A Stitch in Haste

Some sanity may be coming to the asbestos litigation nightmare:

Senate Judiciary Committee Chairman Arlen Specter said on Wednesday he was proposing a $140 billion trust fund to compensate asbestos victims while ending their right to sue for damages.

Specter told members of the Judiciary Committee he would introduce his proposed bill next week. "That figure will be set at $140 billion," he said of the overall amount for the fund, which would be financed by industry and insurers.

Similar proposals stalled in the Senate last year, and Specter has been trying to address concerns of affected groups. The Pennsylvania Republican said he thought he had managed this task "reasonably," adding that people sickened by exposure to asbestos could return to court if the fund runs dry.

Keep in mind that this is not a government bailout of the companies concerned -- the fund more closely resembles a mediation arrangement brokered by the government.

As for the termination of the right to sue, at first blush this can and should give libertarians pause, but, as I have blogged previously, the mass settlement fund approach is necessary with asbestos litigation since the total claims, both known and unknown, will exceed the available resources from which to pay claims. In order to avoid the avoid the externalities that would be created if individual plaintiffs engage in a "race to the courthouse," some form of rationing of claims must be enacted. There is no libertarian justification for randomly prioritizing current claims over future claims (i.e., allowing current plaintiffs to recover at the expense of future plaintiffs who will have equally valid claims) when we know, with absolutely certainty, that those future claims will arise.

The quandary of the judgment-proof defendant is an unfortunate fact of life. But that doesn't mean that no action should be taken to mitigate the impact of that unfortunate fact and to eliminate the randomness of the timing of equally valid plaintiff claims.

The Specter plan is, at first blush, a sound approach to a nearly intractable problem.

Related Posts:
I Do Asbestos I Can
Will COX-2 Be the Next Asbestos?
COX-2 Update: "Heart Attack for an Ulcer"
COX-2 Update: Other.Shoe.Dropping.

Those following the asbestos settlement fund proposal currently before the Senate Judiciary Committee should review the op-ed in today's Washington Times by its principal sponsor, Senator Arlen Specter.

As Specter emphasizes:

Workers exposed to asbestos would be paid based on severity of injuries like workmen's compensation without proving in court who would be liable under existing tort laws, eliminating high costs of litigation and contingent attorneys' fees. Unlike current law where exposure may be compensated for potential future injuries, damages can be collected only on proof of existing harm.

Sounds about right. Compensating people for the probabilistic harm of future injury is not necessarily a bad idea; neither is awarding the costs of medical monitoring. But in the case of asbestos, where resources to pay claims are limited (because most of the companies have gone or are going bankrupt), preserving those funds for actual harm of future victims must take precedent over potential harm of present victims. There simply isn't enough money to go around. Judgment-proof, or near-judgment-proof, defendants are a sad fact of judicial life.

The asbestos fund proposal is a mammoth piece of legislation covering a mammoth issue, yet seems to be receiving scant media attention (as opposed to the relentless barrage of television commercials for personal injury attorneys trolling for asbestos clients). As Specter notes:

[A] unique experiment was undertaken with Senior Federal Judge Edward R. Becker agreeing to serve as a mediator. Judge Becker and I have met the stakeholders in 36 mediation sessions since August 2003, working through hundreds of issues. Those conferences produced many compromises and narrowed areas of disagreement on many issues. I think it accurate to say that no bill has received such extensive "defacto" hearings or mark-up. I cannot conceive of more strenuous effort being directed to any legislation. Twenty-seven Senate offices have participated.

In light of the looming COX-2 litigation explosion, not to mention whatever other product liability nightmares loom in our future, this issue and this bill should be on more people's radar screens.

UPDATE: Point of Law Forum -- "In any event, the devil will be in the details of how claims are to be processed and what medical standards will be used..." No disagreement from me.

Related Posts:
I Do Asbestos I Can
Specter Proposes $140 Billion Asbestos Settlement Fund

For those following Senator Arlen Specter's proposed $140 billion asbestos liability fund, factcheck.org has some important debunking of its critics, most notably former Representative (and fellow Republican) Dick Armey:

Armey calls the bill "a new threat to your pocketbook," which it isn't. And he suggests that the bill is a giveaway to trial lawyers, when the opposite is true.
...
Specter, on the other hand, is ducking the question of whether he's proposing a new tax. His bill calls for "assessments" to provide the $140 billion, but the plain language of his bill, S. 852, makes clear that payments are compulsory. It gives the Department of Labor power to sue for collection, for one thing, and also provides penalties for non-payment. That qualifies as a "tax" in any ordinary sense of the word.

