<DOC>
[109 Senate Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:30086.wais]
S. Hrg. 109-594
S. 3274: THE FAIRNESS IN ASBESTOS INJURY RESOLUTION ACT OF 2006
=======================================================================
HEARING
before the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
JUNE 7, 2006
__________
Serial No. J-109-82
__________
Printed for the use of the Committee on the Judiciary
U.S. GOVERNMENT PRINTING OFFICE
30-086 WASHINGTON : 2006
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512ÿ091800
Fax: (202) 512ÿ092250 Mail: Stop SSOP, Washington, DC 20402ÿ090001
COMMITTEE ON THE JUDICIARY
ARLEN SPECTER, Pennsylvania, Chairman
ORRIN G. HATCH, Utah PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa EDWARD M. KENNEDY, Massachusetts
JON KYL, Arizona JOSEPH R. BIDEN, Jr., Delaware
MIKE DeWINE, Ohio HERBERT KOHL, Wisconsin
JEFF SESSIONS, Alabama DIANNE FEINSTEIN, California
LINDSEY O. GRAHAM, South Carolina RUSSELL D. FEINGOLD, Wisconsin
JOHN CORNYN, Texas CHARLES E. SCHUMER, New York
SAM BROWNBACK, Kansas RICHARD J. DURBIN, Illinois
TOM COBURN, Oklahoma
Michael O'Neill, Chief Counsel and Staff Director
Bruce A. Cohen, Democratic Chief Counsel and Staff Director
C O N T E N T S
----------
STATEMENTS OF COMMITTEE MEMBERS
Page
Feinstein, Hon. Dianne, a U.S. Senator from the State of
California..................................................... 5
Kennedy, Hon. Edward M., a U.S. Senator from the State of
Massachusetts.................................................. 4
prepared statement........................................... 98
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont. 2
prepared statement........................................... 103
Specter, Hon. Arlen, a U.S. Senator from the State of
Pennsylvania................................................... 1
WITNESSES
Cullinan, Dennis, National Legislative Service, Veterans of
Foreign Wars, Washington, D.C.................................. 18
Engler, John, former Governor of Michigan and President, National
Association of Manufacturers, Washington, D.C.................. 6
Ganz, Peter, Executive Vice President and General Counsel, Foster
Wheeler, Clinton, New Jersey................................... 7
Green, Eric, Founder, Principal, Resolutions, LLC, Professor,
Boston University, Boston, Massachusetts....................... 9
Green, Flora, National Spokesperson, Seniors Coalition, Fairfax,
Virginia....................................................... 11
Grogan, James A., General President, International Association of
Heat and Frost Insulators and Asbestos Workers, Lanham,
Maryland....................................................... 13
Holtz-Eakin, Douglas, Director, Council on Foreign Relations,
Washington, D.C................................................ 15
Kelly, Edmund F., Chairman, Liberty Mutual Insurance Company,
Boston, Massachusetts.......................................... 16
SUBMISSIONS FOR THE RECORD
American Federation of Labor and Congress of Industrial
Organizations, John J. Sweeney, President, Washington, D.C.,
letter......................................................... 31
American Insurance Association, Marc Raciot, President,
Washington, D.C., letter....................................... 33
Common Interest Group of Trusts, W.D. Hilton, Jr., Member of the
Steering Committee, Washington, D.C., statement................ 34
Council for Citizens Against Government Waste, Tom Finnigan,
Washington, D.C., press release................................ 36
Cullinan, Dennis, National Legislative Service, Veterans of
Foreign Wars, Washington, D.C., statement...................... 37
Engler, John, former Governor of Michigan and President and Chief
Executive Officer, National Association of Manufacturers,
Washington, D.C., statement.................................... 41
Gantz, Peter, Executive Vice President and General Counsel,
Foster Wheeler Ltd., Clinton, New Jersey, statement............ 44
Green, Eric, Founder, Principal, Resolutions, LLC, Professor,
Boston University, Boston, Massachusetts, statement............ 49
Green, Flora, National Spokesperson, Seniors Coalition, Fairfax,
Virginia, statement............................................ 63
Grogan, James A., General President, International Association of
Heat and Frost Insulators and Asbestos Workers, Lanham,
Maryland, statement............................................ 67
Holtz-Eakin, Douglas, Council on Foreign Relations, Washington,
D.C., statement................................................ 71
Hopeman Brothers, Inc., David M. Lascell, Waynesboro, Virginia,
letter......................................................... 78
Keener, Mary Lou, Palm Coast, Florida, letter.................... 81
Kelly, Edmund F., Chairman, Liberty Mutual Insurance Company,
Boston, Massachusetts, statement............................... 84
Kemp, Jack, Washington, D.C., statement.......................... 95
National Federation of Independent Business, Dan Danner,
Executive Vice President, Public Policy and Political,
Washington, D.C., letter....................................... 105
Peterson, Mark A., Legal Analysis Systems, Thousand Oaks,
California, letter............................................. 107
Property Casualty Insurers Association of America, Ernst Csiszar,
President and Chief Executive Officer, Washington, D.C.,
statement...................................................... 113
Reinsurance Association of America, Franklin W. Nutter,
President, Washington, D.C., letter............................ 115
Veteran and military service organizations, Washington, D.C.,
joint letter................................................... 117
S. 3274: THE FAIRNESS IN ASBESTOS INJURY RESOLUTION ACT OF 2006
----------
WEDNESDAY, JUNE 7, 2006
United States Senate,
Committee on the Judiciary,
Washington, D.C..
The hearing was convened, pursuant to notice, at 9:30 a.m.,
in room SD-226, Dirksen Senate Office Building, Hon. Arlen
Specter, Chairman of the Committee, presiding.
Present: Senators Sessions, Cornyn, Coburn, Leahy, Kennedy,
and Feinstein.
OPENING STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM
THE STATE OF PENNSYLVANIA
Chairman Specter. Good morning, ladies and gentlemen. The
Judiciary Committee will now proceed to consideration of Senate
bill 3274, which was introduced by the distinguished Ranking
Member, Senator Leahy, and myself before the Memorial Day
recess, which updates the Asbestos Reform bill which came out
of the Judiciary Committee and has been on the floor of the
U.S. Senate.
There is a thoroughly established record about the need for
reform on asbestos litigation. We have seen the situation where
the Supreme Court of the United States, on a number of
occasions, has called upon Congress to act because of the
avalanche of litigation.
We have seen thousands of victims of exposure to asbestos
with deadly diseases like mesothelioma unable to collect
because they had the exposure to asbestos in the military
service or exposure in the employ of companies which have since
gone bankrupt. Some 77 companies have gone bankrupt as a major
threat to the economy.
The Chamber of Commerce has projected the asbestos problem
to be in the range of $500 billion. The Judiciary Committee has
considered the issue at length on some occasions and, with
Senator Hatch's leadership in the previous Congress, we came up
with the trust fund concept, which has been modified very
substantially.
We have, after consideration, submitted revised legislation
which is a significant improvement with stronger medical
criteria.
The revised bill now authorizes random audits of
affidavits; it clarifies that a claimant's diagnosis must be
made by a treating, rather than an examining, physician; it
requires claimants to provide detail-specific and critical
affidavits of proof of significant asbestos exposures; it has
improved procedures for taking care of the sickest victims, yet
has an improved allocation formula for companies who are called
upon to pay, adopting Senator Kyl's amendment, which limits the
contributions to 1.67 percent of the gross revenues in lieu of
the earlier formula set forth in the bill; and it also provides
for assistance and relief to the well-insured defendants who
currently pay little or no out-of-pocket costs into the tort
system. There are also tighter controls on leakage.
The sponsors of the bill are, candidly, determined to
succeed here. Senator Leahy and I, and others, have undertaken
the process of going to Senators' offices in an unusual way,
spending an hour at a time. It is unusual for Senators to do
that.
We have called in specific companies and have listened to
their problems, and we have sought answers to their problems.
We are going to do what it takes to pass this legislation. We
are going to do what it takes to pass this legislation.
We understand that there are substantial financial
interests in opposition, but occasionally around here the
public interest prevails and I think it is going to prevail in
this situation.
Just one word on a personal note. Since we last met, there
has been the passing of Judge Edward Becker, who did
extraordinary work in the development of this legislation.
In his offices in August of 2003, he met with the so-called
stakeholders and devoted countless hours to meeting with large
groups where, in my conference room, 20 to 50 individuals
assembled on dozens of occasions.
He talked to Senators on an individual basis and was
concerned about this legislation right up until his last days.
When we talked when I visited him, the first thing he wanted to
know was, beyond my own health, what was the health of the
asbestos reform bill. He quoted George Gipp in that famous
Notre Dame movie, ``Win one for the Gipper.'' So, we are pretty
well motivated.
Senator Leahy?
STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE
STATE OF VERMONT
Senator Leahy. Well, Mr. Chairman, I thank you for
demonstrating, again, your commitment to making some
constructive changes in the asbestos litigation system. It is a
broken system. We can change it. We can fix it. It fell on a
procedural maneuver without being voted on earlier this year.
We can go back and get to a real vote and we can pass this.
The Chairman mentioned Judge Becker, his friend of 50
years, I believe.
Chairman Specter. Fifty-six.
Senator Leahy. Fifty-six years. Judge Becker, of course,
was a distinguished Federal jurist. He had been Chief Judge of
the Third Circuit, a member for years. I agree, without his
extraordinary efforts, we would not have come as far as we did.
I also commend the Chairman, who, through a recent illness
of his own, kept working on this. I know, I tried to sneak off
to my farm in Vermont and not think about asbestos, and the
phone would be ringing as I was walking in the door.
I think he had the place wired to know I was there, and
say, Pat, you know, if we called Senator so and so, maybe we
could get one more person. But what we did all the way through
it, both Senator Specter and Judge Becker said, let us keep it
bipartisan, which is what I have insisted on, and let us bring
all the stakeholders to the table. We did that.
We can have questions of tort reform, like insulating the
makers of food products and things like this that are not going
to go anywhere, and do divide us. But here we have a real
problem that should be addressed, and we can do it.
The Supreme Court has declared that the current system of
asbestos litigation cries out for a legislative solution, and
the court is right on that. You will not find a member of the
court who will disagree. We can do that. We have an improved
bill.
We have been responsive to concerns of many interested
parties, and we have refined the bill to accommodate many of
these. We want to do what is right for the victims of asbestos
exposure, and we want a bipartisan bill.
In an increasingly polarized Congress, only things done in
a bipartisan way actually are going to pass. But let us not
lose focus of what we want. We want, first and foremost, fair
compensation for those who have been injured or killed from
exposure to asbestos.
