrupt companies. Sixty thousand people lost their jobs,
and these people will lose an estimated $50,000 in wages each because
of the disruption. Workers also see retirement savings plummet when a
company files for bankruptcy.
In the end, the American economy suffers. That, of course, means the
loss of new jobs and investment, as well as the loss of companies that
are literally pulled under by these asbestos claims. If the current
situation holds, it will cost as many as 400,000 new jobs that could be
created in this time of economic recovery but will not be because of
the failure to invest. So we have watched this deterioration and we
have talked about it for all too long. Now we must act.
So as we move forward, we need to move forward understanding there is
bipartisan general agreement that the litigation challenge before us,
which has run amok, must be cleaned up. Rationality and justice must be
restored and we must get the compensation to those who need it. We must
do it through a system that preserves jobs, preserves economic growth
for current workers, and stewards funds for future claimants.
Indeed, this body has been struggling with these issues for some
time, and it has met with success despite the difficulty of reaching
agreement in some very specific contentious areas. Chairman Hatch did
yeoman's work in July getting S. 1125 through the committee. There were
a whole range of successes worked out by the committee. Chairman Hatch
led a major bipartisan solution on a linchpin issue of medical
criteria; and without agreement on this issue, we simply would not have
been able to move forward at all. This issue, over time, has proven
very difficult, very controversial. I commend him for his leadership in
bringing the resolution to this particular issue. That is just one of
the many examples of issues that have been overcome.
Chairman Hatch noted that as many as 50 changes were made at the
urging of Democrats before--really between the bill's introduction and
the time of markup--and there have been many ongoing discussions in the
wake of that success.
I also thank Members on the other side of the aisle. Senator Leahy
has worked hard on this bill, and it simply would not have been
possible to get as far as we have--even though we have a long way to
go--without his work on the other side of the aisle, as well as the
various stakeholders who have an interest in this bill.
The commitment of many parties has created the momentum for change,
for cleaning up the system, and the good faith that has led to a number
of key breakthroughs that have been seen today and that I am confident
will continue to make success possible.
Following the committee markup, I became deeply involved in
negotiations on S. 1125, working closely with Senator Daschle, as well
as Chairman Hatch and Senators Leahy, Dodd and Carper, and others on
both sides of the aisle.
My colleague from Pennsylvania, Senator Specter, has been
particularly instrumental working on key elements of the bill, so I
wish to recognize him for that.
Under S. 1125 and current agreements which are embodied in S. 2290,
we will

[[Page S4105]]

replace the current adversarial asbestos litigation system with a new
streamlined no-fault system where sick victims will be compensated
fairly and efficiently. A national trust fund will pay claimants,
cutting out waste and providing certainty and rationality for claimants
and for businesses. Most importantly, this system will end the
bankruptcy spiral, therefore preserving future funding for victims who
need it.
S. 1125, as reported out of committee, represents an unprecedented
achievement in forging consensus on issues like medical criteria that
stalled previous attempts at similar legislation. Nonetheless, a number
of issues were left open for further discussion, and additional
concerns were raised that were not addressed by the committee. I
identified these issues on the floor on November 22, 2003, and they
include adequacy and security of funding, claims values, administration
of the system, and protection of claimants from the risk of a funding
shortfall.
Since the bill was reported out of committee, various stakeholders
and members from both parties have continued negotiations. There have
been more than 20 meetings starting last July at which my staff and
Senator Specter's staff have negotiated these issues with staff
representing the minority. What has emerged from all these collective
efforts is a proposal that retains the key elements of S. 1125, and
includes some critical modifications that address concerns that were
raised by stakeholders. Today's proposal embodies the best thinking on
these issues and represents an aggressive yet feasible solution to the
crisis.
These negotiated agreements make it possible to bring a bill to the
floor, and the bill is better for these changes, difficult as they were
to hammer out.
First, we had to make sure the system contained claims values that
would fairly and adequately compensate victims. Second, we had to make
sure funding was adequate--and that any risk of shortfalls rests on
defendants and insurers, and not on claimants. The bill also provides
the administrator with more flexibility to ensure that any short term
bulges in claims can be accommodated. Third, we had to make sure the
new system would be easy for claimants to use, and that it could be
funded and up and running quickly. Fourth, the bill now contains a
number of additional provisions requested by organized labor to protect
the rights of claimants. I am also submitting an expanded description
of these changes for the Record.
The top priority of this bill is to compensate claimants, and under
any analysis, more money reaches claimants under the bill than under
today's flawed tort system. Even so, we know that we needed to reach a
number that Democrats felt comfortable with, so S. 2290 raises claims
values.
We agreed to raise the claims values in order to get consensus even
though the claims values in S. 1125 as reported represented a
bipartisan proposal, and included some of the highest values found in
similar Federal compensation programs. We raised the values even though
S. 1125 already puts more money into the pockets of claimants than the
current tort system, where more than half of the resources go into the
pockets of attorneys and consultants. Under the revised bill, S. 2290,
approximately $111.5 billion of the expected $114 billion in fund
expenditures will be available for victims. Compare this with
Tilinghast's actuarial study of the current system, where only $61
billion goes to plaintiffs and the rest to legal fees. Or the Milliman
study, where they estimate as much as $92 billion could go to
plaintiffs and the rest to legal fees. So the bill gets more money to
victims than the leading studies estimate could go to them under the
current system.
What's more, S. 2290 actually gets this money to sick victims,
whereas much of the money paid into the system today goes to unimpaired
claimants. Under the current system, much of the compensation is
drained away from the truly ill to fund these unimpaired mass lawsuits.
Right now, the sickest victims, those with mesothelioma, are receiving
only 17 to 20 percent of the funds in the system, with nonmalignant
cases getting about 65 percent. The proposed bill would prioritize the
sickest victims--over half of the funding would be directed to those
with mesothelioma. Nonmalignant claimants would receive about 20
percent. The new system would also increase the share of funds that are
directed to pay cancer claims from about 16 or 18 percent to 24
percent. Under S. 2290, funds are properly directed at the sickest
victims. And the determination of the medical criteria that should be
used is a result of the landmark bipartisan agreement made in
Committee.

