March 24, 2004
ABA/TIPS Task Force on Asbestos Litigation
By Leo J. Jordan, Esq.
Co-Chair of Task Force
This paper represents the continuing work of this task force. It is intended as a
working and reference document. It is not intended to represent the view of the
American Bar Association, The Tort Trial and Insurance Practice Section, or any
other ABA entity. Comments on the draft are welcome. Write to
thFair in Asbestos Injury Resolution Act of 2003 – S. 1125, 108 Congress
Funding Proposal – Role of Federal Government
S. 1125 was reported favorably (10-8) out of the Senate Judiciary Committee on July
30, 2003. This legislation takes asbestos claims out of the existing tort system and
administers them through a federally administered trust fund. This plan will
compensate present and future claims on a non-fault basis according to
standardized medical criteria and designated claim awards. Claimants need only to
satisfy the eligibility requirements under the Act. (The House of Representatives has
not yet taken formal action on asbestos legislation, apparently preferring the Senate
to take the lead.)
The trust fund will operate on two fronts: first, through the collection and
management of assessments against corporate defendant and insurance companies,
as well as a smaller part from existing asbestos compensation trusts; and second,
through the payment of such funds to compensate claimants who can establish
eligibility based upon legislatively approved medical criteria. The legislation
proposes differing funding levels based upon the severity of the asbestos-related
The issues presented in this paper include (1) whether the funding anticipated by
this legislation is adequate to satisfy pending and future claims; and (2) if funds are
deemed insufficient, should the federal government contribute to the fund as either a
“responsible party” or in its overall role to provide for the public welfare?
II. Number of Asbestos Cases, Present and Future
According to a 2002 study by the RAND Corporation Institute for Civil Justice, more 1than 600,000 asbestos claims have been filed to 2002.
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It is estimated that there are currently almost 300,000 asbestos-related bodily injury
claims pending in state and federal courts. Roughly 50,000-70,000 new claims were 3 filed per year from 2000-2002.
Moreover, there are currently about 2,000 new mesothelioma cases filed each year.
There are another 2,000-3,000 cancer cases that are likely attributable (at least in
part) to asbestos. There are a smaller number of asbestosis cases. The remaining
cases are either pleural injuries or from claimants who do not presently show signs
of injury. It is estimated that more than 90 percent (or more than 54,000 claims filed 4 during 2002) are for claimants alleging nonmalignant injuries.
There is no agreement as to the ultimate cost of asbestos-related injuries.
Estimates range from a low of $108 billion to a high of $275 billion. The former
estimate was reported by the Senate Judiciary Committee. The latter estimate is 5from a leading actuarial firm.
III. Funding Mechanism(s)
The bill, as approved by the Senate Judiciary Committee in July 2003, would require
$108 billion in aggregate contributions. Insurers and defendant corporations would
each contribute $52 billion and $4 billion from existing bankruptcy trusts. An
amendment by Senator Diane Feinstein (D. CA) provided additional contingency
funding amounting to $45 billion to be raised from corporations and insurers. S.
1125 as reported out of Senate Judiciary would therefore have an overall
capitalization of $153 billion.
6Insurers balked at the contingency funding and walked away from the debate.
Senate Majority Leader Bill Frist (R. TN) later took personal charge of the legislation
and insurers and corporations appear in agreement on the following funding
A. An approximate $105 billion in mandatory contributions from defendants and
insurers spread over 27 years. Insurers will be responsible for $46 billion.
Corporations would contribute $57.5 billion. Existing bankruptcy trusts would
contribute $1.5 billion. Insurer contributions would be front-loaded to provide for
adequate funding in the early years. Defendant corporations would be expected
to pay $2.5 billion each year over this period, or perhaps a shorter period. B. Defendant corporations would also be required to participate in a contingency
funding proposal of $10 billion.
C. Under the Frist proposal the total funding base would be about $114 billion. This
is $6 billion above the basic funding reported by the Judiciary Committee.
Absent from the Frist proposal is the $45 billion Feinstein contingency measure.
The $6 billion increase over the original $108 billion capitalization is reportedly to
be used to increase benefit amounts.
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IV. Adequacy of the Funding Mechanism
The negotiations initiated by Senator Frist apparently included only representatives
from corporate defendants and the insurance industry. Left out of these discussions
were representatives of labor and the plaintiffs personal injury bar. It seems patently
unlikely that legislation will be enacted unless there is greater agreement among all
effected interests as to a reasonable evaluation of outstanding liabilities.