However, manufacturers and insurance companies are for the most part willing, if not eager, to pay these "assessments" for the simple reason that they will save money by doing so. The money would go to settle damage claims that could otherwise be much larger.
...
So Specter's plan would impose a new "tax" -- but not on everyday listeners of talk radio.

Whatever. I have been a staunch supporter of the Specter proposal ever since he unveiled it (even before that, in fact), for one simple reason: economic reality demands it. Asbestos liability is not a case of the Politics of Pull, where the "big, greedy corporations" are manipulating politicians just to save a buck. The totality of all present and future asbestos injuries far exceeds the assets the companies have with which to compensate victims. In the absence of a government bailout (not acceptable to libertarians, of course), some form of rationing those assets is required. Otherwise the wrangling is not "victim versus tortfeasor" but rather "victim versus victim," and degenerates into a race to the courthouse and a battle of the trial attorneys. Everyone -- past, present and future -- who incurs damages proximately caused by asbestos is entitled to share in what compensation funds are available. But not enough funds are available to satisfy all claims completely, so this mass tort becomes a simple choice between "all for some" or "some for all."

That's not politics, that's metaphysics. The Specter proposal preserves what assets the asbestos manufacturers have left (many are already bankrupt) such that all remaining and future victims can recover some compensation when their injury manifests.

As with the Social Security crisis, the longer nothing is done about asbestos liability the worse the imbalance -- and the inequity -- grows. The Specter proposal may not be the utopian solution, but is wholly preferable to the status quo or a bona fide government bailout.

There was quite a lot of blogging, including by me, about the proposed federal ban on lawsuits against the gun industry for damages caused by criminals who use guns.

My position was fairly straightforward: there is no "right to file a frivolous lawsuit" and "states' powers" do not include the power to permit frivolous lawsuits. I therefore supported the law, despite any supposed "affronts" to federalism.

Meanwhile, the exact same thing has happened in the just-signed transportation bill:

General Motors Corp. and its General Motors Acceptance Corp. unit on Wednesday said they will resume vehicle leasing in New York, after a more than two-year absence, following a change in law that will reduce their liability for auto accidents. Ford Motor Co. and Chrysler parent DaimlerChrysler AG were expected to follow suit.

GM made its announcement in connection with the expected signing by President Bush of a highway bill that would reduce vehicle lessors' potential liabilities.

The automakers had stopped leasing in New York because of their exposure under the state's "vicarious liability" law. Such laws can leave owners of leased vehicles responsible for injuries and property damage caused by drivers.

This is exactly the same, no difference whatsoever, as the federal ban on gun industry liability: the affected states blew it, just plain blew it, on car-lessor liability (i.e., there shouldn't be any) and failed to protect the right of the industry not to be sued frivolously. So Congress stepped in and did it for them.

Meanwhile, I have not seen a single blogpost, not one, decrying this provision of the transportation bill as an "encroachment on federalism."

Go figure.

I guess it's just a rule of blogging: start talking about guns, and common sense goes right out the window (see also this post chain).

POST SCRIPT: Let the record reflect that I just mocked this same federal transportation bill on other grounds.

The Wall Street Journal ($) is reporting that Senator Arlen Specter's proposal to pool industry resources (note: not tax dollars) to create a $140 billion fund to settle asbestos-related medical claims is headed for defeat. My previous posts supporting the fund are here.

This is unfortunate. The pool makes the best out of a bad situation and replaces the current allocation system -- namely "first to the courthouse wins" -- with one that will give partial payments to all those who now have -- or will have -- valid claims.

It's a dirty little truth of civil litigation: winning a judgment is not the same as collecting a judgment. If the defendant -- even a major corporation -- runs out of money, that's it for the plaintiff, just like creditors in a bankruptcy filing who recover only pennies on the dollar. A defendant can't pay what it doesn't have. Many of the companies tainted by asbestos liability have already gone bankrupt; most if not all of the remaining companies eventually will too.

If the remaining companies (i.e., those that haven't already been driven into bankruptcy) are not shielded from runaway litigation, if what assets they have are not rationed among all those who are entitled to at least some recovery, then the distribution of those monies among defendants becomes random -- who's "lucky enough" to get sick first, sue first and recover?

Such a rationing system is not only economically inefficient, it's also fundamentally unfair.

Remember, the Specter plan is not about "protecting big asbestos corporations." They're already doomed. And it's not about a taxpayer bailout. Instead, the asbestos fund is a common sense approach to making sure everybody who deserves compensation gets at least something.

The Senate should approve the Specter proposal and send it to House.