Some changes attempt to further balance the equities among
the companies that have to contribute to the fund. I want to
make it very clear, the medical criteria of the bill remains
unchanged, but we put in further safeguards to ensure the
integrity of the claims process.
For example, a provision for random audits, both medical
and exposure evidence submitted by claimants; a provision
requiring a detail-specific affidavit from a claimant attesting
to their exposure. We are doing this to prevent fraud.
We also ensure that veterans who contracted asbestos-
related illness during their service for this country can claim
against the fund, with special status limitations for veterans
who receive government benefits from the illness. So you remedy
the situation of veterans being shut out from the tort system
by virtue of government employees.
We preserve more preexisting legal settlements between
claimants and dependents by allowing a plaintiff's
representative or an authorized corporate attorney to sign an
agreement.
There are a number of things in here. We make clear that
civil rights of disability claims are not preempted by the
legislation. We spent a lot of time, and we are doing it today,
taking up things for partisan posturing, for show on the Senate
floor.
Here, we have an historic chance to make a difference in
the lives of many Americans who have suffered so tragically. It
is not something that makes for good political reading. It is
not something that is going to be a show like some of the
things we do on the Senate floor. But it actually helps and
gives us a chance to relieve our Federal and our State judicial
systems from the crushing weight of what the Supreme Court has
described as an elephantine mass of litigation. So, I thank
everybody who is here.
Ironically, I am going to be required to go back to the
floor to speak on what is the current political show on the
floor. I want to get back to what is reality for this country,
what we are looking at right here. Thank you, Mr. Chairman. I
commend you. I also appreciate you mentioning Judge Becker the
way you did. He deserves the praise.
Chairman Specter. Thank you, Senator Leahy.
Senator Kennedy, would you care to make an opening
statement?
STATEMENT OF HON. EDWARD M. KENNEDY, A U.S. SENATOR FROM THE
STATE OF MASSACHUSETTS
Senator Kennedy. Just briefly, Mr. Chairman, and then I
will include the statement in the record. But if I could say a
brief word.
I think all of us on the committee want to thank you, Mr.
Chairman and Senator Leahy, for your hard work and diligence on
this issue. It is enormously important, and I admire your
perseverance on it.
However, I do feel that the latest version of the asbestos
trust fund does not correct the fundamental problems that made
the original bill unacceptable. The new bill, 3274, would still
create the trust fund that excludes many seriously ill victims
of asbestos-induced disease from receiving compensation, and
fails to provide a guarantee of adequate funding to make sure
the victims who are eligible will actually receive what the
bill promises them.
As I said before, the real crisis which confronts us is not
an asbestos litigation crisis, it is an asbestos-induced
disease crisis. Asbestos is the most lethal substance ever
widely used in the workplace.
All too often, the tragedy these seriously ill workers and
their families are enduring becomes lost in a complex debate
about the economic impact of asbestos litigation. We should not
allow that to happen.
The litigation did not create these costs, exposure to
asbestos created them. There is the cost of medical leave, the
lost wages, of incapacitated workers, the cost of providing for
the families of workers who died before their time, and those
costs are real. No legislative proposal can make them
disappear. All legislation can do is shift those costs from one
party to another.
So, I appreciate the enormous effort that Senator Specter
and Senator Leahy have put into the issue. The latest proposal
does not correct the basic flaws and earlier versions of the
legislation.
The trust fund is seriously, I believe, under funded. It
lacks sufficient financial resources to pay all the victims of
asbestos disease that the legislation promises to compensate.
Major problems identified by the CBO are still present in
the new bill. In addition, some of the changes in S. 3274 may
actually create new problems for victims attempting to collect
from the asbestos trust.
Most of the burden of asbestos-induced disease is being
shifted back onto the victims. The new legislation does not
provide a fair and reliable solution to the enormous problems
of compensating the asbestos victims. If S. 3274 were to be
enacted, it is probably that the asbestos trust fund created by
the bill would soon become insolvent.
As Professor Green, who is with us today as one of our
witnesses, states in his written testimony, ``In the end, it is
highly likely that a choice will have to be made between
bailing out the fund with Federal funds or abandoning future
claimants. Either way, the perpetrators and the profiteers
escape, while the needy and the innocent suffer.''
It is not enough to say that there are serious inadequacies
in the way asbestos cases are adjudicated today. That does not
mean that any legislation is better than the current system.
Our first obligation is to ``do no harm,'' and I regret to say
that, despite the best intentions, this legislation would do
harm.
When the committee considered the original Specter-Leahy
bill in May, it identified 10 areas in which the legislation
was deficient, both unfair and unworkable. Unfortunately, all
of those problems are still present in the latest version.
I ask consent that my full statement be part of the record.
I thank the Chairman.
Chairman Specter. Your full statement will be made a part
of the record, Senator Kennedy.
[The prepared statement of Senator Kennedy appears as a
submission for the record.]
Chairman Specter. Senator Feinstein, do you care to make an
opening statement?
STATEMENT OF HON. DIANNE FEINSTEIN, A U.S. SENATOR FROM THE
STATE OF CALIFORNIA
Senator Feinstein. Just a brief comment, Mr. Chairman.
Thank you for all your work on it. As you know, I have been
involved with this from the beginning. I do not know the
particulars of the changes that have been made. I hope at some
point that will become more apparent.
I am concerned about the classifications and that this fund
really only deal with victims of asbestos. Perhaps that is
enough for now. I guess, as the months have gone on, I have
become more concerned as to whether we can ever get the kind of
support that is necessary to move a bill like this, because so
much is unknown about the impact of it.
Thank you, Mr. Chairman.
Chairman Specter. Thank you very much, Senator Feinstein.
There are unknowable factors, beyond any question, and we
have sought to accommodate them with sunset provisions and a
variety of safeguards. But we will continue to work.
Will you all rise and take the oath, please?
[Whereupon, the witnesses were duly sworn by the Chairman.]
Chairman Specter. May the record show that each person has
answered in the affirmative.
Our first witness today is the distinguished president of
the National Association of Manufacturers, Governor John
Engler, a three-term governor from the State of Michigan, 20
years in the State legislature, including 7 as State Senator
Majority Leader. He graduated from Michigan State University,
has a law degree from Thomas M. Cooley Law School.
Thank you very much for joining us, Governor Engler. We
have the clock set at 5 minutes.
STATEMENT OF JOHN ENGLER, FORMER GOVERNOR OF MICHIGAN,
PRESIDENT, NATIONAL ASSOCIATION OF MANUFACTURERS, WASHINGTON,
D.C.
Governor Engler. Thank you, Mr. Chairman. I am delighted to
be here. Thank you for inviting me back to testify on behalf of
the Asbestos Alliance of the National Association of
Manufacturers.
I want to begin, as you did, by paying tribute and honoring
the memory of Judge Edward Becker, acknowledging his tremendous
contribution in mediating this critical legislation. He is
missed, and we honor his memory.
I want to thank you, Mr. Chairman and Senator Leahy, for
your unwavering commitment, and eloquently restated again this
morning, to the passage of asbestos trust fund legislation.
The new FAIR Act is a win-win-win for victims, for workers,
and the economy. Only a trust fund approach that takes asbestos
cases out of the courts could end the asbestos litigation
nightmare.
We recognize that some States have made progress in
addressing some of the most egregious aspects of asbestos
litigation, but State medical criteria legislation, while very
welcome, does not prevent plaintiffs' attorneys from seeking
out new, more friendly forums, as they have done for years.
It also does not end the litigation lottery in which some
victims do fine, but many others face delayed and reduced
compensation. More fundamentally, keeping asbestos claims in
the courts ignores other problems. It costs U.S. businesses
$2.38 to provide $1 of compensation to asbestos victims.
That is a lose-lose-lose proposition for victims, workers
and the economy. In addition, plaintiffs' lawyers, in search of
new pockets, will drag thousands of companies into court on the
flimsiest basis, disrupting their business and sabotaging their
credit.
Reform of the tort system alone cannot address these
problems. The only way to fix asbestos once and for all is by
getting these cases out of the tort system and into a privately
funded, no-fault administrative process.
Along with ending the litigation for all companies, the
trust fund bill will completely exempt SBA-eligible small
businesses from paying into the trust fund; their asbestos
litigation nightmare will finally be over and the companies
contributing to the trust fund will have certainty about their
financial obligations. The trust fund will also prevent future
asbestos bankruptcies and their destructive impact on workers,
their retirements, and their communities.
Far from being a tax itself, the FAIR Act actually
eliminates the asbestos support tax that American business has
been paying now for 40 years. The companies that will
contribute to the trust fund today face expensive litigation,
which hampers their ability to raise capital and expand and
create jobs. The FAIR Act lifts the constant threat that
asbestos litigation poses to their operations, and sometimes to
their very survival.
S. 3274 is a major advance over previous versions of the
FAIR Act. First, it incorporates, Mr. Chairman, as you
mentioned, Senator Kyl's amendment, which limits the
contribution of small- and mid-sized companies to 1.67 percent
of their gross revenues and liberalizes the procedure for
hardship adjustments. It also addresses the concerns of small,
deeply insured companies in Tier II, like Foster Wheeler, from
whom you will hear today.
Next, Senate bill 3274 goes even further than the earlier
bill to prevent fraudulent claiming. We commend Federal Judge
Janice Jack for exposing all of the fraud rampant in silica
litigation, but there are still hundreds of thousands of
asbestos claims pending, and rampant fraud has been a problem
for decades.
If we keep asbestos cases in the courts, the profit motive
remains for trial lawyers to recruit unscrupulous doctors to
deliver bogus diagnoses. A key advantage of the trust fund bill
is that it will stop this madness and ensure that only the
truly sick receive the compensation they deserve.
Another important improvement limits the filing of old or
dormant claims with the trust fund for compensation. This will
strengthen the fund's financial integrity.
Finally, the new bill explicitly states that the trust fund
will not increase the deficit, will not impose any burden on
the taxpayer, and will not create any taxpayer obligation.
The trust fund solution has always been based on private
financing, with absolutely no obligation to the Federal
Government to make up any shortfalls. S. 3274 also requires the
Chief Financial Officer of the Department of Labor to certify
annually that the fund will be financial solvent based on these
private contributions.
This strengthens the earlier bill, which made this the
responsibility of the trust fund administrator who may have had
a special interest in keeping the fund going.
In short, the trust fund will ensure fair, fast, and
certain compensation to victims, including many, many veterans.
It will boost our economy. Navigant Consulting estimated it
could create more than 800,000 jobs and increase economic
growth by $64 billion.