The current legislative direction mandates that the asbestos trust funding is the
primary responsibility of defendant companies and insurers. Sec. 405(a) of S. 1125
specifically exempts the federal government from any funding obligation.
The RAND Corporation Institute for Civil Justice estimated the ultimate cost of
asbestos claim payments and expenses at $200 billion. RAND reported that $70
billion had been paid through 2002, and estimated the future cost at $130 billion.
The Judiciary Committee Report relied heavily on the anticipated savings in legal 7. transaction costs to meet its goal of $108 billion
How Much Money is Needed?
From what we have seen, there remains a great deal of uncertainty as to the ultimate
dollars needed to resolve the outstanding claims. There is neither agreement as to
the number of claims or the final cost to resolve the more serious as well as the less
impaired-type claims. Failure to narrow differences on the estimated number of
future claims, as well as agreement on funding adequacy, could well impair the
efforts of Senator Frist and others to move this legislation forward.
We have seen the estimates of costs for pending and future claims ranging from:
a) S. 1125 original estimate of $143 billion. (front-end $108 billion – contingent
b) S. 1125 – Frist revision changed to $114 billion. (front-end $104 billion –
contingent $10 billion)
c) Congressional Budget Office (CBO) estimate $136 billion. 8d) Rand estimate $130 billion. 9e) Tillinghast-Towers Perrin and Milliman $200-275 billion.
At the end of 2002, U. S. insurers and reinsurers had paid approximately $25.5
billion and held $19 billion in reserves to pay future claims, as disclosed in the 10Annual Statements filed with state insurance departments.
V. Role of the Federal Government
The federal government appears willing to serve as the catalyst for a final resolution
of the long-standing asbestos crisis. It is willing to take asbestos claims out of the
tort system and have them administered by a federally administered trust fund. The
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government will also have borrowing authority in any calendar year in an amount not 11. to exceed anticipated contributions to the fund in the following year
The Wall Street Journal recognized this limited role of government when it reported
recently that “there is an empty chair at the Senate’s asbestos-settlement talks. It
belongs to Uncle Sam.” The paper reported that some of the most lethal exposures
to asbestos occurred in U.S. Navy shipyards. The Wall Street Journal cited industry
data showing that claims from individuals exposed in military and shipyard
construction accounted for 26 percent of mesothelioma cases, 16 percent of lung 12cancer cases and 13 percent of disabling lung disease cases.
The New York Times in 1982 reported on the adverse impact on shipyard workers
exposed to asbestos in Bethlehem Steel Corporation Key Highway Shipyard in
Baltimore, Maryland. According to the Times, a 1979 study found that more than
86% of Key Shipyard workers suffered lung abnormalities associated with 13asbestos.
A recent report of the Environmental Working Group has released a study of the
impact of asbestos-related injuries upon former shipyard workers in the San Diego
and Los Angeles areas. This report revealed that San Diego County had the eight-
highest number of asbestos-related deaths in the country. The report also ranks Los
Angeles County as No. 1 in asbestos deaths nationally. The study placed the blame 14for these injuries primarily upon asbestos insulation in old Navy ships.
A 1992 NYU Law Review article by Susan L. Barna contains a comprehensive
overview of the history of asbestos-related claims and the role of the federal 15government as a major factor in the genesis of these claims.
Barna writes that there is an historical record dating from as early as 1930 of
asbestos-related injuries due to exposure to a variety of dust particles, created in the
process of manufacturing asbestos-related products. Even as early as 1928
asbestos manufacturers were soliciting the U.S. Navy to secure a list of products 16that could be sold to the Navy.
The use of asbestos-rated products in naval shipbuilding accelerated greatly during
World War II. About 4.5 million shipyard workers were employed during World War
II. The number of shipyards either owned by the Navy or used predominantly by the
Navy increased from 32 to 131 during the period of the war. The Navy entered
contracts with many asbestos manufacturers during WWII. Many shipyard workers
contracted asbestosis and other asbestos-related diseases. Extended latency
periods delayed the actual manifestation or diagnosis of disease until many years 17following the ending of the war.