S. 1125 also presents a substantially better means of obtaining
compensation than through bankruptcy trusts. The trusts being created
in bankruptcies today discriminate between present and future claims,
and give preferential treatment to certain claimants, not because of
their medical condition, but because they were first in line. Let me
also point out that S. 1125 provides significantly more money than
claimants could receive from bankruptcy trusts, many of which are
paying pennies on the dollar. Johns-Manville pays 5 cents on the
dollar, UNR 9 cents, Celotex 11.3 cents, and topping out at 15.5 cents
is Eagle Picher. So while some claimants may appear to win big court
cases, if the defendants are in bankruptcy, which many are, claimants
will likely only get pennies on the dollar. In today's bankruptcy
compensation system, the risk that a trust may be inadequate falls on
the victims, and that is not fair. Unlike these bankruptcy funds, the
claims values in S. 1125 will be 100 percent paid or victims will be
able to return to the tort system.
Despite these generous values in the bill as reported, organized
labor and Democrats urged that the values were not high enough. So we
have agreed to raise the values because it is so important to create
consensus and move this bill forward.
It is crucial that the fund has the faith and confidence of
claimants, and that it can fulfill its mandate to compensate them.
Funding must be adequate, it much be secure, and provisions must be
made for any shortfall. And any risk must fall on defendants and
insurers, not claimants.
To ensure funding adequacy, the bill establishes a new overall
funding framework, which makes available $114 billion for direct victim
compensation. The funding provided is substantially more than what is
estimated to reach victims if the current tort system is allowed to
continue.
Let me say a few words about how this relates to the overall funding
structure that came out of committee. The mandatory funding in the bill
as reported was $108 billion, which is similar to what S. 2290 offers.
That funding proposal represented a very fair amount to solve the
problem. The committee, however, went well beyond this benchmark during
markup. The net effect of the committee modifications to S. 1125's
financial structure was dramatic. S. 1125 as reported could have
required businesses and insurers to provide compensation at up to two
times the most credible estimates of total future plaintiffs'
recoveries under the tort system. As a result, insurers almost
uniformly withdrew their support for the act, calling it ``dangerously
unaffordable'' and ``potentially worse then the existing system.''
In order to get the legislation back on track, I initiated a
mediation process between insurers and defendant companies. We reached
agreement whereby $114 billion would be made available for victims. To
help ensure this funding is obtained, enforcement provisions of the
bill were further strengthened.
To address concerns that there will be early stress on funding, the
revised schedule requires money from insurer participants to be infused
in the first years, where it is expected that the highest demands will
be placed on the Fund.
To protect against any shortfalls, an additional $10 billion
contingent funding is also available from defendants if necessary to
pay claims in the out years of the fund's operation.
Furthermore, the bill gives the administrator more time and more
flexibility to deal with a short term bulge in claims, if necessary.
Under the bill as reported, the fund could have unnecessarily sunsetted
due to a short term liquidity problem if a large number of claims were
filed at once. Alternative sunset provisions have been provided, and
the borrowing authority has been

[[Page S4106]]

expanded to increase the funds's liquidity. Sufficient funds will now
be available to pay in full all claims found eligible before the fund
sunsets, and any debt incurred by the fund will be paid by monies in
the fund and not the United States Treasury.
Finally, and critically, under S. 2290 the risk of underestimating
the amount of funds needed will not fall on the victims, but on the
defendants and their insurers. Historically, rates of asbestos victims'
claims filing are uncertain and difficult to predict. Given the
creation of the new compensable disease categories in S. 1125 and the
streamlined no-fault administrative system, this problem is even more
acute. But under the proposal, if future claims exceed estimates and
the mandatory funding, including the contingency funding, is not enough
the fund will end and victims will be able to seek compensation in the
Federal courts. Ensuring that the risk of underestimation does not fall
on the claimants was a linchpin in organized labor's proposals.
There is, however, one particular risk to the fund that must be
addressed, and that is the lack of predictability of claims by
individuals, particularly smokers, who have occupational exposure, but
not enough exposure to have caused asbestosis.
S. 1125 is careful to provide the highest levels of compensation to
claimants whose illness has the greatest causal connection to asbestos.
It is not and cannot be a tobacco compensation bill. With that said,
the bill sets out within the consensus medical criteria a level VII
category, a new and untested category for lung cancer cases, that may
end up compensating large numbers of individuals whose illnesses are
not caused by asbestos, but by smoking. There are experts who believe
the eligibility criteria for this category will reliably screen for
asbestos-caused lung cancers. But we just don't have enough experience
with these claims. With 87 percent of overall lung cancer cases caused
by smoking, they could inundate and sabotage the fund.
Accordingly, I want to put all Senators on notice that I intend to
offer an amendment, after consultations with all interested parties, to
provide a mechanism to protect the solvency of the fund if claims from
level VII's dramatically exceed expected levels.
At its heart, today's proposal represents a policy choice. On the one
hand, we have the status quo, with its delays, failure to compensate
victims, bankruptcies, litigation costs, wasteful transaction spending,
and major negative impact on the economy.
On the other hand, we have an opportunity to rationalize this broken
system. It is true that there is some uncertainty in projecting future
claims filing rates, but we are putting over $100 billion into the
system. And any risk that this is not enough would fall back on
defendants. There would be a reversion to the Federal tort system, and
defendants would have to essentially pay twice--after staking over $100
billion they would still be subject to tort claims. And claimants would
get their day in court. This bargain is a reasonable policy choice.
Another fundamental way S. 1125 improves the current tort system is
that it is more accessible and simpler for claimants to use. Organized
labor, however, had expressed a concern that the administrative
structure in S. 1125 as passed out of committee was too adversarial and
cumbersome. This was a key concern for labor, so in order to address
this concern, industry and labor representatives agreed under the
auspices of Senator Specter and Judge Becker of the Third Circuit Court
of Appeals, to simplify the process. I commend Senator Specter for this
leadership in that process, and thank Judge Becker for his expertise
and commitment.
Under the new proposal, claims processing will be moved from the
Court of Federal Claims to an executive office situated in the
Department of Labor. Now a single administrator will be responsible for
both the claims handling and the management of the fund. The fund will
benefit from the experience the Department of Labor has garnered from
administering similar compensation programs over the past 90 years. The
infrastructure already created under these programs will help with
prompt program initiation.
The claims application process will now be more user friendly, there
are fewer levels of administrative review, and the claimant assistance
program will be expanded. The new structure provides for advisory
committees with expertise on a host of issues to advise the
administrator, and allows for contracting with entities who have
knowledge and experience with asbestos-related injuries and
compensation programs to assist in the processing of claims.
The new administrative structure also will help address concerns
about how quickly funds will begin flowing to claimants--especially
those with the most serious diseases, such as mesothelioma, who may
only have a short time to live.
The new administrative structure will help to ensure that the program
is up and running quickly and managed efficiently to the benefit of
claimants, including providing for interim regulations and interim
authority to begin processing claims as soon as possible. The interim
administrator may prioritize claims so that the victims with the most
severe injuries, especially mesothelioma victims, have their claims
processed first. Money will flow into the system faster, since S. 1125
now requires upfront funding from participants. Money from defendants
will be available within 3 months from the date of enactment from
certain defendant participants and within 6 months from the remaining
defendant participants, which will be in addition to the monies
received from the bankruptcy trusts. There also is authority to require
upfront money from the insurer participants so that there is no delay
in obtaining money from the insurers.
As an additional protection against an influx of early claims, the
bill also provides the administrator with expanded borrowing authority
to ensure that there are sufficient funds available to initiate the
program and to pay claims in short order. The borrowing would be 100
percent collateralized against the mandatory payments from participants
in the Fund.