As the U.S. Supreme Court said twice, asbestos litigation
defies customary judicial administration and calls for national
legislation. After decades of trying, the solution is at hand.
It is time to act. I urge this Senate committee to move the
trust fund forward for full Senate consideration.
Chairman Specter. Thank you very much, Governor Engler.
[The prepared statement of Governor Engler appears as a
submission for the record.]
Chairman Specter. We now turn to Mr. Peter Ganz, Executive
Vice President, General Counsel and Secretary of Foster
Wheeler. Mr. Ganz is a summa cum laude graduate of Duke, and a
magna cum laude graduate of the Harvard Law School.
Thank you for joining us, Mr. Ganz. We look forward to your
testimony.
STATEMENT OF PETER GANZ, EXECUTIVE VICE PRESIDENT AND GENERAL
COUNSEL, FOSTER WHEELER, CLINTON, NEW JERSEY
Mr. Ganz. Thank you, Mr. Chairman. I thank you, Senator
Leahy, and the members of the committee for inviting me to
provide testimony here today.
By way of background, Foster Wheeler is a global
engineering and construction contractor and power equipment
supplier. Foster Wheeler and its predecessors have been in
business for well over 100 years, and Foster Wheeler currently
employs over 9,000 people worldwide.
Over the course of its long history, Foster Wheeler
designed, supplied, and erected numerous marine- and land-based
steam generators and process plant facilities which required
insulation, valves, pumps, and other equipment supplied by
third parties to Foster Wheeler, or directly to Foster
Wheeler's customers, which, in certain instances and in certain
time periods--particularly World War II, I might add--may have
contained asbestos.
Like many American companies engaged in the businesses in
which we participated in decades past, Foster Wheeler
subsidiaries have confronted many thousands of asbestos claims
throughout this country.
In fact, we have resolved almost 300,000 asbestos claims to
date, at a cost to the company and its insurers of almost $700
million. As of March 31 of this year, we had approximately
165,000 claims pending.
Over the years, not only has Foster Wheeler sought to
defend itself as best it could in the tort system, but it also
worked diligently to marshall its available insurance assets
and carefully protect and manage these extremely valuable
resources.
As a result, except for amounts allocated to insolvent
insurers, we believe that substantially all of Foster Wheeler's
asbestos-related expenses to date have been, or will be,
covered by insurance. In addition, based upon current
estimates, we expect that the bulk of our future asbestos-
related expenditures would be covered by our insurance assets.
While Foster Wheeler consistently has supported the concept
of a Federal legislative asbestos solution and believes that
there may be different possible approaches which could be
effective, including a trust fund/medical criteria approach,
Foster Wheeler did not support the solution set forth in S.
852.
We made it very clear that our principal, although by no
means only, criticism of that version of the legislation was
that we considered the allocation formula contained therein to
be unfair to companies such as ours by requiring us to make
annual payments into the trust that were far in excess of what
we otherwise would expect to pay net of our future insurance.
We believe that the allocation formula contained in S. 852,
in effect, penalized us for having carefully collected,
managed, and conserved our available insurance assets so that
they would be available to us in the future.
It is because of Foster Wheeler's concern over this
critical issue of allocation that, as early as the fall of
2004, we first reached out to other companies who might have
similar concerns and, in early January of 2005, Foster Wheeler
and these other so-called ``well insured'' companies
communicated their position to the committee.
At about the same time, these companies formed the nucleus
of the Coalition for Asbestos Reform, or CAR, a group which
later attracted insurers and others also critical of various
aspects of S. 852.
At this point, I would particularly like to express our
appreciation for Senator Cornyn, who very early recognized the
issue that we were raising about allocation and the fact that
we were heavily insured, and, in fact, had drafted and was
prepared to offer an amendment to the S. 852 that would have
corrected that imbalance, and we appreciate it.
Following the floor action on the bill, Chairman Specter
and his staff invited our company, as well as others, to
discuss possible revisions to the bill. Following what was
clearly a lot of hard work on their part, Senator Specter,
Senator Leahy, and their staffs incorporated a provision in the
new bill which Foster Wheeler believes reflects a true
recognition of our concerns on allocation and constitutes a
fair and reasonable compromise on the issue.
This provision essentially provides that many small- and
medium-sized companies like ours which have relied on insurance
will be eligible for an adjustment to their allocation so that
they can expect to pay no more than 5 percent of their annual
adjusted cash flow.
While this solution is not perfect, it may still result in
our company paying somewhat more out-of-pocket in any given
year than we might otherwise have paid had we been able to rely
upon our available insurance. We do support it as a fair
compromise.
It provides a company like ours with a manageable,
predictable contribution to the fund, which should allow us to
focus our management resources on running and growing our
business.
In conclusion, we thank Senator Specter, Senator Leahy, and
their staffs for incorporating this provision which addresses
the issue that we were so concerned about for so long. Thank
you for this opportunity to express these concerns.
Chairman Specter. Thank you. Thank you, Mr. Ganz.
[The prepared statement of Mr. Ganz appears as a submission
for the record.]
Chairman Specter. Our next witness is Professor Eric Green,
Boston University law faculty since 1977, graduate of Brown,
law degree from the Harvard Law School.
I thank you for coming in today, Professor Green. The floor
is yours.
STATEMENT OF ERIC GREEN, FOUNDER, PRINCIPAL, RESOLUTIONS, LLC,
AND PROFESSOR, BOSTON UNIVERSITY, BOSTON, MASSACHUSETTS
Mr. Green. Thank you, Senator Specter for the opportunity
to testify on this important legislation. I thank Senator Leahy
as well.
As you know, I have testified on this bill previously. My
perspective is that of the court-appointed representative of
the unknown future claimants, those who are not represented in
the tort system currently.
I have never represented a plaintiff in the asbestos
litigation. I have never represented a defendant. I have no
personal stake in this matter whatsoever. Someone has to speak
for the unknown future claimants who will be seriously affected
by this legislation.
The problems which existed in the original legislation have
not been cured by the amendments in S. 3274. In fact, I believe
some of these amendments, in an effort to pick up opposition on
one side, have simply exacerbated the problem of there being
illusory promises of adequacy of funds to pay these liabilities
into the future, and in fact these amendments have created
greater uncertainty about the sources of fund, and about what
will happen to the victims on the back end of the fund.
There are no assurances in this bill that the fund will
have resources to timely pay claims. As a matter of fact, it is
fairly certain that in a number of years the trust will have to
go heavily in debt, and the cost of that debt service, when
added to the predictions of what will be necessary to pay
claims, indicates that there is a great probability that the
trust will face an insolvency problem in the not-too-distant
future.
What happens when that occurs, of course, is extremely
unclear. It has been attempted to be addressed with a very
vague and Band-Aid solution in the form of this so-called
master trust at the end.
It sounds good, but really does not demonstrate any
solution to the problem that I am concerned with, and that we
all should be concerned with, because we may be gone in 10 or
12 years. I do not know how much longer Senator Kennedy is
going to represent my State.
Senator Kennedy. Oh, that is a nice thought.
[Laughter].
What are you picking on me for?
[Laughter].
Mr. Green. I think you are one of the senior members of the
Senate. We will be gone, but victims will not be. What a shame
it will be when we leave them at the end with the mess that
this legislation is going to leave them in. If there is not
enough money at the end for the national trust that we are
establishing to pay claimants, where does the money come from
to fund this so-called master trust?
If there are insufficient funds, will the victims not
simply be forced to take less, or the taxpayers of the United
States will be forced to come in and fund the money? To simply
say that no taxpayer money is going to be used is not correct
and it is not being truthful with the American taxpayers,
unless you want to say, victims at the end of the line, you are
going to get shafted by this legislation.
I think it is incumbent upon our political leaders to face
up to these problems honestly and not leave the least capable
of fending for themselves with the problem at the end.
With some of the other amendments which have provided
relief to small businesses and others who may be well insured,
it is a zero-sum game, Senator. If they are paying less,
someone is paying more. Who is it? It is not made clear.
I think that it is either going to be the taxpayers, it is
going to be other companies and insurance companies, or, sadly,
it may be the least powerful of them all, the victims. That is
not consistent with our national values, it is not consistent
with the promises we implicitly made to the workers who worked
on the ships during World War II.
It is not consistent with the promise we should be making
to our soldiers fighting in Afghanistan and Iraq now with
asbestos in materials over there. It is not consistent with the
workers who are sick and who are dying now.
I have nothing but the greatest respect for Judge Becker,
who was a great jurist. But there are victims who have died
also since our last hearing, Senator Specter, who should be
mentioned. Larry Rice died May 13 of mesothelioma.
There are common people with no one to protect them but
either the courts, the existing trusts, or this body, who are
also in dire straits. It is those people I urge this body to
remember.
Chairman Specter. Thank you, Professor Green.
[The prepared statement of Mr. Green appears as a
submission for the record.]
Chairman Specter. Our next witness is Ms. Flora Green, who
hails from Claysville, Pennsylvania. During World War II, she
served as an overhead crane operator in a steel mill. How much
did you weigh then, Ms. Green?
Ms. Green. That is not fair!
[Laughter].
Chairman Specter. You expect me to withdraw that question?
[Laughter].
Ms. Green. Well, I do.
Strike it from the record.
[Laughter].
Chairman Specter. She is here today representing the
Seniors Coalition. Thank you very much for joining us, Ms.
Green, and we look forward to your testimony.
STATEMENT OF FLORA GREEN, NATIONAL SPOKESPERSON, SENIORS
COALITION, FAIRFAX, VIRGINIA
Ms. Green. Well, thank you for giving me the opportunity. I
never thought in my lifetime in Claysville that I would be
sitting among such famous, wonderful people. I am looking
around, and I am the oldest one in the room--just remember
that--as I usually am.
[Laughter].
Ms. Green. Unfortunately, I have a little vision
impairment, so bear with me. I come under the auspices of the
Seniors Coalition and I speak with seniors daily. I have had
many, many calls from seniors who are suffering from the
terrible maladies caused by exposure to asbestos, something
that we least suspected.
You know, we did the job as we were required to do. We
worked in defense factories. We were concerned about what was
happening with our men and women overseas, so we did not care.
We did the job. Then down the road, what happened? It is just a
serious issue, and seniors are concerned.
Of course, this issue, the Fairness in Asbestos resolution
is of prime importance to seniors. Again, many are suffering,
not being paid, do not know what to do, may lose their house,
they are trying to get money, and they are in serious, serious
trouble.
As I said, I have spoken with many folks, and at their
request I am urging the passage of the FAIR Act. This
compensation issue has dragged on long enough. They are tied up
in the court system and seem to go on forever. Many of us look
around and think, well, are we going to live long enough to
have the benefit of some compensation to care for us in our
declining years?