Manufacturers of asbestos products initially attempted to shift responsibility for
asbestos claims to the federal government. A number of studies pointed directly to
the federal government as the primary source and cause of these injuries. One
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study found that shipyard workers whom the federal government exposed to
asbestos during World War II have filed one-half of the compensation claims 18 Moreover, the Department of Health, pending against asbestos companies.
Education and Welfare reported that asbestos exposure occurred to 4.5 million 19shipyard workers during World War II.
While shipyard workers might well have chosen to bring suit against the government,
many found it far easier to sue the manufacturer in strict liability. Injured employees
wanting to bring suit in tort against the government faced insurmountable difficulties:
1. The United States enjoys sovereign immunity and cannot be sued without its
2. Congress has waived sovereign immunity in tort by enacting the Federal Tort 20Claims Act. (FTCA)
3. Although the government is subject to suit under the FTCA, most
government-employed shipyard workers instead sued asbestos
manufacturers. Government employees are not generally eligible to sue
under the FTCA. The usual path of recovery for injuries suffered by
government employees is under the Federal Employees Compensation Act. 21(FECA)
Federal workers compensation protection did not work well for injured shipyard
workers especially those suffering not from accidental injury but from occupational
(a) The time requirements for filing a claim are often shorter than the
latency period for asbestos-related diseases.
(b) Causation is difficult to prove in asbestos-related cases to establish
the disease was work-related.
(c) Even where workers compensation claims are successful, 22compensation is likely to be inadequate.
Because of the difficulties inherent in the FTCA, employees brought actions in strict
liability directly against asbestos manufacturers. Manufacturers in turn sought
contribution or indemnity from the federal government for liability resulting from the 23use of asbestos in government products. This path also proved to be difficult. In
order to obtain contribution under the FTCA, manufacturers must show that the
government owed an independent duty to the original plaintiffs, the shipyard
employees. Government is statutorily immune from suit from first-party employee
Manufacturers subsequently filed their claim in contract against the government 24under the Tucker Act. The U. S. Claims Court has been given exclusive jurisdiction over contract claims (over $10,000) against the government.
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Many asbestos cases were brought against the government alleging various
expressed or implied warranties by the government to its contractors. Most were
dismissed for lack of subject matter jurisdiction. Ultimately, several important cases,
although not consolidated, were considered under one heading.
25 the manufacturer filed a claim against the In GAF Corporation v. the United States
government for damages sustained as a result of lawsuits by government-employed
shipyard workers to recover for injuries or death due to exposure to asbestos.
The principal argument advanced by GAF was under the “superior knowledge”
doctrine. This doctrine sets out the government’s duty to its suppliers to disclose
information essential to successful contract performance. There was evidence that
the government withheld important information relating to the dangers of asbestos
exposure. This doctrine assumes the contractors would not have agreed to the
contract terms if the government had not withheld certain information.
Barna in the NYU Law Review outlines the GAF arguments regarding the government’s early knowledge:
1. There was considerable evidence that the government, through its
investigation of workers’ complaints at shipyard facilities, had substantial data
on such hazards as early as 1943.
2. Instead of informing the workers and manufacturers, the government
classified the results of its investigation under the Espionage Act, making it a
criminal act to review the results.
3. Naval documents show the government not only knew of shipyard dangers,
but also made a conscious effort to suppress the information, thus raising 26serious questions about the government’s conduct.
Despite this evidence establishing government involvement, the Claims Court
granted summary judgment dismissing the GAF claim. The court determined the
Navy had no contractual duty to warn an asbestos producer of hazards contained in
its own products. The Court of Appeals for the Federal Circuit affirmed; the
Supreme Court refused to review the case. These Claims Court decisions
essentially ended further efforts to hold the federal government responsible under
either a tort or contract basis.
VI. History of Federal Government Programs Caused by Injury or Disease
Despite the government’s refusal to accept responsibility for asbestos-related
injuries, there is recent history of the federal government’s role in resolving public
policy issues associated with injury or disease. The role of government is set out in 27a letter from the General Accounting Office to Sen. Don Nickles (R. OK).
The GAO offered a comparison of funding mechanism offered under two somewhat
comparable federal programs. They are the National Vaccine Injury Compensation
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2829 and the Black Lung Benefits Program GAO then compared these Program
programs with S. 1125, as reported July 30, 2003.