These changes are designed to address concerns raised by Senator
Feinstein in the committee's consideration of the bill. Senator
Feinstein raised valid concerns that a delay in creation of the claims
system would harm claimants. However, her amendment would have
essentially left the current system in place for an indefinite amount
of time and would allow credits for monies to be paid to the fund,
having the unintended effect of perpetuating the status quo with its
gross misallocation of payments to unimpaired claimants and its
excessive attorney fees. Furthermore, it would have threatened the Fund
itself, by diverting Fund assets to cover these unwarranted claims and
fees.
Given the improvements that have been made to the claims processing
system, good public policy demands expedited termination of the broken
system and commencement of payments to the most worthy claimants, as
defined by the consensus medical criteria.
Organized labor has an important role to play in protecting the
interests of working people in the congressional debate. In addition to
numerous concessions associated with the new administrative structure,
representatives of organized labor aggressively advocated for a number
of changes, which were adopted. These changes were aimed at ensuring
that the program established under S. 1125 was the most fair to
victims, as the intended beneficiaries of the program.
S. 2290 now provides for medical monitoring reimbursement for costs
of physical examinations as well as costs for x-rays and pulmonary
function testing.
S. 2290 explicitly extends the protections of HIPAA to ensure that
claimants cannot be discriminated against for provision of health
insurance solely as a result of filing a claim with the Fund.
This bill also requires the use of presumptions for satisfying the
exposure criteria for certain industries, occupations, and time
periods.
While I have outlined some major changes here, literally dozens of
additional changes have been made to S. 1125 since the introduction of
the bill. These changes clarify language and strengthen provisions to
ensure that sick claimants are promptly and fairly

[[Page S4107]]

compensated, that the burden and risk on claimants is reduced to the
extent possible, and that participants can obtain certainty with
respect to their asbestos liabilities as necessary to promote the
creation of jobs and the economy.
And it was recognized, as the bill was being considered by committee,
that even as we are dealing with the aftermath of asbestos, the
substance itself is still in limited use. The committee adopted Senator
Murray's landmark asbestos ban, and this country's workers will be
safer for it. It simply did not make sense to create a compensation
system and continue to allow workers to be exposed.
We also addressed the terrible situation in Libby, MT, where many
workers and residents have become ill from asbestos and
the manufacturer, W.R. Grace has filed for bankruptcy leaving victims
with little recourse. S. 1125 contains special provisions so that Libby
victims can readily gain compensation from the Fund.

In addition, we must not forget this Nation's veterans. Veterans have
been long overlooked when talking about the asbestos litigation crisis.
Men and women who served in the Armed Forces were often exposed to
significant amounts of asbestos while serving our country, particularly
during World War II and while serving on ships. S. 1125 provides a
better avenue, and may be the only avenue, for veterans to receive fair
and prompt compensation, while still preserving the veterans' benefits
that are currently available.
We have set forth a rational system, offering a positive alternative
to today's broken system. It is one of the largest, boldest
compensation programs in this Nation's history. The choice here is not
about the mechanics of the program, the final dollar amount, or any
individual provision. We can work those things out. The choice is
whether to offer victims a better system than we have today, and at the
same time rationalize the system to stop the havoc it is causing to
jobs and the economy.
Indeed, we have made major progress in getting this bill ready for
the floor, especially considering the controversial issues involved.
We've had literally dozens of stakeholder meetings. During this
process, all of the issues have been visited and revisited. All parties
have been heard, and all concerns have been heard. While such a
sweeping bill will inevitably contain compromises that are not perfect
in the eyes of each stakeholder, we have listened to all concerns and
come up with the best solutions possible.
I had hoped to bring the bill up for a vote before the last session
ended. At that time, a lot of stakeholders felt that was premature. On
November 22 of last year, I announced that I would wait, but that the
bill would be considered by the end of March. Again on February 27 I
made it clear that the bill would be brought up by the end of March. To
continue the discussions among the stakeholders, I again extended this
time to the week of April 19, and, thus, we are here. It is time to
stop talking and bring these issues to resolution.
We have waited long enough and worked to create consensus, and now we
have significant support to wrap up the outstanding issues--challenging
as they are--and hold a vote. There have been suggestions almost from
the start that we need more time to come up with better answers. We
have very few legislative days remaining, and as we feared, we are
nearly out of time. Senator Hatch and I have consistently offered
realistic scheduling and frankly have allowed too much delay already.
Now we have run the clock out and we must act.
Standing still is not an option, as the situation continues to
deteriorate. Victims wait for unpredictable and inequitable
compensation, companies continue to declare bankruptcy, and jobs and
the economy suffer.
For many Members, it will require courage and leadership to change
the status quo, but I am calling on this body to give the American
people a better system for compensating asbestos claimants. Inaction--
allowing the status quo--is in itself a choice that harms victims and
American workers.
I believe it is time to move forward by offering the changes I have
described here in an amendment in the nature of a substitute.
Mr. President, I ask unanimous consent that a detailed summary of the
major changes in a section-by-section description be printed in the
Record following my remarks.
The PRESIDING OFFICER (Mr. Smith). Without objection, it is so
ordered.
(See exhibit 1.)
Mr. FRIST. Mr. President, there will no doubt be constructive
proposals from Senators on both sides of the aisle to refine and
improve this bill. That is what the amendment process is all about.
I encourage this process. It is my hope the process will be
constructive and it will result in a bill that can pass this body. I
look forward to the debate and consideration of S. 1125.
I yield the floor.

Exhibit 1

S. 2290--Summary of Changes From S. 1125 as Reported

S. 1125, the Fairness in Asbestos Injury Resolution Act, as
reported out of the Senate Judiciary Committee, represents an
unprecedented advance on complex and difficult issues that
have stalled previous attempts at similar legislation.
Landmark agreements were reached on asbestos injury
compensation issues such as medical criteria, and over 50
consensus-building changes were adopted overall. Nonetheless,
a number of issues were left open for further discussion, and
additional concerns were raised that were not addressed by
the Committee. Since the bill was reported out of Committee,
various stakeholders and members from both parties have
continued negotiations. The substitute bill being introduced
reflects agreements on some of these difficult issues reached
during these negotiations, and attempts to address a number
of concerns that have been raised but have not yet been
subject of agreement. In particular, the First/Hatch bill:
raises claims values, creates a more streamlined
administrative system that can be up and running quickly,
provides increased liquidity and upfront funding so that
claims can be paid in short order, and places the risk that
the Fund runs out of money on the defendants and insurers and
not on the claimants. These are just some highlights of the
numerous changes that were made to make a fairer system for
claimants. The following provides a section-by-section
summary of the changes in the First/Hatch bill from S. 1125
as reported with explanations as to the need for the changes.

sec. 3. definitions

Changes were made to various definitions under this section
to conform with other amendments in the bill to provide
clarifications.
Sec. 3(3) Definition of ``asbestos claim.'' S. 1125 seeks
to replace the current broken tort system with a streamlined,
administrative system. S. 1125, therefore, must preempt and
supersede all asbestos claims filed in the current tort
system. Concerns were raised that the definition of
``asbestos claim'' in S. 1125 as reported may have been
interpreted as unduly limited, failing to cover some types of
asbestos claims that are currently overburdening the tort
system today, which were intended to be preempted and
superseded by the Act. This definition was amended to help
ensure that the definition is interpreted broadly to
encompass all types of claims that are being filed in the
system today. This definition has also been amended to make
clear that claims alleging damage to tangible property are
left intact.
[Sec. 3(6) Definition of ``collateral source
compensation.'' The disease categories under S. 1125 are not
easily translatable from those filed in the tort system. The
definition of ``collateral source compensation,'' therefore,
was clarified to more clearly encompass awards in the tort
system.]
Sec. 3(9) Definition of ``insurance receivership
proceeding.'' A new definition for ``insurance receivership
proceedings'' was added to S. 1125. This definition
accompanies changes made to section 402 that would give the
Fund a priority for collection of assessments from insurers
in state insurance receivership proceedings. These provisions
track those provided for insolvent companies in bankruptcy.
This definition describes the state law proceedings to which
the priority applies. This, like the bankruptcy provisions,
help to ensure that the payments made to the Fund are
continued despite any subsequent insolvencies of insurer
participants.
[Sec. 3(11) Definition of ``participant.'' One of the
exceptions to ``participant,'' defined in section 3(11), are
companies who have completed their bankruptcy proceedings.
This exception was amended to ensure that the bill is in
concert with the United States Bankruptcy Code. A company is
not ``out of bankruptcy'' until the plan of reorganization
becomes effective in accordance with its terms. Under the
Bankruptcy Code, changes to the plan can occur until the
date on which the plan is ``substantially consummated,''
as defined in section 1101(2) of that Code. Conforming
changes were made to applicable sections in the funding
provisions under title II.]