I am fortunate. I am 84 and in wonderful health. I do not
know about my mind some days--
[Laughter].
Ms. Green. But folks out there care, and I care, and I am
sure the members of this panel care about the seniors--I am
addressing them, particularly--that do suffer and long for
health.
It seems to seniors that the whole issue is that the trial
attorneys and the courts manage to eat up most of the
compensation award, if it ever comes. That makes us pause. I
wonder why? This needs to be addressed.
As I understand it, the FAIR Act is not going to cost the
taxpayers or the government to fund. It is going to come from
companies that actually were at the base root of the issue.
Now, another one of our members sent this to me. ``I know
you talk to Members of Congress. Tell them this for me: act
now. I may be dead and gone before I get any compensation. Just
give them hell, Grandma.'' I have done my best to follow his
advice.
One last thought. I was a bill collector back in my real
life before I came to Washington, and we had a phrase that was
our golden rule. It was ``be firm, be fair, expect to be
paid.''
I am going to throw that right back to you. Just think: we
have been firm, we expect you to be fair, and then we will be
paid. What more can you ask? So, please bear with me in my
observation, and I will tell you, shame on you if you do not
pass this bill.
I am a grandmother of 24 and great-grandmother of 28, and
two more coming. Thank you.
Chairman Specter. Thank you very much, Ms. Green. You are
inspirational. Thank you. Thank you.
[The prepared statement of Ms. Green appears as a
submission for the record.]
Chairman Specter. We are midway through a vote, so we will
take a brief recess and reconvene.
Senator Kennedy. Mr. Chairman, can I include the AFL-CIO
letters in the record?
Chairman Specter. Sure. We will be glad to have them made a
part of the record.
Senator Kennedy. Thank you.
Chairman Specter. We stand in recess and we will be back
shortly after the vote.
[Whereupon, at 10:10 a.m. the hearing was recessed and
resumed back on the record at 10:45 a.m.]
Chairman Specter. I regret the delay. We will now proceed
with the testimony of Mr. James Grogan, president of the
International Association of Heat and Frost Insulators and
Asbestos Workers.
He serves as vice president of the Building and
Construction Trades Council of the AFL-CIO, and served as
president of the New Jersey State Building and Construction
Trade Council for 14 years.
Thank you very much for coming in, Mr. Grogan. We look
forward to your testimony.
STATEMENT OF JAMES A. GROGAN, GENERAL PRESIDENT, INTERNATIONAL
ASSOCIATION OF HEAT AND FROST INSULATORS AND ASBESTOS WORKERS,
LANHAM, MARYLAND
Mr. Grogan. Thank you, Senator. Good morning, Senator
Leahy, distinguished Senators. I am Jim Grogan. I am president
of the International Association of Heat and Frost Insulators
and Asbestos Workers.
Our union is a member of the Building and Construction
Trades Department of the AFL-CIO. Our members insulate pipes,
boilers, tanks, and equipment at powerhouses, oil refineries,
pharmaceuticals, shipyards, and other major industrial
locations across North America.
From the 1920s to the 1970s, we applied asbestos pipe
covering and asbestos block side by side with numerous trades,
including the boilermakers, the pipe fitters, the electricians,
and others.
Our union comes before you once again to strongly support
your continued efforts to pass a bipartisan bill, S. 3274, that
will ensure true, fair, and just compensation to current
victims and future victims of asbestos exposure.
As we understand, today's substitute legislation is dealing
with the ongoing developments on asbestos reform and is a
continuation of the previous legislation that has encountered
many obstacles and basically brought no relief.
This legislation, as we read it, provides assurances of
equitable compensation to asbestos victims and assurances to
manufacturers and insurers to resolve asbestos claims with
finality.
Senator Specter and Senator Leahy have provided a thorough
and fair process of negotiations for this detailed legislation.
They have listened to all sides and have created a balanced
compromise.
For 30 years, solutions to the asbestos crisis have eluded
Congress and the courts and penalized the victims. Even our
U.S. Supreme Court has begged the Congress to fix this national
asbestos litigation problem. Over 70 companies have gone
bankrupt and thousands upon thousands of individuals exposed to
asbestos have developed asbestos-induced diseases.
For example, mesothelioma is a signal cancer for asbestos
exposure unrelated to tobacco or other industrial carcinogens.
Mesothelioma will cause over 2,500 deaths in the U.S. each year
for the foreseeable future. Asbestos-induced lung cancer and
asbestosis will account for thousands of additional deaths per
year.
We now know that exposure to asbestos, with as little as 3
months' duration, is sufficient to cause mesothelioma. Today,
wives and children of asbestos workers who grew up in the 1960s
and 1970s are getting mesothelioma, not from washing their
father's clothing, but just from living in the common house.
From the 1930s to the 1970s, industry, insurance companies,
and even our own government hid or suppressed information about
the dangers of asbestos. Companies that suppressed, downplayed,
or hid the information about the hazards of asbestos have not
taken responsibility for their outrageous conduct. This
legislation hopefully will bring that practice to an end.
No one was more patriotic than those of us who were exposed
to asbestos dust while constructing, repairing, or living
aboard naval ships or building governmental facilities.
If those who knew that asbestos was harmful would have told
us of the dangers, we would have taken measures to protect
ourselves. We never would have taken our asbestos-laden clothes
home and exposed our families.
Many ask why our union is involved in this legislation.
They say there are remedies in the courts through the tort
system. They also say people are being taken care of.
While it is true that there is an asbestos litigation
system out there, the system is broken. Many who cannot
identify where they were exposed to asbestos recover nothing.
The asbestos crisis is a national tragedy and we need a
national legislative solution that is fair and equitable to
all. That is what S. 3274 provides.
There are other victims of asbestos litigation. Those
victims are employees, retirees, shareholders, companies'
savings and retirement plans, an entire group of individuals
who are in a tidal wave of asbestos lawsuits.
The most objectionable aspects of asbestos litigation, as
cited by Senators Specter and Leahy, are that the dockets in
both the Federal and State courts continue to grow. The same
issues are litigated over and over. Only 42 cents of every
dollar goes to the victims and their families. Attorneys fees
and transaction costs exceed the victims' recovery by nearly
two to one.
We support this bipartisan solution to the asbestos
compensation crisis, but we also caution that victims of
asbestos disease must not be victimized again by passage of
legislation that is unfair. Timely and full payments must be
made to the asbestos victims, as S. 3274 provides.
If that cannot be accomplished, access to appropriate State
court forums must be preserved, specifically, a speedy return
to the tort system if the trust fails to timely meet its
obligations. We join with those Senators who are trying to
bring about this bipartisan legislation that will help solve
the national asbestos problem.
We will continue to work in a constructive way with those
of you who wish to see a fair, equitable, and adequately funded
bill. If all fails, then we will fight for the right of any
asbestos victim, union or non-union, through a trial of a jury
of their peers. Fundamental fairness demands no less, and
neither do we.
Thank you for the opportunity to testify here today,
Senator.
Chairman Specter. Thank you, Mr. Grogan, for that very
persuasive testimony.
[The prepared statement of Mr. Grogan appears as a
submission for the record.]
Chairman Specter. We now turn to Dr. Douglas Holtz-Eakin,
Director of the Maurice Greenberg Center for Geoeconomic
Studies at the Council on Foreign Relations, and Director of
CBO from February of 2003 to December of 2005. He has a
bachelor's degree from Dennison and a Ph.D. from Princeton.
The floor is yours, Dr. Holtz-Eakin.
STATEMENT OF DOUGLAS HOLTZ-EAKIN, DIRECTOR, MAURICE R.
GREENBERG CENTER FOR GEOECONOMIC STUDIES, PAUL A. VOLCKER CHAIR
IN INTERNATIONAL ECONOMICS, COUNCIL ON FOREIGN RELATIONS,
WASHINGTON, D.C.
Mr. Holtz-Eakin. Mr. Chairman and members of the committee,
thank you for the chance to be here today.
Injury from asbestos exposure and the cost of asbestos
litigation are an important public policy problem and the
committee, and the Chairman in particular, are to be commended
for their attention to this matter.
As my written statement makes clear, my focus on S. 3274 is
on its budgetary impact and its fiscal policy merits. The
strategy, as outlined in the bill, is to isolate from broad
budgetary consideration particular Federal revenues and
particular Federal mandatory spending identified with the
asbestos fund, and then attempt to cease operations when the
former are insufficient to cover the latter.
The impact of such legislation, I think, would be very
different. As a broad budgetary matter, it is generally not
desirable to take particular revenues or spending off the level
playing field for policy consideration, and it is not obvious
that S. 3274 contains an automatic sunset of such a fund.
Instead, discretion will be left with an administrator and the
judgment required to terminate the fund in a timely fashion.
This is important because the administrator will
necessarily have to borrow at the start-up of the fund as a
matter of economic reality. There will be tremendous
uncertainty regarding the overall scale of claims, with most of
the likely risk on the up side, given the difficulties in
anticipating take-home exposures, dormant claims, and other
episodes like Libby, Montana, and the like. There will be
comparable uncertainty on the revenue side, with all of the
risks on the down side, falling short of the $140 billion.
So as a technical matter, any such administrator will have
a difficult time judging the appropriate sunset. However, the
most certain part of the future is that there will be political
pressure to continue the spending.
The structure of the fund, as I mentioned in my written
testimony, is very similar in spirit to the Pension Benefit
Guaranty Corporation, which, in principal, places the taxpayer
at no risk to additional funding.
However, in practice, the promise of pension benefit
insurance is a powerful one and it is extremely unlikely that
any future Congress would let future retirees go short of their
pensions.
In the same way, having made the commitment to compensate
victims of asbestos exposure, I find it extremely unlikely that
a future Congress will stop and allow such a fund to terminate.
It will be fundamentally unfair as a matter of timing, and very
difficult to resist as a matter of politics.
What does this mean? It means that we will now have on the
books a new Federal mandatory spending program at a
particularly bad time. As I hope the members of the committee
are well aware, our primary fiscal challenge in the United
States is to scale back, not to expand, mandatory spending at
the Federal level.
To pick the most dramatic examples, under what I would
consider optimistic projections for the future of Social
Security, Medicare and Medicaid, those three programs alone
will rise from about 9 cents on the national dollar at this
time to nearly 20 cents on the national dollar over the 50
years envisioned in the consideration of this fund.
That would bring those three programs alone to the current
size of the entire Federal Government. It is incumbent upon the
Congress to scale back, not to expand, mandatory spending at
this point in time.
