Study: Asbestos Litigation Costs Hurt Workers

Thus far, the study says, outlays for asbestos claims total an estimated $54 billion. However, projections say the number of claimants and outlays will continue to rise, reaching between $200 billion and $275 billion.

Michael Baroody, executive vice president of the Washington-based National Association of Manufacturers and chairman of The Asbestos Alliance, told a press briefing that the report adds to the mounting evidence in support of the proposition that it is time for Congress to step in with legislation to solve the problem.

He added that the United States Supreme Court has frequently urged Congress to act on the problem.

Indeed, Mr. Baroody said, he expects legislation will be introduced early in the 108^th Congress on a bipartisan basis and in both the House and the Senate.

The legislation, he said, would establish national criteria to distinguish between those who are sick and in need of compensation and those who are not sick.

At the same time, Mr. Baroody said, the legislation would protect the rights of those who are not sick to seek compensation should they become sick in the future.

Leigh Ann Pusey, senior vice president of federal affairs for AIA, said her association sponsored the study in the wake of all the attention focused during the past year on major bankruptcies, such as those of Enron and Worldcom, and the impact on workers and their pensions.

While the Enron and Worldcom bankruptcies were not related to asbestos litigation, Ms. Pusey said, it seemed logical to look at the economic victims of asbestos-related bankruptcies.

Joseph Stiglitz, a Nobel Prize winning economist from Columbia University and former Chairman of the President's Council of Economic Advisors, explained that one of the main justifications for the litigation system is being undermined by the ever-widening net cast by asbestos cases.

In general, he said, there should be incentives to keep dangerous products off the market. Those who are most able to keep defective products off the market should be targeted for incentives.

On this basis, Mr. Stiglitz said, it made sense to have manufacturers bear some of the liability for asbestos.

But now, he said, companies are being brought into the asbestos litigation system which were not in a position to prevent the product from entering the market. And this undermines the incentive structure, Mr. Stiglitz said.

Moreover, he said, the goal should be to try and minimize the impact of the system on others. However, Mr. Stiglitz said, as the AIA-commissioned study demonstrates, the impact is being felt by workers and businesses not involved in asbestos manufacturing.

Jonathan Orszag, managing director of Sebago Associates, a Marina Del Rey, Calif.-based consulting group that conducted the study, noted that the number of asbestos-related bankruptcies is accelerating.

About 25 percent of the estimated 61 firms that have filed for bankruptcy due to significant asbestos exposure have done so in just the past 10 months, he said.

Nearly 60 percent have filed in the past five years, Mr. Orszag added.

Based on a database of 40 bankrupt firms, he said, nearly 52,000 workers lost their jobs in the five years prior to bankruptcy.

These workers, he said, lost between $25,000 and $50,000 in economic costs due to the displacement caused by unemployment and the tendency of displaced workers to earn lower wages at their new jobs.

As for 401(k) plans, which often invest in company stock, Mr. Orszag said that stock prices of bankrupt companies significantly underperformed the overall market.

While the overall market index increased 87 percent since 1995, he said, companies that filed for bankruptcy after 1998 lost 92 percent of their value.

This has led to an average loss of $8,300 in the 401(k) plans of affected workers, Mr. Orszag said, or roughly 25 percent of their value.

"In light of these costs, re-examining the system used to compensate those who file asbestos liability lawsuits seems worthwhile," he said.