Title I--Asbestos claims resolution

Subtitle A--Office of Asbestos Disease Compensation
The Frist/Hatch bill incorporates a new administrative
structure for the processing and

[[Page S4108]]

paying of claims, which was part of an agreement between
representatives of labor and industry groups negotiated under
the auspices of Senator Specter and Judge Becker. This new
structure responds to concerns raised by representatives of
organized labor, who wanted a more streamlined and more non-
adversarial system than that in S. 1125 as reported. Various
aspects of the new structure promote the efficient management
of the program and crate a less burdensome system for
claimants. Old title I, subtitle A, which created a claims
processing structure within the Court of Federal Claims, was
replaced with new subtitle A, which creates an executive
office situated in the Department of Labor to administer the
program. Subtitle B in S. 1125 as reported, which outlined
the claims handling process, also was substantially amended
to respond to requests by stakeholders. The new
administrative structure also contains provisions to ensure
that the program is processing claims as soon as possible,
which were added as part of the alternative to the Feinstein
startup amendment. Conforming changes were made throughout
the bill.
Sec. 101. Establishment of Office of Asbestos Disease
Compensation Program. New section 101 establishes within the
Department of Labor, an Office of Asbestos Disease
Compensation. This section clarifies that all administrative
expenses of the program are to be paid from the Fund. The
office is headed by an Administrator, who will be responsible
for both the claims handling and the management of the Fund.
The Administrator is appointed by the President with the
advice and consent of the Senate, and reports directly to the
Assistant Secretary of Labor for the Employment Standards
Administration. The general duties of the Administrator are
provided in this section, and provisions regarding the
Administrator's fund management duties found in section 222
of S. 1125 as reported (p. 168-69) were incorporated into
this general authority provision. Civil penalties up to
$10,000 for false statements and fraudulent acts against the
Office are also provided for under this section. Two Deputy
Administrators will be selected by the Administrator--one to
carry out the Administrator's claims processing
responsibilities, and one to carry out the Administrator's
Fund management responsibilities. Finally, a general
provision with respect to the application of the Freedom of
Information Act (``FOIA'') was added to section 101.
Placing the office within the Department of Labor was
requested by labor representatives. In addition, much of the
provisions in the Frist/Hatch bill are based on provisions
from statutes and implementing regulations for compensation
programs administered by the Department of Labor. The
Administrator, therefore, can utilize the 90 years of
experience the Department has in administering similar
compensation programs and the infrastructure already created
for these programs.
Sec. 102. Advisory Committee on Asbestos Disease
Compensation. New section 102 provides for the establishment
of an Advisory Committee on Asbestos Disease Compensation
within 120 days after the date of enactment of the Act. The
Advisory Committee will advise the Administrator on general
policy and administration matters. The Advisory Committee is
composed of 24 members with 3-year staggered terms. Sixteen
members are to represent the interests of the claimants (at
least 4 of which are recommended by recognized labor
federations), defendant participants, and insurer
participants. The remaining 8 members are appointed by the
Administrator and cannot have earned more than 25% of their
income for each of the 5 years prior to their appointment by
serving in asbestos litigation as consultants or expert
witnesses. The Administrator selects a Chairperson and Vice
Chairperson. The Advisory Committee must meet at least 4
times a year for the first 5 years of the program and at
least twice a year thereafter. The Administrator must provide
information and administrative support as may be necessary
and appropriate for the Advisory Committee to carry out its
functions. The members are entitled to travel and meal
expenses. An advisory committee was provided for under the
Energy Employees Occupational Illness Compensation Program
Act (``EEOICPA''), 42 U.S.C. Sec. 7384o, which served as a
model to the new administrative structure. The size and scope
of the Advisory Committee was outlined by labor
representatives in order to provide stakeholders with the
opportunity to provide the Administrator with input on the
compensation program.
Sec. 103. Medical Advisory Committee. New section 103 is
permissive rather than mandatory, granting the Administrator
the authority to create a Medical Advisory Committee to
provide general medical advice relating to the review of
claims that cannot be adequately addressed by the larger
Advisory Committee on Asbestos Disease Compensation. To help
ensure objectivity on the part of the members of this
Committee, individuals who earned more than 25% of their
income for each of the 5 years prior to their appointment by
serving in asbestos litigation as consultants or expert
witnesses cannot be appointed to the Committee.
Sec. 104. Claimant Assistance. New section 104 expands the
claimant assistance program under section 116 of S. 1125 as
reported (p. 39). At the request of labor representatives,
the program was expanded to include, among other things, the
requirement to establish resource centers and to contract
with labor and community based organizations. Aspects of this
more expansive program are modeled on Section 7384v of the
EEOICPA, for which several resource centers have already been
established by the Department of Labor.
The streamlined administrative structure and the claimant
assistance program, which includes assistance in finding pro
bono legal representation, both reduce the burden on the
claimant seeking compensation and the need for a lawyer.
Although legal representation is allowed, the goal of S. 1125
is to reduce the high transaction costs of the current tort
system, which can be upwards of 40% for legal fees to the
plaintiff's attorney alone. As such, the Frist/Hatch bill
provides for reasonable limits on attorneys fees to reflect
this streamlined process, allowing for higher percentages for
more complex cases. Penalties are provided for to ensure that
these limits are followed.
Sec. 105. Physicians Panels. The Physicians Panels were
established in order to perform the functions of the Medical
Advisory Committee originally contemplated under S. 1125 as
reported, section 114(j) (p. 37). The Physicians Panels will
provide necessary medical advice in the adjudication of
individual claims, as opposed to the newly created
Medical Advisory Committee which would advise on general
medical policy. While the Administrator still chooses how
many panels are required, the statute now requires that
each panel be composed of 3 physicians. The third
physician is only to be consulted in the event the other
two physicians cannot agree. The qualification that
physicians serving on the panels be actively practicing
was replaced by a limitation that such physicians cannot
have earned more than 25% of their income for each of the
5 years prior to their appointment as an employee of a
participant or a law firm representing any party in
asbestos litigation or as a consultant or expert witness
in matters related to asbestos litigation. The previous
qualification was deleted in order to allow doctors who
are retired but have knowledge and experience with
diagnosing asbestos-related illnesses may serve on the
Physicians Panels. It was replaced by a requirement that
sought to ensure objective doctors were placed on these
panels. Labor representatives also requested less
restrictive compensation provisions due to its impression
that it is currently difficult to retain qualified doctors
under the EEOICPA because of a limitation on compensation.
A provision ensuring that Physicians Panels are exempted
from the Federal Advisory Committee Act was also included
at the request of labor representatives.
Sec. 106. Program Initiation. New section 106 was inserted
in order to address concerns raised by labor representatives
that the program could take an inordinate amount of time to
start paying claims. This section requires the establishment
of interim regulations, including regulations for the
processing of exigent claims, within 90 days from the date of
enactment in order to allow for an expeditious program
startup, addressing concerns raised that victims do not have
time to wait through undue delays until a whole new
administrative program is established. The Secretary of Labor
is required to provide the Administrator with temporary
personnel and other resources as necessary to facilitate the
initiation of the program. This section also defines
``exigent health claims'' as those made by individuals who
are living mesothelioma claimants and others who have been
diagnosed as terminally ill from an asbestos-related illness
and having a life expectancy of less than one year. The
Administrator has the discretion to identify additional
exigent health claims as well as extreme financial hardship
claims to be handled on an expedited basis.
Stakeholders recognized that an interim administrator may
be appointed in the event that the Administrator is a
presidential appointee to avoid any delays related to the
Presidential appointment and Senate confirmation of an
Administrator. To address this issue, the Frist/Hatch bill
provides that the Assistant Secretary of Labor for the
Employment Standards Administration serve as Interim
Administrator, until the Administrator is appointed. The
Interim Administrator may begin processing and awarding
claims without regard to the time limits set forth in the
title I, subtitle B. The Interim Administrator also may
prioritize claims processing based on severity and causation,
so that living mesothelioma victims or terminally ill
claimants, who may not have much time, can be placed first in
line and be paid as quickly as possible. The provisions,
along with placing the Office within the Department of Labor,
help to ensure that the program can be up and running in
short order and effectively administered in the long run.
Sec. 107. Authority of the Administrator. New section 107
was added to provide the Administrator with general authority
to issue subpoenas and conduct hearings, and is derived from
the Federal Employees Compensation Act (``FECA''), 5 U.S.C.
Sec. 8126. Such authority is necessary to implement the
Administrator's responsibilities under the Act.
Subtitle B--Asbestos Disease Compensation Procedures
Subtitle B lays out the claims handling process. Although
it incorporates many of the same provisions found in title I,
subtitle B, of S. 1125 as reported, new subtitle B represents
the more streamlined process requested by labor
representatives and includes changes which labor felt would
create a fairer process for claimants.