One might think that mechanical measures are a good
approach to this, but I think the experience of things like the
sustainable growth rate mechanism, in which Congress relies on
an automatic mechanism to cut back on physician payments in
Medicare, the experience has been, again and again, the
Congress cannot find itself the power to do that. Instead, we
see physicians getting updates in Medicare that are in excess
of what the formula provides.
Instead of relying on mechanical sunsets and mechanical
cut-backs, it is incumbent upon the Congress to broadly put all
spending on a level playing field, consider the public policy
merits, and be the force itself for slower growth in spending
over the next five decades.
I thank you for the chance to appear here today, and I look
forward to the chance to answer your questions.
Chairman Specter. Thank you, Dr. Holtz-Eakin.
[The prepared statement of Dr. Holtz-Eakin appears as a
submission for the record.]
Chairman Specter. Our next witness is Mr. Edmund Kelly,
president and chief executive officer of Liberty Mutual Group,
a graduate of Queens University in Belfast, Ireland, with a
Ph.D. from MIT.
Thank you for coming in today, Mr. Kelly. We look forward
to your testimony.
STATEMENT OF EDMUND F. KELLY, CHAIRMAN, LIBERTY MUTUAL
INSURANCE COMPANY, BOSTON, MASSACHUSETTS
Mr. Kelly. Good morning, Mr. Chairman. I thank you for the
opportunity to testify.
Liberty Mutual is a member of the PCI, the Property and
Casualty Insurers Association of America, and a member of CAR,
the Coalition for Asbestos Reform. Both organizations join in
supporting my testimony today.
The question we have all wrestled with, is would a trust
fund work? We at Liberty worked long and hard to try to come up
with a trust fund that would work.
As we look at this, we need to look at four issues: 1) is
the trust fund proposal in the bill fair and equitable? 2) does
it provide an exclusive remedy for all asbestos claims? 3) is
it viable and sustainable? 4) is there a better alternative?
First, is the trust fund that is proposed fair? Fairness
requires that each participant pay approximately its relative
share of liability in the tort system. This core principle of
fairness cannot be met through the trust fund in S. 3274. In
fact, it guarantees billion-dollar windfalls to some Fortune
100 companies.
For example, the reported settlements of Owens Corning and
USG. There, if the trust fund is enacted, billions of dollars
of liability for those two companies will be eradicated, and
obviously, since it is a zero-sum game, picked up by all the
participants in the trust fund.
Ms. Green has said that the trust fund approach would
allocate costs to the people who are the base root of the
problem. Clearly, the Owens Corning and USG example shows that
this bill does not meet that standard.
The next question: does the trust fund provide exclusive
remedy, as promised, for all asbestos claims? Unfortunately, we
believe the answer is no. There are far too many exceptions
that allow asbestos claims to continue outside the trust fund,
thereby violating this bedrock principle.
One particularly egregious example is in Worker's
Compensation. By preventing the operation of State Worker's
Compensation lien laws, the FAIR Act guarantees double payment
of claims, adding billions of dollars of new liability to
employer insurance obligations. It is estimated that this
additional liability is in the range of $39 to $88 billion.
Current law in most States prevents ``double-dipping.''
This overriding of State law increases insurers' potential
liability to $65 to $80 billion, far in excess of the explicit
$46 billion mentioned in the bill.
The next key question is, is the trust fund sustainable and
viable? I believe several other witnesses have addressed this
sufficiently. Suffice it to say, solvency will be threatened
before very long.
So the final question for us is, is there a viable
alternative, a better alternative to the trust fund? As we look
around, the answer can be found in the growing list of State
medical criterion venue reforms, as well as good judicial case
management orders that, together, are changing the face of
asbestos litigation.
In addition to the comprehensive medical criteria laws in
Ohio, Texas, Florida, Georgia, Kansas, and South Carolina, a
dozen other States are addressing asbestos abuse through venue
reform, inactive dockets, and related legislative and judicial
activities.
The impact has been truly extraordinary. In the three
States that account for 80 percent of the asbestos claims filed
against Liberty Mutual's insureds, the claim decrease following
reform has been 90 percent in Mississippi, 65 percent in Texas,
and 35 percent in Ohio.
These numbers are substantial evidence that State-driven
initiatives are working, and should be allowed to continue to
work and not be negated by the passage of the FAIR Act.
To the contrary, these efforts could be replicated at the
Federal level, as proposed in Representative Cannon's
legislation, H.R. 1957.
In conclusion, we at Liberty Mutual very much support
asbestos litigation reform. However, we unfortunately are led
to believe that the trust fund embodied in the FAIR Act is not
the solution, as it fails to meet the test of fairness,
exclusive remedy, and sustainability. There is a better
solution, one that has proven itself as we speak, in the State
courts and the State legislation, medical criteria and venue
reform.
Thank you, Mr. Chairman.
Chairman Specter. Thank you very much, Mr. Kelly.
[The prepared statement of Mr. Kelly appears as a
submission for the record.]
Chairman Specter. Our next, and final, witness is Mr.
Dennis Cullinan, Director of the National Legislative Service,
Veterans of Foreign Wars. He served in the U.S. Navy on the
U.S.S. Intrepid, with three tours in Vietnam. He did his
undergraduate work in the State University of New York at
Buffalo.
Thank you very much for coming in today, Mr. Cullinan. We
look forward to your testimony.
STATEMENT OF DENNIS CULLINAN, NATIONAL LEGISLATIVE SERVICE,
VETERANS OF FOREIGN WARS, WASHINGTON, D.C.
Mr. Cullinan. Thank you very much, Chairman Specter.
Chairman Specter, distinguished members of the committee,
it is a great honor to appear before you today representing the
2.4 million men and women of the Veterans of Foreign Wars of
the United States, and our auxiliaries.
Founded in 1899, the VFW is this Nation's largest
organization of combat veterans. Our members come from across
the country, and even around the world.
Thank you for this opportunity to testify on the Fairness
Act. I want to especially thank Chairman Specter and Senator
Leahy for their recognition of veterans' stake in this critical
piece of legislation, and the many provisions included in the
legislation, including important changes incorporated into the
newly introduced bill which are specifically intended to ensure
that this bill will provide much-needed relief to veterans who
are seriously ill because of their exposure to asbestos during
their military service.
Tragically, tens of thousands of veterans who served
between World War II and Vietnam were unknowingly exposed to
asbestos during their tours of duty. Because of the long
latency period of asbestos-related diseases, many veterans who
served before the mid-1970s are just now being diagnosed with
life-threatening asbestos-related diseases.
Veterans and other asbestos victims face countless, and
sometimes insurmountable, hurdles in their pursuit of fair
compensation under the current tort system. A flood of asbestos
claims is overwhelming the court today, with as many as 300,000
or more claims currently pending, according to one recent study
by the actuarial firm, Towers Perrin.
Today, truly ill asbestos victims are forced to compete in
the court system with unimpaired claimants, many of whom will
never get sick, for scarce space on court dockets. Too often,
the sick die waiting for their day in court, while many of
those who do receive awards or settlements receive only pennies
on the dollar of the true value of their claims.
Veterans are also faced with the other particularly unique
obstacles under the current system. First, because they were
employed by the Federal Government during their military
service, they are restricted in their ability to recover from
the government as a result of sovereign immunity.
Second, most of the companies that supplied asbestos to the
Federal Government have either gone out of business altogether
or have gone into bankruptcy and are able to provide only a
fraction of the compensation that should be paid to asbestos
victims, if anything at all.
Finally, even if there is a solvent defendant to sue for
relief, there remains the time-consuming, expensive, uncertain,
and emotionally draining ordeal of filing a court case and
getting a trial. Once at trial, the plaintiff bears a difficult
burden of proof--that has often proven impossible--to prove
which defendant's product caused their injuries.
The VFW testifies here today because veterans with
asbestos-related disease desperately need relief in the current
system, which is not taking care of their needs, nor treating
them fairly.
We support the FAIR Act because we strongly believe it is
the only viable means to provide veterans and other asbestos
victims with the long overdue relief that they need and
deserve.
S. 3274 is not only a fair solution for veterans, it is, in
our view, the only solution that will effectively address their
unique plight. The so-called medical criteria solution, whether
at the State or Federal level, which some promote as an
alternative to the solution embodied in the FAIR Act, will do
nothing to help veterans who, as I have already explained, have
little or no fair avenue for receiving fair compensation under
the current broken system, a system which a medical criteria
solution would leave largely unchanged.
We believe the national trust fund solution embodied in
FAIR can deliver certainty to our members afflicted with
asbestos-related disease and provide the fairest outcome so
that the right people are fairly compensated with the greatest
speed and the lowest transactional cost.
Mr. Chairman, we have highlighted in our written in some
detail the many provisions that are included in the FAIR Act
that will particularly benefit the needs of veterans and other
asbestos victims.
Again, thank you and Senator Leahy, and the committee, for
recognizing and addressing their special situation.
Finally, Mr. Chairman, I would like to submit for the
hearing a copy of a letter the VFW and several other veteran
service organization and military service organizations have
recently sent to the Senate Majority Leader, requesting that
the legislation be brought up again before the full Senate as
soon as possible.
Again, thank you for providing me and the Veterans of
Foreign Wars in this Nation the opportunity to appear before
this committee.
Thank you very much.
Chairman Specter. Thank you, Mr. Cullinan.
[The prepared statement of Mr. Cullinan appears as a
submission for the record.]
Chairman Specter. We now go to the 5-minute rounds by
members.
Let me begin with you, Dr. Holtz-Eakin. I am a little
surprised by the difference in your testimony today from the
materials submitted by you when you were Director of the
Congressional Budget Office.
The statement which you submitted as head of CBO said,
``CBO expects the value of valid claims likely to be submitted
to the fund over the next 50 years can be between $120 billion
and $150 billion.''
In the written statement which you submitted for today's
hearing, you say, ``Both the scale of the mandatory spending
and the size of the revenues are highly uncertain.''
There is a 180-degree difference between what you said when
you were head of CBO, that the claims would be between $120 and
$150 billion, very close to the $140 billion mark, contrasted
with what you say now, that ``mandatory spending and the size
of the revenues are highly uncertain.'' We know what the
revenues are going to be.
When you submitted your testimony to this committee last
year, your statement was, referring to Section 406, ``The
legislation would not obligate the Federal Government to pay
any part of an award under the bill if the asbestos funds are
inadequate because, as we know, we revert to the tort system,''
contrasted to your testimony submitted today, that a future
Congress and administration are guaranteed to turn to the
taxpayer to make up the shortfall.
Now, that is palpably untrue and directly in variance with
what you said before. Now, I note that since leaving CBO, you
have become the director of the Maurice R. Greenberg Center.
