Chances of Congress passing major asbestos litigation reformsuffered a critical setback tonight when legislation creating atrust fund for asbestos injury claimants failed to overcome aSenate procedural hurdle.

The move to end floor action on the bill was crafted by anunlikely coalition of conservative Republicans and liberalDemocrats.

Its success was a victory for a majority of insurers who forvarious reasons opposed the legislation as drafted by Sens. ArlenSpecter, R-Pa., chairman of the Senate Judiciary Committee, andPatrick Leahy, D-Vermont, its ranking minority member.

However, as several insurance industry lobbyists cautioned, thebill, S. 852, the Fairness in Asbestos Injury Resolution (FAIR)Act, is not dead.

Under the 58-41 vote by which the Senate failed to garner the 60votes to overcome a budget point of order, the bill is now sentback to Sen. Specter's committee.

The original vote to recommit was 59-40, but Sen. William Frist,R-Tenn., Senate majority leader and a supporter of the bill, movedto leave his options open to further floor action by changing hisvote to “no.”

Sens. Specter and Leahy said after the vote they still havehopes of resurrecting the measure.

“We have just begun to fight,” Sen. Specter said in a statement.He said Sen. Inouye, D-Hawaii, the missing senator, told him hewould vote to waive the budget rule and permit debate to continue,meaning “we may win this one yet.”

One of the most visible opponents of the bill made clear afterthe vote that the industry will continue its efforts to createlegislative alternatives to the present claims resolution systemthat it can support.

Chris Winans, a spokesman for American International Group, thenation's largest insurer, said his company is “pleased with theSenate's action as it opens an opportunity now to craft analternative bipartisan medical criteria solution to the nation'sasbestos litigation problem.”

Sen. Specter's legislation would create a $140 billion trustfund that an administrator within the Department of Labor would useto compensate claims resulting from exposure to asbestos in theworkplace.

The fund would be financed by contributions from defendants andinsurers over a 27.5-year period. After that, claims would revertto the tort system, a sticking point for the insurance industry aswell as its supporters in Congress.

Besides AIG, industry opponents included The Hartford; Chubb;Allstate; American Re, a reinsurance provider; Chubb Corp.; LibertyMutual; Nationwide Insurance; and Zurich Financial.

Insurance industry supporters of the bill included St. PaulTravelers, MetLife and ACE.

Other opponents included trial lawyers, the AFL-CIO and somelarge corporations facing large asbestos claims. But manymedium-sized companies strongly support the bill, according toseveral insurance industry sources.

Dennis Kelly, a spokesman for the American InsuranceAssociation, said in reaction to the vote, “We regret that theSenate was unable to pass meaningful asbestos reformlegislation.

“Insurers have long agreed that there was a need to addressout-of-control asbestos litigation,” Mr. Kelley said, adding thatAIA was among the first to work with former Judiciary CommitteeChairman Orin Hatch, R-Utah, and Majority Leader Frist.

Mr. Kelly said that under Chairman Specter, and Ranking MinorityMember Leahy, AIA participated in numerous stakeholder meetings,all in pursuit of meaningful reform.

“Regrettably, the AIA has had to oppose the current bill, buthas worked to seek improvements that would enable our membership tosupport the bill,” he said. “AIA remains hopeful that Congresswould continue in its pursuit of meaningful reform.”

David Winston, senior vice president for government affairs forthe National Association of Mutual Insurance Companies, respondedby saying, “NAMIC commends the Senate's action this evening toreject the Specter-Leahy asbestos trust fund legislation.”

Mr. Winston added, “NAMIC believes it is critically importantthat Congress immediately address asbestos litigation reform.” Heexplained that NAMIC opposed the bill because of its numerousflaws, “among which are leakage to the tort system and a lack ofcertainty and finality.”

The bill was shipped back to Sen. Specter's committee on abudget point of order raised by Sen. John Ensign, R-Nev.