[[Page S4109]]

Sec. 111. Essential Elements of Eligible Claim. Section 111
amends old section 113 from S. 1125 as reported (p. 28) as
requested by labor representatives, by collapsing the
requirements that were listed separately into a general
reference to the ``medical criteria'' section in subtitle C,
which includes latency, exposure, diagnostic and medical
criteria requirements.
Sec. 112. General Rule Concerning No-Fault Compensation. No
change from old section 112 in S. 1125 as reported (p. 28).
Sec. 113. Filing of Claims. New section 113 revises section
111 from S. 1125 as reported (p. 23). Section 113(a)(1)
incorporates the definition of ``personal representative'' as
the term is defined in 28 C.F.R. Sec. 104.4, which contains
the regulations governing the September 11th Victim
Compensation Fund of 2001. This change was made to avoid some
of the difficulties that may be encountered in defining who
may file on behalf of a deceased claimant and sorting through
potential familial disputes. Also at the request of labor
representatives, new provisions defining the ``date of
filing'' and clarifying the procedures for handling
incomplete claims were added. These provisions were based on
the Radiation Exposure Compensation Act, 42 U.S.C. Sec. 2210
note, section 6(d), and regulations implementing the EEOICPA,
20 C.F.R. Sec. 30.100(c), and the Black Lung Act, 20 C.F.R.
Sec. Sec. 725.404(d), 725.409.
Statute of Limitations. Labor representatives raised a
concern with respect to the statute of limitations section in
S. 1125 as reported, which would allow setoffs in multiple
injury cases of recoveries for all prior claims made with the
Fund (section 111(c)(3), p. 27). New section 113(b) clarifies
that a claimant who files a second injury claim with the Fund
for a subsequently diagnosed malignant disease does not
receive a setoff for prior recoveries from the Fund in cases
where the claimant has already filed and resolved a claim
with the Fund for a nonmalignant injury. This new provision
is based on the 2002 Trust Distribution Procedures for the
Manville Trust, which recognizes that claimants who develop
and receive awards for a nonmalignant claim should not
receive setoffs in the event that claminant is subsequently
diagnosed with a malignant disease.
Another change was made to the statute of limitations for
pending claims. Although S. 1125 creates a specific statute
of limitations for ``pending claims'' timely filed in the
courts or with a bankruptcy trust, S. 1125 does not seek to
revive stale claims. As such, a definition of ``pending
claims'' with bankruptcy trust was added to clarify when such
a claim is ``pending'' for purposes of the statute of
limitations. The new definition provides that only claims
that have not yet been resolved with the trust be allowed to
take advantage of the relaxed statute of limitations, and
that claims will not be considered pending simply because
they are awaiting additional payment installments or may have
the potential to have increased payment.
Required Information. Additional changes were made to the
required information provision of S. 1125 to reflect concerns
raised by labor representatives that the application
requirements were too strict, and to clarify certain require
information at the request of labor representatives.
Sec. 114. Eligibility Determinations and Claims Awards. New
section 114 replaces the claims handing provisions of S. 1125
as reported, including the administrative appeals process,
largely in response to requests by labor representatives. It
establishes a more streamlined system, eliminating at least
one level of review from S. 1125; thereby resulting in the
deletion of subtitle E of title I (En Banc Review) in S. 1125
as reported. Subsection (a) authorizes the Administrator to
render decisions on claims for compensation. This language is
based on provisions found in FECA, 5 U.S.C. Sec. 8124.
Subsection (a) also clarifies that costs associated with any
additional medical evidence or testing requested by the
Administrator as part of the individual's claim shall be
borne by the Fund.
Proposed and Final Decisions. The Administrator is required
to issue a proposed decision, containing findings of fact and
conclusions of law as well as an explanation of the
procedures for review, within [90] days of the filing of a
complete claim. The claimant then has the opportunity to
request, in writing within [90] days of issuance of the
proposed decision, an informal hearing or review of the
written record. If a hearing is requested, it is to be
conducted before a representative of the Administrator, and
claimants have the right to request a subpoena, which may be
granted or denied at the sole discretion of the
representative hearing the claim. If no review has been
requested, the Administrator issues a final decision. If the
final decision in such cases materially differs from the
proposed decision, the claimant may then seek review. If
review of the proposed decision is requested, the
Administrator is required to issue a final decision within
[180] days after the request for a hearing, and [90] days
after the request for review on the written record. A
claimant may authorize an attorney or other individual to
represent him or her in any proceeding under this Act. The
provisions in new section 114 are largely based on FECA and
its regulations and on regulations implementing the EEOICPA.
Sec. 115. Medical Evidence Auditing Procedures. New section
115 consolidates various program-wide and individual claims
auditing provisions found in S. 1125 (sections 115(a), (b),
p. 38, sections 114(c)(3)(B)(i), (c)(4), p. 31-32), with some
modifications. The general auditing authority was clarified
to require the development of methods for auditing and
evaluating medical evidence and other types of evidence
submitted to the Office (new section 115(a)(1)).
Independent Certified B-Readers. The provisions providing
for review of x-rays by independent certified B-readers was
amended to allow the Administrator to consider the findings
of the independent certified B-readers rather than denying
the claim in the event the independent B-readers disagree
with the reading submitted by the claimant as was previously
provided. This change was made to account for potential
disagreements between the independent certified B-readers
(new section 115(b)(3)). The purpose of this review, however,
is still to ensure that questionable x-ray readings submitted
by claimants are not considered when determining eligibility.
Smoking Assessment. Provisions on the assessment of
claimant representations as to their smoking status was
amended to clarify that such review applies only to other
cancer claims, lung cancer claims, and exceptional medical
claims. Based on past experience of claims filing, this
section also now provides that the review of claims on
smoking status should address at least 5 percent of the
claimants asserting status as nonsmokers or ex-smokers
because of the potential for fraud in such cases.
Subtitle C--Medical Criteria
In order to preserve the bipartisan agreement reached with
respect to medical criteria, no changes have been made to
this subtitle except where necessary to conform to the
revised administrative structure under title I. One
substantive change that was made as part of the agreement
between labor and industry representatives on the
administrative structure was to add a requirement that the
Administrator develop presumptions for satisfying the
exposure criteria for certain industries, occupations, and
time periods. A similar provision was included in S. 1125 as
introduced, but was dropped from the medical criteria in S.
1125 as reported.
Subtitle D--Awards
Several major changes were made to Subtitle D (p. 81) of
title I in S. 1125 as reported. [First, section 131(b)(1)
adjusts the claims values to reflect those proposed by the
Majority Leader (and to correct one apparent typographical
error for nonsmoker, Level VIII claims). This bill raises
claims values above S. 1125 in several categories.] Second,
section 132(b) now provides medical monitoring reimbursement
for costs of physical examinations by the claimant's
physician as well as costs for x-rays and pulmonary function
testing. A physical examination is another important element
for obtaining a proper diagnosis, and should also be covered
by the fund. Finally, although providing for payments over a
three-year period was provided for in Committee at the
request of labor and democrats, it was further clarified,
also at the request of labor and democrats, that such
payments should be made in the following amounts: 40% the
first year, 30% the second year, and 30% the third year. The
statute now provides a standard by which the Administrator
must comply to extend such payments to 4 years--that is, if
warranted in order to preserve the overall solvency of the
Fund.