Mr. Greenberg is an outspoken critic of this bill, and has been
since before the bill was even written. He is an outspoken
critic of the trust fund, and AIG has a very material financial
interest in opposing the bill.
Now, is the difference between your statements then and now
attributable to your position working for the Greenberg Center,
and in effect, AIG?
Mr. Holtz-Eakin. Let me do those in reverse order. First, I
am the director of that center. I am funded by the Council on
Foreign Relations. My funding is from the Paul Volcker Chair in
International Economics. I receive no funds from AIG, and my
views today are my own.
Chairman Specter. Well, let us take up your own views, if
you are not influenced by these other factors. How do you
account for the statement that you make here that there is
mandatory spending, and how do you account for the fact that
you say ``a future Congress and administration are guaranteed
to turn to the taxpayer.'' How can you say that?
Mr. Holtz-Eakin. Let me explain. The first statement, when
I was Director of CBO, remains true today. It is the case that
this will be mandatory spending in the Federal budget. It will
not be subject to appropriation. It will fit every common-sense
definition of mandatory spending.
Chairman Specter. It is mandatory until it runs out, Dr.
Holtz-Eakin.
Mr. Holtz-Eakin. It will be the case that the legislation
provides for a sunset--that is what I said, and that remains
true today--automatic, or at the discretion of the
administrator, depending on the eyes of the--
Chairman Specter. Well, is there mandatory spending after
the fund runs out?
Mr. Holtz-Eakin. There is a program in place that requires
money to be spent.
Chairman Specter. Wait a minute. Does it require--
Mr. Holtz-Eakin. My judgment--
Chairman Specter. Wait a minute. Does it require the money
to be spent or does it require Congress to act? Now, you say in
your oral testimony here, ``there will be political pressure to
spend'' and you challenge the Congress on any fiscal restraint.
How can you say what a Congress in the future will do?
Congress will not be obligated to spend the money once the $140
billion is gone, will it?
Mr. Holtz-Eakin. The administrator will have the option to
terminate the fund, is my reading of it. We can debate whether
you think that is correct reading. It is my judgment, and my
judgment alone, that in the future Congress would continue this
program and an administrator would have an enormous technical
difficulty in sunsetting it at the appropriate time. It would
be very hard to forecast. The uncertainties associated with
this bill with not disappear with its passage.
As a result, there will be people who have been promised
payments that may not be able to receive them from the $140
billion. It is my judgment--and the word ``guarantee'' is my
judgment--that a future Congress will, in fact, continue the
program. That is not in the law, and cannot be.
Chairman Specter. Well, my red light is on, so I will not
ask another question. I will return after Senator Cornyn
comments. But it seems highly, highly presumptuous for you to
put your judgment, and your judgment alone, impugning what good
sense a future Congress may have. Maybe this Congress has no
good sense, but let us not sell every Congress in the future
short.
[Laughter].
Senator Cornyn, you are one of the exceptions to any
question about good sense.
Senator Cornyn. Thank you, Mr. Chairman. Let me say, again,
you have demonstrated that you are not easily deterred by the
difficulty of the subject matter. I congratulate you on this
effort to try to move a resolution to this issue forward.
I continue to be concerned about the sheer complexity of
the trust fund proposal and the necessarily speculative nature
of whether it will actually be adequate to solve the problem in
the way that we are trying our very hardest to manage.
The goal all along, I think for all of us, is to make sure
that sick people get paid, and those who are not sick do not
get paid. Of course, I am also very sympathetic to Mr.
Cullinan's comments about the veterans.
Let me just ask you, Mr. Cullinan, is it your position that
the only way that veterans can be compensated for exposure to
asbestos is through the trust fund?
Mr. Cullinan. Thank you, Senator Cornyn. As a practical
matter, as it stands right now, veterans who are sick with
various asbestos-related disabilities are not getting
compensated. I think it is only one out of three claims,
through the Department of Veterans Affairs, for compensation
for an asbestos-related disability is granted. It is a very
rare occasion.
The experience in the court system, as I have testified,
has not been good, the majority of those. So, yes, this seems
to be best, and the surest means of providing redress to those
veterans.
Senator Cornyn. I think you would agree with me that
Congress has shown itself to be both very appreciative and very
receptive to our veterans and their service, and very receptive
to suggestions about how we can address their concerns,
whatever they may be, as a result of their service to our
Nation.
It seems to me that we should not exclude the possibility
that there is some other mechanism that might be able to be
created or that would address those concerns directly. I
appreciate your testimony about what the present obstacles are,
but maybe there is some other way to get at that.
Dr. Holtz-Eakin, let me ask you, this current version of
the bill specifically identifies victims of 9/11 and Hurricanes
Katrina and Rita to apply for the Exceptional Medical Claims
provision.
Notwithstanding the merits of covering these individuals in
the fund, is it fair to say that such a provision adds
significant costs to the fund which jeopardize its ability to
satisfy the claims of those who have been exposed to, and are
sick from, asbestos-related diseases?
Mr. Holtz-Eakin. It certainly raises the pool of claimants.
I do not have a particular number on the scale of the
additional costs that that might imply, but it adds to the
numbers that are out there already. Those numbers already did
not include a number of potential claims on the fund from
exceptional medical claims, and others.
Senator Cornyn. So essentially this expands the universe of
potential claimants under the fund.
Mr. Chairman, if I may ask unanimous consent, I have four
documents that I would like to ask be made part of the record.
One, is a statement from a constituent of mine, Mr. W.D.
Hilton, who manages two asbestos settlement trusts. Second, is
a letter from Mark Roscoe, president of the American Insurance
Association. Third, is from the Reinsurance Association of
America, Franklin Nutter. Fourth, is the statement of Hopeman
Brothers, Incorporated.
Chairman Specter. Senator Cornyn, without objection, those
will all be made a part of the record.
Senator Cornyn. Thank you.
I do not have any other questions at this time, Mr.
Chairman. Thank you very much.
Chairman Specter. Thank you very much, Senator Cornyn.
Mr. Grogan, in our workings with the AFL-CIO, Mr. John
Sweeney and Mr. Richard Trumpka, we have gone over a great many
issues, trying to determine and nail down a great many
questions. I think we made considerable progress. Candidly, we
are not there yet, but we are still working to try to win the
approval of the AFL-CIO.
But in the large grouping in your labor organization, you
speak for a very unique group. You speak for the asbestos
workers who have the direct exposure and have obviously
suffered the most.
What has been the impact with your workers and the many,
many bankruptcies which have occurred precluding any meaningful
recovery for the people who have been exposed to asbestos and
their employers that have gone under?
Mr. Grogan. Well, obviously, Senator, our members have been
devastated by the causes of asbestos illness, and others--many
others--that worked right alongside them. We are in a situation
where, because of many class action suits that precluded many
people who were unaware, and bankrupt companies where, if just
the people who were sick were taken care of, those companies
might not have gone bankrupt and they would be viable and able
to pay out compensation to our workers.
There is a never-ending debate within the AFL, back and
forth amongst us, on the issue of who should be compensated and
who should not. I am here to say to you, the people that are
sick are the ones that need to be compensated.
Not questionable claims, not claims that cannot be
substantiated, because that is part of the problem of what
happened, in my opinion, in the tort system. That is why it has
everything all tied up.
So, in addition, we have members who, because of the
latency period, and then come down with mesothelioma, their
wives do not know exactly where they worked, who they need to
go after to get compensated for the death of their loved ones,
and a lot of times fall right through the cracks and get no
compensation whatsoever.
I think the legislation that you have brought forth and are
working hard to get passed at least gives fairness to those who
are sick.
Chairman Specter. Thank you very much, Mr. Grogan.
Mr. Ganz, you are general counsel for Foster Wheeler, and
executive vice president. You took the lead in forming the
Coalition for Asbestos Reform, as I understand it, your company
and some others. As you have explained it, you had a concern
about the obligations under the bill, contrasted with your
being insured.
I think it would be useful for you to amplify our approach
as illustrative of what the committee and our staff have been
trying to do to deal with individual companies. We understand
the impact is more than just a generalized language and a very
complicated bill. And it is complicated, because we are dealing
with a very complicated subject.
But we have dealt with your company, as we have dealt with
many companies. Your company is illustrative of what we are
trying to do, and we are still open to do, to deal with the
individual needs and to try to find some allocation.
Your company would have much less exposure than, say, some
of the giants, where you have Tom Donahue, head of the Chamber
of Commerce, projecting a loss as high as $500 billion, half a
trillion dollars. But I would like you to amplify for the
record just what we did with you and the extent we went to try
to, and finally did, solve your problem.
Mr. Ganz. Certainly. I would be glad to, Senator.
Yes. As you said, our position has been consistent
throughout this very complicated debate, that we are in favor
of an asbestos legislative solution on the Federal level, if
one can be constructed that is fair and equitable.
We made it very clear, as the trust fund was in the initial
stages of being developed, that because of our position--and it
is not unique to us--a position that we had carefully
marshalled, conserved, and managed our insurance assets so that
it would last us through the asbestos litigation era, and that
was a preeminent concern to us, that whatever solution was
constructed, that that be taken account of. That was our
consistent position. We were one of the founders of CAR, and
that was what we were trying to bring to the fore.
Obviously, there were some discussions along the way. It
was not in 852 in terms of an adjustment for our situation, and
we opposed 852. To your tremendous credit, the credit of your
staff, and Senator Leahy and Senator Leahy's staff, after
February, you all and your staffs approached us and other
companies to say, please come in, let us talk about the issues
that are of concern to you. We did, and we explained them. You
listened to us.
Chairman Specter. Did you get tired of talking to me about
the subject?
Mr. Ganz. Never got tired of talking to you, Senator. Not
at all.
Chairman Specter. Getting close, we have so many meetings.
Mr. Ganz. We had a lot of meetings, and a lot of hard work
by your staff, I know. You all suggested a compromise. It is
not a perfect fit. Nothing in this bill, I think, is perfect.
But it is reasonable and fair and it would take account of our
situation. It was creative. It allows us to budget, allows us
to predict our asbestos payments and allows us to manage our
business.
Our net out-of-pocket expenditures some years may be
somewhat more than we would pay if we had been allowed to keep
our insurance in the tort system, some years it might be
somewhat less, but what you have given us is predictability,
and that is important and it is manageable. We support that. We
strongly support moving the bill forward with this provision in
it.
It does not mean that there could not be other changes and
work on the bill as it moves through the process, but we do
think that you have answered what we said very early on and
consistently was our preeminent concern, that the allocation to
us needed to be something that was fair and equitable to our
situation. You and Senator Leahy have done that, and we
appreciate that and we thank you.