Under the Vaccine Program
1. For an injury: past and future medical care, pain and suffering (capped at
$250,000), lost earnings and reasonable attorney fees. Death payments
capped at $250,000.
2. The source of benefit funding is the Vaccine Injury Trust Fund. Claims may
be payable only from the Fund.
3. A trust fund was established in the U.S. Treasury.
4. Sources of fund income came from an excise tax of 75 cents on every dose of
5. Treasury is required to invest funds only in interest bearing obligations of the
U.S. and claims are payable only out of the Fund.
6. There is no designation of explicit fiduciary responsibility under the Fund.
7. No borrowing authority is permitted.
8. The claim process is on a “no fault” basis.
9. The current status of the vaccine fund was $1.9 billion (FY 2003)
Under the Black Lung Program
1. Monthly income maintenance payments and medical benefits are allowed.
2. The source of benefit funding is from “responsible operators” or by the Trust
Fund where no coal mine operator can be held liable. Under the current
practice, claims are processed by the Department of Labor and benefits paid
by the mine operators or from the Fund.
3. Source of Fund income is an excise tax on coal mining companies.
4. Treasury is required to invest funds only in interest-bearing obligations of the
5. There is no explicit fiduciary responsibility.
6. If tax revenues are insufficient, Congress may appropriate “repayable
advances” to the Fund. 26 U.S.C. Sec. 9501 (c).
7. There is no explicit provision in the Black Lung legislation prohibiting tort
lawsuits by miners; however, they are problematical.
8. Coal taxes have been inadequate to cover expenditures and the Fund has
borrowed extensively from the General Fund. The outstanding debt at the
end of FY 2003 was over $8 billion.
Under the proposed Asbestos Fund (S. 1125) as described in GAO letter
1. Benefits payable include cash awards payable over 3-4 years, derived from
“benefit table” based upon medical conditions. “Medical monitoring” costs for
patients with “nonmalignant disease” and “minimum exposure.” Sec. 132.
2. The Source of Benefits Funding is the Asbestos Injury Claims Resolution
Fund. All claims must be paid from the Fund. Sec. 132 (a) (1).
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3. A “Trust Fund” is established in the Office of Asbestos Injury Claims
Resolution’ unlike Vaccine and Black Lung where funds are established in the
U. S. Treasury. (GAO stresses that while S. 1125 shares many
characteristics of a federal trust fund, it is not designated as a “trust fund” in
4. Sources of income are assessments from defendant corporations and
insurers. Additional contributions may come from asbestos-related civil trusts.
5. Fund investments are permitted under a “prudent person” standard, but no
specific role for Treasury. Sec. 222 (a), (b).
6. There is a specific limitation on government liability, “nothing my be construed
to create any obligation of funding from the U.S.” Sec. 405 (a).
7. The Fund is to be administered “in a fiduciary capacity.” (Sec. 222) (a), (b).
8. The Administrator is authorized to borrow from commercial lending institutions,
in any calendar year, an amount not to exceed anticipated contribution to the
Fund in the following calendar year. (Sec. 223) (a).
9. There is no alternate avenue of redress available. No asbestos claim may be
pursued in Federal or State court, except for enforcement of claims for which 31an order or judgment has been entered. (Sec. 2(3); 403 (c) (1).
VII. Legislative Efforts to Force A Government Solution 1977-2001
Numerous legislative efforts have been underway for the past 25 years to make the
federal government participate in the overall resolution to what is now known as the
“asbestos crisis.” Following is a summary of these efforts:
Beginning in 1977 Rep. M. Fenwick (R. NJ), serving the legislative district of Johns-
Manville introduced legislation to compensate asbestos victims from a federally
administered central fund. This bill was reintroduced in 1981 and, again, failed to 32pass.
Sen. Gary Hart (D. CO) in 1980 introduced the Asbestos Health Hazards
Compensation Act. This bill left the administration of asbestos-compensation with
the states. It also called for the establishment of federal minimum standards for
compensating asbestos victims. The Hart proposal also called upon contributions
from the federal government to fund the additional cost of compliance with the 33 enhanced federal standards. This proposal reintroduced in 1981 was unsuccessful.
(The American Bar Association (ABA) in its 1983 meeting advocated appropriate
legislation to provide adequate compensation for asbestos injuries. In a subsequent
hearing before the Senate Commerce Committee, the Chairman of the ABA Section
on Torts and Insurance Practice formally recommended federal legislation in areas
such as asbestosis.)