title ii--asbestos injury claims resolution fund

Subtitle A--Asbestos Defendants Funding Allocation
In addition to technical amendments, Subtitle A was amended
to reflect the new funding allocation to defendant
participants proposed by the Majority Leader, to provide a
structure that would guarantee the $2.5 billion (net of
hardship and inequity adjustments) in defendant participant
annual contributions, and to incorporate a funding proposal
that would infuse the Fund with monies within months of
enactment.
Aggregate Payment Obligations Level. As part of the
Majority Leader's funding proposal, section 202(a) now
provides that the defendant participants be required to pay
$57.5 billion to the Fund, subject only to a contingent call
for additional payments. Section 204(h) requires annual
aggregate payments to the Fund of $2.5 billion a year for 23
years or until such time as the requirement in section 202(a)
is reached (if it is reached in less than 23 years). In the
event there are insufficient monies collected from defendant
participants to reach this annual requirement (net of any
hardship and inequity adjustments) in any given year, the
Administrator is granted the authority to obtain the
balance from a guaranteed payment account established
pursuant to section 204(k). If there are insufficient
funds in the guaranteed payment account to raise the
balance required, the Administrator is granted the
authority to impose a guaranteed payment surcharge under
section 204(l) on all defendant participants, on a pro-
rata basis in accordance with the liabilities under
sections 202 and 203, as necessary to raise this minimum
aggregate payment obligation (net of hardship and inequity
adjustments) in any one year.
Financial hardship and Inequity Adjustments. Unlike S. 1125
as reported, the defendant funding formula now guarantees
that funding will be available for hardship and inequity
adjustments up to the annual limit of $250 million. Section
204(d) was clarified to

[[Page S4110]]