Chairman Specter. Thank you for that amplification, Mr.
Ganz.
Senator Coburn? Before Senator Coburn begins, let me pay
special tribute to his contribution to the committee on many
subjects, but especially this one. Senator Coburn is also Dr.
Coburn, and raised issues which we submitted to the Institute
of Medicine--just had a report yesterday--ruling out finding
insufficient evidence on a number of categories of cancer,
trying to compensate the people who were injured.
As yuo said, Mr. Grogan, right now you can collect if you
have asbestos exposure and a jury makes a determination that
you will be injured in the future, which is highly speculative.
But this bill only compensates people who are currently sick,
really sick, and with a causal connection.
Senator Coburn raised a number of issues, which we took to
the Institute of Medicine, and found that the liability is not
genuinely there, and makes available funds to pay other people
who are not sick.
Senator Coburn?
Senator Coburn. Thank you for your kind words, Mr.
Chairman, and your leadership.
Dr. Holtz-Eakin, I just want to kind of visit with you for
a few minutes on your feelings. I have read your testimony.
Give us a feeling, with the changes in this bill as compared to
what we had before, what do you see are the major differences
in terms of the cost of the trust fund, the early run-out of
the cost of the trust fund, the borrowing cost of the trust
fund, and the long-term liability if, in fact, assessments are
attempted to be made and are not collected?
Mr. Holtz-Eakin. In its structure, the trust fund has
always been very sensitive to timing, with the broad
anticipation being that most of the claims--over half--would
arrive in the first 10 years, the revenue being distributed
much more evenly over a longer period.
That requires borrowing up front, the accumulation of
interest costs which are charged against the total collected in
assessments. The most recent changes allow for hardship, which
reduces things coming in. It allows for these changes for those
who have got insurance, and that changes the assessments.
To the extent that that reduces the total that comes in up
front, you have got more borrowing costs--and again, my
judgment is that the Congress will not renege on honoring the
borrowing costs--in the continuation of the program.
If it is the case that the administrator makes up for the
shortfalls relative to the schedule in some way, that places
firms at an unknown risk for paying more in assessments. It
strikes me as a source of uncertainty in business planning.
So, I think there is a long-term liability, most likely
present to the taxpayer. To the extent that it is not picked up
by the taxpayer, it will be picked up by the private sector in
the form of an unanticipated higher payment by a firm
somewhere. Both of those strike me as problematic at this point
in time.
Senator Coburn. Somebody is going to pay for it.
Mr. Holtz-Eakin. Certainly. All the money is in the private
sector. It has to come from there.
Senator Coburn. You also made a comparison between this
fund and the Pension Benefit Guaranty Corporation, for which we
are presently struggling with to try to straighten out because
there is a significant long-term liability to the American
taxpayer with that.
Could you offer any constructive criticism of the bill to
where we would not get in that situation with this bill, where
we would not bring it eventually to the American taxpayers so
the cost would be attributable to those that were responsible
for the costs?
Mr. Holtz-Eakin. I think a fair reading of the history of
the PBGC is one that, importantly, nobody broke the law. We
find ourselves in the situation where a sensible estimate of
the PBGC under-funding is $100 billion, so over a 10-year
horizon.
How could that happen? It happens when there is
insufficient transparency about the actual funding status. The
PBGC is very hard to understand. It happens when the funding
formulas are complicated or at variance with economic reality.
You get credit for things that do not really exist, they are
only on paper.
In moving to any new system that involves a trust fund, I
think it is imperative that there be tremendous amounts of
transparency up front about what will go in and what will come
out, and those get updated to reflect economic reality each and
every time you have more information. Those are the keys to
making us more immune from situations like the PBGC.
Senator Coburn. So your suggestion is, we could improve
this bill by putting those two components into the trust fund.
Mr. Holtz-Eakin. It would certainly improve the bill. It is
very difficult to anticipate what will go on in this bill as it
plays out, should it be enacted.
Senator Coburn. Let me ask anybody that would want to
comment, what about the position of the fact that there have
been trust funds established for asbestos liability now, and
the impact of this bill on those trust funds? Does anybody want
to comment on that?
Mr. Green. Senator, I will take a crack at that. I have
been involved as the legal representative in the formation of
four of them. Two of them are up and running and paying claims,
doing quite nicely. One of them, the Haliburton Fund, the
Dresser Fund, is paying 100 cents on the dollar.
Of course, the impact of this legislation on those trust
funds would be, they would be wiped out, terminated, and their
funds taken and subsumed in this bill, staffs would be
disbanded, the trustees would be fired. I guess they would
close up. Claimants who are receiving compensation from, or who
expect to receive compensation from them, would have to wait
for this fund to be up and running and available.
There are also many others in the pipeline that we have
spent several years in, working, creating, and negotiating on
that are about to come into the system, providing billions of
dollars of compensation to victims.
The companies that were responsible for creating those
liabilities are compensating their victims by putting in stock,
insurance proceeds, or borrowing in cash for those. I do not
think they have had any negative effect on the other legitimate
operations of these companies. They are doing fine.
But I think the elimination of these trusts is a serious
problem. I know that the trustees of some of these trusts plan
to mount challenges to this legislation, even constitutional
attacks.
Senator Coburn. That was going to be my next question. Does
anybody on our panel of witnesses anticipate that there will be
legal challenges to this trust fund so that it will not be
implemented?
Mr. Green. I can guarantee that there will be. I have been
involved in those discussions. I am not taking the lead in any
of those, but I know that Mr. Hilton, who apparently sent a
letter to Senator Cornyn, is very much involved in that.
They are lining up the legal talent to bring such a
challenge and take it all the way to the Supreme Court. So,
that is going to happen, Senator. I do not know what the
outcome of that will be, but that is another complicating
factor.
Senator Coburn. All right.
Mr. Chairman, thank you.
Chairman Specter. Thank you very much, Senator Coburn.
Just a couple more questions. You have all been very
patient.
Mr. Kelly, I am advised that Liberty Mutual has increased
its asbestos reserves by in excess of $200 million annually
over the past 6 years, and stated in its 2005 annual report
that there have been ``significant increase in the number of
asbestos-related claims filed,'' and you specify a number of
circumstances causing the increase in filing.
But your written testimony today says ``across all States,
from 2004 to 2005, we have seen a 50 percent decrease in the
number of new claims filed, a trend that continued in 2006.''
Which is accurate, Mr. Kelly?
Mr. Kelly. Thank you, Mr. Chairman. Actually, our liability
reserves for asbestos are approximately $1 billion, and we did
increase them twice significantly in the last several years
based on a bottom-up study.
My testimony is quite clear. We did see a large and
dramatic influx of claims, particularly from the State of
Mississippi. There was some forum shopping. As I mentioned and
made clear, it has made us extremely optimistic.
But the current situation is, in fact, with the reforms in
Mississippi, Texas, and Ohio, we are seeing a significant--a
significant--drop in those claims, in fact, because they are
deemed without merit. So the current system is working to
reduce that large influx that did emerge, particularly four or
5 years ago.
Chairman Specter. Mr. Kelly, I do not understand. Your
written statement does say that ``across all States, from 2004
to 2005, we have seen over a 50 percent decrease in the number
of new claims filed, a trend that continued to 2006.'' Is that
accurate?
Mr. Kelly. That is accurate.
Chairman Specter. That is accurate.
Well, how about the statement which I am told appears in
your 2005 annual report, that there is ``a significant increase
in the number of asbestos claims filed.'' Is that accurate?
Mr. Kelly. I will stand by our annual report. The 2005
annual report would have been based on a protracted period
where we look at our overall liabilities. Now, we are looking
at the emergence of claims over a significant period of time to
determine liabilities. What we are seeing in recent history is
a significant decline in those States where there has been
legislative or judicial reform addressing this issue.
Chairman Specter. Well, the 2005 annual report does not
talk about liability, it talks specifically about the number of
asbestos-related claims, ``a significant increase in the number
of asbestos-related claims filed.'' Are you saying that while
there has been a decrease across the country, when I ask
Liberty Mutual, your company, there has been an increase?
Mr. Kelly. No Sir: You have to look at asbestos over the
longer haul. There have been roughly four surges in asbestos
claims overall in a 25- to 30-year period. There was a
significant surge started in the late 1990s and peaked in more
recent years.
But it is fair to say that there is no question, from the
1990s up through around, say, 10 years earlier, there was a
dramatic increase in claims. That led us all in the industry to
look at our reserves, to hire outside experts to make sure
that, where properly, we have a financial obligation.
In fact, we stand proudly behind, and we are most of the
insurance behind, Mr. Ganz's company. We are the insurer that
makes sure Mr. Ganz has very little to pay. It is that sort of
discipline and that sort of recognition of financial liability
that made us look at emerging claims over that period of time.
I can say happily, in recent years--in the last 2 years,
and particularly in the last year since the enactment of reform
in Mississippi, there has been a dramatic decrease in claims.
Chairman Specter. When this bill is passed, Mr. Ganz will
not need your insurance, will he?
Mr. Kelly. No. But if this bill is passed, not only will we
have to pay the liability, which we have now under the current
system estimated on a moderately conservative basis, our belief
is, given the uncertainty in the nature, that in fact our
liability will dramatically increase.
Additionally, you will create, by abrogating State law, an
additional liability on the workers compensation side that may
be--may be--equal to the liability under asbestos.
Chairman Specter. Well, I do not understand. If this bill
were passed, would Mr. Ganz's company need your insurance or
would he not need our insurance?
Mr. Kelly. No, he will not need our insurance. It is all
paid for, fully reserved for and we fully recognize that in our
financial statement. It is fully funded and those funds are now
being paid. You will transfer those funds from Mr. Ganz to the
trust fund, but it does not change our financial obligations.
Chairman Specter. All right. So Mr. Ganz's company would
not need your insurance.
Mr. Kelly. Mr. Ganz's company would not need our insurance.
However, you would take our assets. Additionally, you would
create a new liability in the Worker's Compensation system
additionally, over and above our current estimate, which is
based on a moderately conservative views of outside experts.
Our belief, looking at the numbers and the uncertainty, that it
would, in fact, increase our liability.
So we have fully allocated in the financial statements for
the current liability. You will create new liability, in
essence, taking up our assets to pay a liability for which we
are not currently responsible under the current system.
Chairman Specter. But as you say, there is uncertainty.
Mr. Kelly. The uncertainty, unfortunately, is all in one
direction, Mr. Chairman.
Chairman Specter. The uncertainty might not lead to
decreasing your responsibility?
Mr. Kelly. In our opinion, there is no way that our
liability, under S. 3274, will be less than our current
liability.