In 1994, Congress enacted the Bankruptcy Reform Act. This enabled some
asbestos manufacturers to reorganize and establish a trust to channel future
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In 1999-2000, H.R.1283 was introduced and would establish the Asbestos
Resolution Corporation. This bill would provide full compensatory awards, including
pain and suffering. The corporation would receive funding from defendant
corporations, not through tax revenue. This effort was unsuccessful.
In 2001, H.R. 1412 Retroactive Tax Relief provided that no tax be imposed on any
settlement fund to resolve present or future asbestos claims. Did not pass.
VIII. Judicial Calls for Legislative Action Through 2001
1990 – U.S. Supreme Court panel appointed by Chief Justice Rehnquist said in
1991, “(This) situation has reached critical dimensions and is getting worse,”
and the courts were ill-equipped to address the mass of claims in an 34 effective manner.”
1996 – State v. Mac Queen, “Congress. . . has effectively forced the courts to adopt
diverse, innovative and often nontraditional judicial management techniques
to reduce the burden of asbestos litigation that seems to be paralyzing the 35active dockets.”
1997 – Amchem v. Windsor, The Supreme Court observed that, “the argument is
sensibly made that a nationwide administrative claims processing regime
would provide the most secure, fair, and efficient means of compensating
victims of asbestos exposure. Congress, however, has not adopted such a 36solution.”
1999 – Ortiz v. Fibreboard, Supreme Court again calls on Congress, says existing
asbestos litigation is an “elephantine mass. . . that calls for national 37legislation.”
2003 – Norfolk & Western Railway Co. v. Ayers, the court repeated the call for 38legislation.
IX. Arguments for Federal Government Contribution
There are several arguments available to conclude that the federal government
should contribute its financial resources toward an ultimate and final resolution of the
A. Legal Arguments
We have reviewed earlier decisions arising under the FTCA and the Tucker Act
(actions in contract) that essentially insulated the federal government from
responsibility for contributions to the resolution of this asbestos problem. Even
though substantial evidence was available showing the government intentionally
exposed its shipyard employees to danger of which it was fully aware, the courts
have been generally unsympathetic to claims for contributions.
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The government was held immune to suit under the FTCA because of the
exclusive right of government employees to compensation under the FECA.
Asbestos manufacturers attempts to seek indemnity under the FTCA from the
government were not successful.
Later efforts by asbestos manufacturers to seek indemnification from the federal
government in the Claims Court under Tucker Act were also unsuccessful. In
GAF the plaintiff manufacturer alleged that (1) the government promulgated
mandatory specifications, encouraged development of, purchased and had
control of the conditions under which GAF products were used; and (2) the
government implied by warranty that the specifications and use of the products
would not expose GAF to liability for damages.
While other variations of this implied warranty were also alleged, they essentially
came down to this: the government made an implied warranty to sellers that its
own use of the product would not expose the sellers to unforeseen defective
product liabilities to persons who might be injured.
These arguments were rejected by the Claims Court and by the Federal Circuit.
Even though there is evidence that the government failed to disclose information
regarding shipyard asbestos hazards, the Claims Court refused to accept the
implied warranty standard. Even if the government possessed “superior
knowledge” of the product, GAF was unable to overcome the presumption of the
“experienced manufacturer.” Barna in the NYU Law Review article forcefully
argues that the designation of the “experienced manufacturer” is, in effect, an
irrebuttable presumption and is contrary to existing contract law. GAF essentially
established an “irrebuttable presumption that the government never had
knowledge “superior” to that of an experienced manufacturer.”
In her law review article, Barna argues that if the government did have “superior
knowledge,” this should result in government liability. Asbestos manufacturers
argued that had they been aware of the inside information possessed by the
government they would have revised the price of their services as well as
changing the nature of their products insurance coverage.
Despite determined efforts by asbestos manufacturers to hold the government
responsible for injuries to government employees, these efforts have been
unsuccessful. It appears almost certain now that asbestos manufacturers may
never be able to use judicial means to shift some of the financial burden of
asbestos tort claims to the federal government.
Public Policy Arguments
While the legal arguments for holding the federal government responsible for
injuries inflicted on its government workers, as well as employees of government