ensure that adjustments in effect in any one year made for
both financial hardship and inequity are subject to a
combined $250 million cap. Although limits based on a fixed
percentage roughly equating to $150 million for severe
financial hardship and $100 million for demonstrated inequity
were originally provided, the Administrator is now given the
discretion to use the $250 million for demonstrated inequity
adjustments and for financial hardship adjustments as deemed
necessary. It is anticipated that the severe financial
hardship adjustments will increase in importance in the
future as companies become confronted with unanticipated and
unpredictable financial hardships. The Administrator's
discretion would be broad enough to allow the Administrator
to reallocate monies from inequity adjustments to accommodate
future financial hardships. [In addition, unlike S. 1125 as
reported, such adjustment determinations would be subject to
review.]
A financial hardship and inequity adjustment account under
section 204(j) replaces the orphan share reserve account in
S. 1125 as reported (section 223(h), p. 189). Under section
204(k), any excess monies above the $2.5 billion minimum
aggregate annual payments are to be placed into the financial
hardship and inequity adjustment account up to $250 million
in any given year. Any monies not used in the account in any
given year are carried over for use in the next year. Any
additional excess funds (after the $250 million) go to the
guaranteed payment account established under section 204(k)
to be used to ensure that the defendant participants reach
the minimum annual aggregate payment amount (net of hardship
and inequity adjustments) in future years. The monies in the
financial hardship and inequity adjustment account are now to
be used only to the extent the Administrator grants a
financial hardship or inequity adjustment, and not in the
event a defendant participant files for bankruptcy and cannot
meet its obligations as previously provided in S. 1125 as
reported. The guaranteed payment account provided for under
section 204(k) (plus the potential surcharge) is meant to
address any potential shortfalls due to such bankruptcies.
Contingent Call. Pursuant to the new Frist funding
proposal, only defendant participants are subject to a
contingent call for additional payments and, therefore, the
contingent call provisions in S. 1125 as reported (section
223(f), p. 179-87) were moved to subtitle A of title II and
amended to reflect the new Frist funding formula. Due to the
increased liquidity provided for under the Frist funding
proposal, the back-end payments provisions (section 223(g),
p. 187-89) were deleted. The amended contingent call
provision, section 204(m), grants the Administrator the
authority to require up to $10 billion in additional payments
to be allocated based on the defendant allocation scheme in
sections 202 and 203. To invoke the contingent
call authority, the Administrator must certify, after
consultation with appropriate experts, that such monies
are required to meet the Fund's obligations. Although the
Administrator may invoke the contingent call authority at
any time for purposes of borrowing monies, the additional
payments may not be assessed against defendant
participants until after the total aggregate payment
amount has been reached.
Upfront funding. Subtitle A also reflects changes that
would require defendant participants to provide upfront
funding to infuse the Fund with monies to begin paying claims
within months of enactment. Section 204(i) requires a
defendant participant to make a good faith determination as
to its prior asbestos expenditures and/or payments made to
pay claims brought under the Federal Employees Liability Act
(``FELA''), and submit payments to the Administrator within
90 days of the date of enactment for Tiers I and VII and
within 180 days of the date of enactment for Tiers II through
VI. It is believed that 90 days is sufficient time for
debtors and Tier VII defendant participants to determine
their liability under this section and make initial payments.
Due to the greater complexity of determining prior asbestos
expenditures for Tiers II through VI, however, 180 days is
allowed for defendant participants to be able to make an
initial, good-faith determination and payment, conforming to
the 6 month requirement for bankruptcy trusts to assign their
assets to the Fund. The Administrator would still make a
final determination as to a defendant participant's tier and
subtier, and request additional payment or rebate for year 1
if necessary. After the initial payment, defendant
participants must then make payments and submit information
as prescribed by the Administrator. The right to an
administrative rehearing was also clarified, and the statute
now expressly requires the exhaustion of such administrative
remedies prior to seeking judicial review.
Clarifications for Debtors. The superseding provisions
related to debtors under section 202(e) were clarified to
ensure that a plan of reorganization or other agreement
associated with asbestos claims are superseded.
Subtitle B--Asbestos Insurers Commission
Subtitle B in S. 1125 as reported has been amended to
reflect the new Frist funding proposal and to address
potential constitutional problems that were inherent in
Subtitle B of S. 1125 as reported. [Additional changes to
further clarify these provisions may be necessary.]
Establishment of Asbestos Insurers Commission. Given the
authority granted to the Commission, the appointment
provisions in S. 1125 as reported allowing for Presidential
appointment of the members after mere consultation with
certain members of Congress, present potential appointments
clause problems. Section 211, therefore, now provides that
the members of the Commission are appointed by the President
with the advice and consent of the Senate. In addition,
Section 211 now provides that the Commission may act based on
the participation of a majority of the members. S. 1125 as
reported had required all the members be present for the
Commission to be able to act, which was not practical and
could have resulted in unnecessary delays in the allocation
process.
Aggregate Payment Obligation Levels. As part of the
Majority Leader's funding proposal, section 212(a)(2)
provides that the insurer participants be required to pay
$46.025 billion to the Fund, and section 212(a)(3) outlines
the annual aggregate payments. Insurer participant payments
are front loaded, but are to be paid over a period of 27
years. Additional conforming changes were made to reflect
the new funding provisions and to clarify the allocation
process and criteria.
Upfront Funding. Similar to the defendant participants,
the insurer participants are now required to provide upfront
funding to help infuse the Fund with monies to begin paying
claims quickly. Sec. 212(e) grants the Administrator the
authority to require insurer participants to pay interim
contributions to the Fund to assure adequate funding by
insurer participants during the period between the date of
enactment of the Act and the date when the Commission issues
its final determination of contributions. Contributions
required by the Administrator will be credited to the insurer
participants subsequent payment obligations established by
the Commission.
Guaranteed Payment. [To be determined.]
Subtitle C--Asbestos Injury Claims Resolution Fund
As described above, various provisions were moved to other
parts of the bill and deleted from subtitle C in S. 1125 as
reported. In addition to provisions previously identified,
the provisions relating to violations of environmental and
occupational health and safety requirements (section 222(c),
p. 171) were moved to Title IV--Miscellaneous Provisions.
Various substantive changes, as well as other conforming
changes and technical corrections, were made to this subtitle
to help increase the Fund's liquidity and to help protect the
integrity of the Fund.
Borrowing Authority. As part of the Majority Leader's
funding proposal, the borrowing authority provision of S.
1125 as reported (section 223(c), p. 177) was amended to
provide more expansive authority to increase the Fund's
liquidity. Under new section 223(b), the Administrator is now
authorized to borrow against up to seven years of expected
payments by the participants. The new borrowing provisions
clarify that any debt incurred is to be paid solely by
amounts available in the Fund. To help ensure that the fund
is up and running quickly, monies may be borrowed from the
Federal Financing Bank during the first two years of the
Fund. The increased liquidity will also help to fix short-
term funding problems in the event there is a bulge in claims
to ensure that the Fund is not unnecessarily subject to an
early sunset.
Increased Enforcement. Additional provisions were added to
subtitle C to strengthen the Administrator's authority to
enforce the participants' payment obligations. New audit
authority has been provided for under section 223(d). This
audit authority is for the following purposes: (a)
ascertaining the correctness of any payments made to the
Fund; (b) determining whether a person who has not made a
payment to the Fund was required to do so; (c) determining
the liability of any person for a payment to the Fund; (d)
collecting any such liability; or (e) inquiring into any
office connected with the administration of enforcement of
title II. In addition to the criminal penalties already
provided for in S. 1125 as reported, civil penalties for
false statements and fraudulent acts against the
Administrator have been added under this section. The
enforcement provisions in section 225 now provide that the
Administrator may enforce the provisions of this Act in
proceedings outside of the United States to ensure the
ability to go after recalcitrant foreign companies subject to
the liabilities under the Act. Additional enforcement
provisions aimed at insurer participants were also added
to section 225. New section 226 provides that interest be
paid on any amount of payment obligation that is not paid
on or before the last date prescribed for payment.

title iii--judicial review

The judicial review provisions in S. 1125 were largely
replaced to reflect changes in the administrative structure
and to simplify the provisions. These changes were largely as
a result of negotiations between representatives of labor and
industry.
Sec. 301. Judicial Review of Rules and Regulations. Section
301 now applies to judicial challenges of rules and
regulations promulgated by the Administrator or the Asbestos
Insurers Commission pursuant to the Act, granting the United
States Court of Appeals for the District of Columbia Circuit
exclusive jurisdiction over such actions. Any petition for
review must be filed within 60 days of the date the notice of
such promulgation appears in the Federal Register.
Sec. 302. Judicial Review of Award Decisions. Section 302
now applies to judicial review of eligibility determinations
made by

[[Page S4111]]

the Administrator. Any claimant adversely affected or
aggrieved by a final decision of the Administrator awarding
or denying compensation may petition for judicial review
within [90] days of the issuance of a final decision of the
Administrator. Such petition may only be filed in the United
States Court of Appeals for the circuit in which the claimant
resides at the time of the issuance of the final order. At
the request of labor representatives, the standard of review
of such eligibility determinations was changed from the usual
arbitrary and capricious standard to a substantial evidence
standard.
Sec. 303. Judicial Review of Participants' Assessments.
Section 303 now applies to judicial challenges of
participants' assessments made by the Administrator or the
Asbestos Insurers Commission. The United States Court of
Appeals for the District of Columbia Circuit, rather than the
United States District Court for the District of Columbia as
was provided in S. 1125 as reported, has exclusive
jurisdiction over such actions. A petition for review must be
filed within 60 days of the final determination giving rise
to such action. Defendant participants must file a petition
for review within 30 days of the Administrator's final
determination (after rehearing), and insurer participants
must file a petition for review within 30 days of receiving
notice of a final determination.
Sec. 304. Other Judicial Challenges. Section 304 provides
that any action challenging the constitutionality of any
provision of the Act must be brought in the United States
District Court for the District of Columbia. The provision
also authorizes direct appeal to the Supreme Court on an
expedited basis. An action under this section shall be filed
within 60 days after the date of enactment or 60 days after
the final action of the Administrator or the Commission
giving rise to the action, whichever is later. The District
Court and Supreme Court are required to expedite to the
greatest possible extent the disposition of the action and
appeal.
Sec. 305. In General. As provided in S. 1125 as reported,
section 305 also states that no stays of payments into the
Fund pending appeal are allowed. In addition, no judicial
review other than as set forth in sections 301, 302 and 303
is allowed. Any decision of the federal court finding any
part of the FAIR Act to be unconstitutional shall be
reviewable as a matter of right by direct appeal to the
Supreme Court within 30 days of such ruling.