Chairman Specter. All right. You have accurately described
your opinion. But I am coming back to these two statements
about an increase or decrease in asbestos claims filed. I still
do not understand. You have amplified your answers to my
questions, and quite candidly, I got lost.
Mr. Kelly. All right. We are comparing different periods of
time.
Chairman Specter. Wait. Let me pose a question.
Mr. Kelly. Sure.
Chairman Specter. Is your written testimony accurate that
``across all States, from 2004 to 2005, we have seen a 50
percent decrease in the number of new asbestos claims filed, a
trend that continued to 2006'' ?
Mr. Kelly. It is accurate.
Chairman Specter. All right.
Now, my next question is, is it accurate, in your 2005
annual report, that there has been a ``significant increase in
the number of asbestos claims filed''? Is that accurate?
Mr. Kelly. It is, but we are comparing different periods.
Chairman Specter. Wait. How are you comparing different
periods when it is the 2005 annual report, and your written
testimony covers 2005 and 2006?
Mr. Kelly. What the 2005 annual report is, it is based on,
looking financially at the end of 2005, what we had to
establish for liability, financially. Over that period, we have
to look at longer term trends. We do not establish liability
based on recent periods.
As we have learned, unfortunately, in an asbestos claim,
one has to take a very long-term view. But if you compare the
period from 2000 through 2005 and the period of 1995 through
2000, there was a huge increase in claims. That, of course, is
what led to the bankruptcy trusts we have alluded to here.
Chairman Specter. One other question. When you had in your
annual report that the increase was due to a number of factors,
``intensive advertising by lawyers seeking asbestos
claimants'', in this bill we have reduced lawyers' fees to 5
percent, and under some circumstances it can go to 10 percent,
rather than the typical 30 to 40 percent, or sometimes even
higher, contingent fees.
We are looking at a situation where the transaction costs
and attorneys fees on both sides amount to more than 40
percent, and that the claimants ended up with about 58 cents on
the dollar.
Would you not think that if you reduced the attorneys'
fees, as this bill does, that there would be less motivation
for, as you put it, ``intensive advertising by lawyers seeking
asbestos claimants''?
Mr. Kelly. I believe, in the bill, it is 5 percent.
Obviously the bill is complex; we are all digesting it. Again,
as I stated before, I admire the determination with which you
have pursued this. But our understanding at this moment is, the
5 percent is hardly a hard cap. But it is significantly lower
than the 40 percent.
Chairman Specter. Do you think 5 percent is too much?
Mr. Kelly. Well, some of my best friends are lawyers.
[Laughter].
Mr. Kelly. No. I am not saying 5 percent is too much.
Chairman Specter. I am trying to find some best friends in
the insurance industry.
[Laughter].
Mr. Kelly. Well, we will always be good friends. You are
admired. Despite the fact that we have seen some of these
issues differently, I admire the grace you have approached this
with, and thank you.
Chairman Specter. Let the record show, I spent every bit as
much time with Mr. Kelly privately as with Mr. Ganz.
Mr. Kelly. You absolutely did.
Chairman Specter. I even bought him lunch 1 day. That is
sort of a violation of the Senate Code of Ethics for a lawyer
to buy a corporate executive or a lobbyist lunch, but I do it
any way from time to time.
Mr. Kelly. Well, let the record show that my opinion was
not changed by the delicious lunch.
[Laughter].
Chairman Specter. Well, let us hope we are all laughing
when this bill is finished.
[Laughter].
Chairman Specter. For the record, I want to introduce a
number of documents. First, the testimony of former Congressman
Jack Kemp, a strong supporter of this bill. Congressman Kemp,
regrettably, has some medical issues which keep him from
testifying today.
Also, a letter in support from the NFIB, a letter in
support from 24 veterans group to support what Mr. Cullinan has
had to say here, a letter from the wife of a veteran, Ms.
Marylou Kenner, and a statement in support by the Citizens
Against Government Waste.
We are going to try to meet the concerns that Mr. Kelly has
registered and that Professor Green has registered, and that
Dr. Holtz-Eakin has registered. We are still open for business
to try to find a way to bring as many parties together as we
can.
A comment?
Senator Coburn. I just had one additional question. I
wondered if any of the panelists might respond. Are any of the
panelists concerned at all with the use of a CAT scan in the
diagnosis, or qualification of using CAT scans to create a
diagnosis of asbestosis and how it might play out in the costs
associated with the trust fund? Any comments on that? [No
response].
Thank you.
Chairman Specter. Thank you, Senator Coburn.
Well, ladies and gentlemen, thank you all very much. We are
going to continue to work on this matter. We are very much
concerned with all the injured people, especially the asbestos
workers, frankly, and the veterans. Mr. Pat Eidinger, president
in Philadelphia, has been very, very helpful. I want to note
that for the record.
That concludes the hearing. Thank you all.
[Whereupon, at 11:43 a.m. the hearing was adjourned.]
[Submissions for the record follow.]
[Additional material is being retained in the Committee
files.]
[GRAPHIC] [TIFF OMITTED] T0086.001
[GRAPHIC] [TIFF OMITTED] T0086.002
[GRAPHIC] [TIFF OMITTED] T0086.003
[GRAPHIC] [TIFF OMITTED] T0086.004
[GRAPHIC] [TIFF OMITTED] T0086.005
[GRAPHIC] [TIFF OMITTED] T0086.006
[GRAPHIC] [TIFF OMITTED] T0086.007
[GRAPHIC] [TIFF OMITTED] T0086.008
[GRAPHIC] [TIFF OMITTED] T0086.009
[GRAPHIC] [TIFF OMITTED] T0086.010
[GRAPHIC] [TIFF OMITTED] T0086.011
[GRAPHIC] [TIFF OMITTED] T0086.012
[GRAPHIC] [TIFF OMITTED] T0086.013
[GRAPHIC] [TIFF OMITTED] T0086.014
[GRAPHIC] [TIFF OMITTED] T0086.015
[GRAPHIC] [TIFF OMITTED] T0086.016
[GRAPHIC] [TIFF OMITTED] T0086.017
[GRAPHIC] [TIFF OMITTED] T0086.018
[GRAPHIC] [TIFF OMITTED] T0086.019
[GRAPHIC] [TIFF OMITTED] T0086.020
[GRAPHIC] [TIFF OMITTED] T0086.021
[GRAPHIC] [TIFF OMITTED] T0086.022
[GRAPHIC] [TIFF OMITTED] T0086.023
[GRAPHIC] [TIFF OMITTED] T0086.024
[GRAPHIC] [TIFF OMITTED] T0086.025
[GRAPHIC] [TIFF OMITTED] T0086.026
[GRAPHIC] [TIFF OMITTED] T0086.027
[GRAPHIC] [TIFF OMITTED] T0086.028
[GRAPHIC] [TIFF OMITTED] T0086.029
[GRAPHIC] [TIFF OMITTED] T0086.030
[GRAPHIC] [TIFF OMITTED] T0086.031
[GRAPHIC] [TIFF OMITTED] T0086.032
[GRAPHIC] [TIFF OMITTED] T0086.033
[GRAPHIC] [TIFF OMITTED] T0086.034
[GRAPHIC] [TIFF OMITTED] T0086.035
[GRAPHIC] [TIFF OMITTED] T0086.036
[GRAPHIC] [TIFF OMITTED] T0086.037
[GRAPHIC] [TIFF OMITTED] T0086.038
[GRAPHIC] [TIFF OMITTED] T0086.039
[GRAPHIC] [TIFF OMITTED] T0086.040
[GRAPHIC] [TIFF OMITTED] T0086.041
[GRAPHIC] [TIFF OMITTED] T0086.042
[GRAPHIC] [TIFF OMITTED] T0086.043
[GRAPHIC] [TIFF OMITTED] T0086.044
[GRAPHIC] [TIFF OMITTED] T0086.045
[GRAPHIC] [TIFF OMITTED] T0086.046
[GRAPHIC] [TIFF OMITTED] T0086.047
[GRAPHIC] [TIFF OMITTED] T0086.048
[GRAPHIC] [TIFF OMITTED] T0086.049
[GRAPHIC] [TIFF OMITTED] T0086.050
[GRAPHIC] [TIFF OMITTED] T0086.051
[GRAPHIC] [TIFF OMITTED] T0086.052
[GRAPHIC] [TIFF OMITTED] T0086.053
[GRAPHIC] [TIFF OMITTED] T0086.054
[GRAPHIC] [TIFF OMITTED] T0086.055
[GRAPHIC] [TIFF OMITTED] T0086.056
[GRAPHIC] [TIFF OMITTED] T0086.057
[GRAPHIC] [TIFF OMITTED] T0086.058
[GRAPHIC] [TIFF OMITTED] T0086.059
[GRAPHIC] [TIFF OMITTED] T0086.060
[GRAPHIC] [TIFF OMITTED] T0086.061
[GRAPHIC] [TIFF OMITTED] T0086.062
[GRAPHIC] [TIFF OMITTED] T0086.063
[GRAPHIC] [TIFF OMITTED] T0086.064
[GRAPHIC] [TIFF OMITTED] T0086.065
[GRAPHIC] [TIFF OMITTED] T0086.066
[GRAPHIC] [TIFF OMITTED] T0086.067
[GRAPHIC] [TIFF OMITTED] T0086.068
[GRAPHIC] [TIFF OMITTED] T0086.069
[GRAPHIC] [TIFF OMITTED] T0086.070
[GRAPHIC] [TIFF OMITTED] T0086.071
[GRAPHIC] [TIFF OMITTED] T0086.072
[GRAPHIC] [TIFF OMITTED] T0086.073
[GRAPHIC] [TIFF OMITTED] T0086.074
[GRAPHIC] [TIFF OMITTED] T0086.075
[GRAPHIC] [TIFF OMITTED] T0086.076
[GRAPHIC] [TIFF OMITTED] T0086.077
[GRAPHIC] [TIFF OMITTED] T0086.078
[GRAPHIC] [TIFF OMITTED] T0086.079
[GRAPHIC] [TIFF OMITTED] T0086.080
[GRAPHIC] [TIFF OMITTED] T0086.081
[GRAPHIC] [TIFF OMITTED] T0086.082
[GRAPHIC] [TIFF OMITTED] T0086.083
[GRAPHIC] [TIFF OMITTED] T0086.084
[GRAPHIC] [TIFF OMITTED] T0086.085
[GRAPHIC] [TIFF OMITTED] T0086.086
[GRAPHIC] [TIFF OMITTED] T0086.087
[GRAPHIC] [TIFF OMITTED] T0086.088
<all>