WASHINGTON (Legal Newsline) - Legislation introduced Wednesday would require more transparency from the asbestos bankruptcy trust system.
Three Congressmen introduced the Furthering Asbestos Claims Transparency Act, which would require trusts to disclose claims and exposure allegations while providing third-party discovery in asbestos civil lawsuits.
The trust system operates independently of the tort system. Companies that went through bankruptcy reorganization formed the trusts for the purpose of paying asbestos claimants.
"The trust fund system originated to resolve present and future asbestos injury claims for victims deserving of compensation," said Leigh Ann Pusey, president and CEO of the American Insurance Association.
"Today, the system is fraught with fraud and abuse to the detriment of legitimate claimants. This legislation's transparency measures protect claimants' confidentiality while ensuring the continued viability of the asbestos trust fund system."
More than 90 companies declared bankruptcy as a result of asbestos litigation and at least 60 created trusts designed to pay out asbestos claims.
The legislation was introduced by two Republicans, Ben Quayle of Arizona and Dennis Ross of Florida, and Democrat Jim Matheson of Utah.
Nathan Finch of plaintiffs firm Motley Rice and James Stengel of Orrick, Herrington & Sutcliffe took part in a policy debate presented by the Congressional Civil Justice Caucus Academy in January.
Stengel said information from the trust system could be helpful in court cases.
"The critical information is what the plaintiffs are saying about their asbestos exposure," he said.
That information, Stengel argues, could help determine which companies bear the responsibility of paying the claimant. A plaintiff could omit any asbestos exposure resolved by the trust system in his or her lawsuit, making it seem the defendants are at fault for all injuries, Stengel feels.
If the information of other exposure were provided to defendants, they could argue that they aren't wholly responsible. He called the trust system "parallel but distant."
"It may mean that the wrong people are paying," Stengel said.
Finch, however, says there is no justification to pass any federal law granting Stengel's wish.
"The whole idea that there is fraud and abuse because of a lack of transparency is not supported by facts," Finch said. "I don't see the need for federal intervention in state courts.
"I think this debate is largely unnecessary."
Motley Rice is a big player in asbestos bankruptcy trusts. A report released in August by the Rand Corporation showed Joseph Rice served on four trust advisory committees, which help determine how much a claimant is paid from the trust.
Those trusts are Owens-Corning, DII Industries, Armstrong World and Babcock & Wilcox. Owens-Corning paid out the most of those four in 2008 - more than $1 billion. The Rand report says a 25 percent fee is customary for attorneys.
All totaled, $3.3 billion was paid out by asbestos bankruptcy trusts in 2008, according to the Rand report. Finch says the trust system and tort system are managing just fine and noted that Stengel's firm has supported plans of reorganization that have the same provisions as the current system.
"I don't think there is the type of problem the other side is claiming," Finch said.
In April 2010, U.S. Rep. Lamar Smith, R-Texas, asked the Government Accountability Office to investigate the trust system. He pointed to an oft-cited 2007 instance in Ohio, where in Cuyahoga County the California law firm of Brayton Purcell claimed the late Harry Kanania died in 2000 of mesothelioma solely from smoking cigarettes made by Lorillard Tobacco, while simultaneously seeking compensation from multiple asbestos trusts, claiming their products led to Kanania's fatal lung condition.
The GAO released its report in October, finding no fraud in the system. It did note that the trusts operate in secrecy.
"Although the possibility exists that a claimant could file the same medical evidence and altered work histories with different trusts, each trust's focus is to ensure that each claim meets the criteria defined in its (trust rules), meaning the claimant has met the requisite medical and exposure histories to the satisfaction of the trustees," the report says.
"Of the trust officials that we interviewed that conducted audits, none indicated that these audits had identified cases of fraud."
The U.S. Chamber Institute for Legal Reform also applauded introduction of the bill. Legal Newsline is owned by the ILR.
At least two states have proposed similar trust reform. Ohio's senate heard testimony in March on a bill already passed by the House of Representatives, while Oklahoma's senate passed a bill on March 14.
The Oklahoma bill is currently sitting in the House Judiciary Committee.
From Legal Newsline: Reach John O'Brien by e-mail at email@example.com.