title iv--miscellaneous provisions

The following provisions in Title IV have been amended from
S. 1125 as reported.
Sec. 402. Effect on Bankruptcy Laws. Various changes were
made to section 402 for clarifications and to address
possible constitutional arguments that may affect the ability
of the Fund to receive assets from current bankruptcy trusts.
Sec. 403. Effect on Other Laws and Existing Claims.
Asbestos Claims Barred. Section 403(d)(2) is changed to
address a variety of unconventional asbestos claims that
plaintiffs have asserted directly against both defendant
participants and insurer participants in the tort system.
Subsection (d)(6) is added to permit parties to obtain a
credit in the event that a court ignores or misapplies the
exclusive remedy provisions of the Act, and erroneously
awards a judgment in favor of asbestos claimants outside of
the federal compensation program.
Initiation of the Fund. Because the new administrative
structure and the new funding provisions were amended to
ensure that the program is up and running in a matter of
months, section 403(d)(5) (p. 211) was deleted from the bill.
Sec. 404. Effect on Insurance and Reinsurance Contracts.
Section 404 (Section 406 in the Committee Bill) deals with
the effect of the Act on insurance and reinsurance contracts.
Section 406 as it came out of Committee accounted for
``erosion'' of insurance policies that cover not only
asbestos liabilities, but also potentially other liabilities.
The section established how contributions to the fund by
insurers and reinsurers would reduce the limits of existing
insurance policies held by the defendant participants.
Erosion. Changes have been made in section 404(a), dealing
with erosion of insurance coverage limits, in order to
account for the possibility of an early sunset of the Fund.
Based upon the assumption that insurers and reinsurers will
be required to make payments into the Fund for 27 years after
enactment, erosion of the policy limits is deemed to occur at
enactment. If the Act sunsets early, however, the insurers
may not be required to pay the full amount for which they
have been given erosion credit. In order to treat this
situation, section 404 has been amended to provide for the
restoration of unearned erosion that exists at the time of an
early sunset.
Additionally, section 404(a)(2)(B) has been amended to
conform the Act to the revised funding structure. The Bill
that passed out of Committee deemed certain erosion to occur
upon a contingent call because the contingent funding was
shared equally by the insurer participants and the defendant
participants. Any required contingent funding is now to be
required solely of defendants, and therefore no erosion will
be deemed to occur upon contingent payments.
Finite Risk Policies Preserved. The Frist/Hatch bill
includes a new section 404(d), dealing with finite risk
policies. Finite risk policies are non-traditional insurance
and reinsurance vehicles that have in recent years been
obtained by a relatively small number of defendants in
asbestos litigation and some of their insurers in an effort
to responsibly manage their asbestos liabilities. These
contractual arrangements were specifically designed because
traditional asbestos coverage was no longer available after
the mid-1980s. Generally, finite risk policies provide
coverage with respect to events that occurred in the past and
are already known to both parties to the contract. Commercial
General Liability insurance provides coverage usually for
injuries that may occur in the future.
Because of the unique nature of these kinds of contractual
arrangements, it is appropriate that finite risk insurance be
excluded from the legislation. This will avoid the danger
that participants that have entered into these arrangements
could be required to pay twice. Without the exclusion,
participants that have entered into finite risk arrangements
would be required to pay substantial amounts to the trust
fund and also be subject to a potential forfeiture of their
rights to funds comprised, in effect, mostly of their own
money used to prepay their asbestos liabilities. The
participants that have obtained finite risk insurance should
not be penalized by the legislation. If the finite risk
arrangements are not excluded from the legislation, the
insurance carriers issuing the finite risk insurance policies
would reap a substantial windfall at the expense of such
participants.
Treatment of Other Insurance and Reinsurance Rights or
Obligations. A new section 404(e) has been added to specify
the effect of the Act on certain reinsurance and insurance
claims. Generally, no participant may pursue coverage claims
against another participant or captive insurer for required
payments to the Fund. Certain insurance assignments are
voided. Otherwise, the Act does not affect insurance or
reinsurance rights or obligations unless a person voluntarily
pays a claim superseded by the Act or otherwise available
limits are deemed eroded.
Sec. 405. Annual Report of the Administrator. The sunset
provisions in S. 1125 as reported (section 404(3), p. 214)
created an inflexible trigger that could cause the Fund to
terminate unnecessarily because of a short-term bulge in
claims to the detriment of claimants. Section 405 amends old
section 404 to provide a workable alternative to the sunset
provisions, giving the Administrator more time and more
flexibility, such as through the increased borrowing
authority, to deal with a short term aberration in claims and
available funding. S. 1125 only gave the Administrator a mere
90 days to correct for short-term liquidity problems. S. 1125
as reported also would have only ensured that 95% of the
award amounts owed for the prior year and 95% of eligible
claimants be paid prior to sunset. The alternative now in the
bill would require that sufficient funds be available to pay
all resolved claims in full. Moreover, the bill now makes
clear that any debt incurred by the Fund is paid by monies in
the Fund and not the United States treasury. These provisions
also ensure that the risk that the Fund runs out of money is
borne by the participants, providing that, in the event of
sunset, a federal cause of action is created and the
claimants may file their claims in federal court.
Sec. 406. Rules of Construction Relating to Liability of
the United States. This section was previously section 405 in
S. 1125 as reported [with one change to conform to the new
administrative structure].
Sec. 407. Rules of Construction. Provisions found in
section 101(d) of S. 1125 as reported (p. 23) can now be
found under new section 407.
Sec. 408. Violations of Environmental and Occupational
Health and Safety Requirements. Provisions found in section
222(c) of S. 1125 as reported (p. 171) are now placed in new
section 408.
[Sec. 409. Tax Treatment. Currently, insurers have tax-
deductible status for reserves originally set aside for
payment of asbestos claims. Under S. 1125, these reserves
would now be used to pay assessments required by the Act. New
section 409 would maintain the tax deductibility of these
reserves until such time as the insurer makes payment to the
Fund.]
Sec. 410. Nondiscrimination of Health Insurance. New
section 410 incorporates a proposed amendment by labor
representatives and Democrats that explicitly extends the
protections of HIPAA to ensure that claimants cannot be
discriminated against for provision of health insurance
solely as a result of filing a claim for medical monitoring
reimbursement with the Fund.

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