President George W. Bush has targeted abusive litigation for reform. At the top of the list are asbestos lawsuits, which have ruined companies, left victims uncompensated, and clogged courts. But is the Republican Senate willing to take on the trial bar?
Asbestos once was a wonder substance, widely used as a fire retardant. But it turned out to cause various diseases and has generated hundreds of thousands of lawsuits. Eventually as many as 2.7 million cases might be filed.
The litigation has cost $70 billion so far, and by some estimates could ultimately reach $275 billion. The lawsuits have driven scores of firms into bankruptcy.
Moreover, people who aren’t ill are grabbing much of the compensation. Even some trial attorneys are pushing for a legislative solution.
Two years ago then-Senate Judiciary Committee Chairman Orrin G. Hatch (R.-Utah) drafted a massive settlement bill. The Fairness in Asbestos Injury Resolution Act would have created a compensation trust fund and established illness categories with set payments. Economist Michelle White of the University of California San Diego concluded: “For most claimants, the Hatch bill offers speed, certainty and higher average compensation than they would receive in the courts.”
But recalcitrant Senate Democrats, beholden to the politically potent tort lobby, refused to allow the measure to come up for a vote. Indeed, the measure came under fire from all directions.
Reformers worried that the legislation wouldn’t cut enough frivolous lawsuits. Trial attorneys contended that the trust fund wasn’t big enough to guarantee compensation. Fiscal conservatives complained that the federal government might be left holding the fiscal bag.
The new committee chairman, Sen. Arlen Specter (R.-Pa.) is circulating draft legislation that would create a trust fund while allowing plaintiffs to return to court if necessary. But trial attorneys have gone on the attack.
A fund in the range of $140 billion is “clearly not adequate according to anybody who’s looked at the issue,” argues Carlton Carl of the Association of Trial Lawyers of America. But the companies that would contribute worry about the failure to cap their liability, as well as to strictly limit compensation to those who have been harmed.
Virtually everyone agrees the system is broke. It’s bad for an economy where job creation remains a concern. It’s unfair for companies that are paying for harm they didn’t cause. It’s particularly tragic for the seriously ill who will never be adequately compensated.
So far, more than 75 firms have gone bankrupt as a result of asbestos litigation. Explain economists Joseph Stiglitz, Jonathan Orszag, and Peter Orszag: “The staggering costs of asbestos liabilities have pushed many defendant companies into bankruptcy or to the brink thereof.”
Average shareholders have suffered. As many as 130,000 jobs have disappeared and even more won’t be created in the future because of money diverted from investment to litigation. Many employees have lost employer-provided retirement accounts.
As companies that actually produced asbestos have collapsed, trial attorneys have turned to food, steel, paper, textile, and other firms. A study by Prudential Financial notes: “Defendants are increasingly ‘peripheral'”; asbestos “was more or less ‘incidental’ in their products or facilities; (if) it was in their products, it was enclosed (and) therefore, only a minimal number of fibers were released into the air.”
Attorney Steve Kazan, who represents genuinely sick clients, complained, “We are seeing large numbers of cases from ‘new’ industries where it seems clear that if there is any asbestos exposure at all it is very likely limited in intensity as well as scope, with relatively few workers having real exposure.”
As a result, an increasing number of cases are being filed by people who aren’t ill. Observe Stiglitz, Orszag, and Orszag, “the share of total new claimants who are unimpaired” has jumped from about 4 percent to 75 percent over the past two decades.
Many of these plaintiffs are collecting damages for conditions caused by other factors, such as smoking tobacco, which leaves less money for the sick whose illnesses were caused by asbestos.
States are beginning to act. Ohio has set medical criteria for recovery, while judges in Florida and Mississippi have threatened to toss out cases filed by plaintiffs from other jurisdictions.
The American Legislative Exchange Council has proposed model legislation to create an “inactive docket” for plaintiffs who have shown no evidence of illness. Federal judges have begun to exercise tighter oversight of asbestos-induced bankruptcy cases.
But federal legislation – capping total damages, setting medical criteria for compensation, and ensuring some recovery for the ill – also is necessary. Tort reform should be a top priority for reasons of both justice and economics.