Lawmakers Need To Proceed Carefully On Asbestos Fund Idea
It is good news for the insurance industryindeed, for the entire nationthat Congress is moving quickly on reform of the dysfunctional asbestos litigation system.
Legislation pending in the House and being developed in the Senate aims to put an end to the legal nightmare the current system has engendered.
The abuses in the current system are well known: major corporations forced into bankruptcy, an ever-widening web of defendants and claimants who are not sick usurping resources that should go to those with terminal asbestos-related conditions.
Even long-time Congressional supporters of trial lawyers acknowledge that something must be done to bring order and reason to asbestos litigation.
The hope is that whatever Congress does to rein in runaway asbestos litigation, it will not create new legal controversies in the process.
Currently, the Senate appears to be considering a proposal that would establish a $90 billion trust fund to resolve asbestos-related claims that would be financed by defendants, insurance companies and other parties.
While details of the proposal are very sketchy, the Senate seems to be considering establishment of a commission that would be responsible for determining how the insurance industrys responsibility for the trust fund will be allocated among individual companies.
To anyone who remembers the battles over Superfund reform in the early 1990s, this process should give rise to no small measure of concern.
A similar idea surfaced during that battle, and it caused a virtual civil war within the insurance industry.
In the 1990s, one faction of the insurance industry proposed creation of an Environment Insurance Resolution Fund (EIRF) that would resolve disputes between insurance companies and policyholders over environmental liability claims.
The goal was to reduce the enormous transaction costs associated with Superfund by moving these disputes outside the courtroom
While this may have been a laudable goal, there was a problem with the funding mechanism. An individual companys liability would be calculated according to a certain formula that took into account lines of business.
Depending on which lines of business were included in the formula, a company could have a substantial liability or relatively little.
Not surprisingly, during the legislative wrangling, companies tried to massage the formula to their own advantage. Companies that did not write environmental business accused the large environmental writers of trying to stick their competitors with an unfair share of the costs.
Individual companies changed their positions on the EIRF (from support to opposition and from opposition to support) as the formula changed.
Fortunately, the Superfund legislation with the EIRF was never enacted. The industry was thus spared years of litigation over the operation of the EIRF.
With that history in mind, we urge the Senate to think carefully as it works to resolve the asbestos litigation crisis. Perhaps it can develop a trust fund proposal that will be fair and balanced and not subject to challenge.
At the end of the day Congress must be careful not to create a new litigation problem when it solves an existing one.
Reproduced from National Underwriter Edition, April 14, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.
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