Asbestos Trust Could Face Constitutional Challenge
Washington, DC, May 24--Should Senator Arlen Specter earn passage of his bill to create a $140 billion asbestos compensation trust fund, it would mark the beginning -- rather than the end -- of the legislation's real test, legal observers noted.
Given opposition to the bill from a number of major insurers, the AFL-CIO, bankruptcy trusts and some victims' advocacy groups, legal challenges to the measure would be expected to follow.
No insurers or insurance trade groups have yet publicly threatened to sue should the trust fund pass. However, the National Association of Mutual Insurance Companies and the Property Casualty Insurers Association of America both have promised to actively lobby against the legislation.
The American Insurance Association and the Reinsurance Association of America, while still actively engaged in trying to negotiate the bill's terms, also have raised significant concerns about the provisions that allow for "reversion" of claims to the tort system, and they have left open the door to reassess their position on the bill should the final markup fail to address those and other concerns.
Among the greatest potential points of legal contention with any trust-fund solution is how to allocate those claims across the industry, said Gerard Altonji, managing senior financial analyst with A.M. Best Co.
Altonji pointed, in particular, to the difficulty that any universal formula would have in dividing liabilities between and among the writers of primary coverage, and/or excess and umbrella layers, and between and among insurers and reinsurers. Karen Horvath, a vice president with A.M. Best's property/casualty division, added that insurers simply "may not have any confidence in how the government would allocate it."
Charged with the Solomonic task of splitting the liability baby would be an "Asbestos Insurers Commission," composed of five members appointed by the president and approved by the Senate. The members couldn't be employees of or shareholders in any of the participating insurance companies.
Boston University law professor Eric Green -- currently the court-appointed legal representative for future asbestos bodily-injury claimants in the Halliburton, Fuller-Austin, Federal-Mogul and Babcock & Wilcox bankruptcy cases -- accused the bill's authors of essentially "punting" on the issue of contributions from specific insurance companies, which he believes would be one of the main sticking points to whether the trust fund ever sees the light of day.
Green noted that allocations among insurers wouldn't be settled until after a full-blown rule-making process involving the Asbestos Insurers Commission, including public comment and an opportunity for judicial review.
Once the allocations were determined, insurers again would have the chance to comment on them and seek further judicial review. And while the fund's administrator would be authorized to seek "interim payments" from insurers in the meantime, should the industry broadly oppose the bill, Green said he doesn't see how such payments could be collected from "unwilling participants."
"I think this is a little bit of a Wizard of Oz operation here," Green said. "And I think we have to face the realities that the insurers have not willingly stepped up to pay, ever. The companies have resisted for years and years and years...An American lawyer can continue litigation as long as he's allowed to."
A separate constitutional challenge to the trust fund could be even more imminent, as several of the major bankruptcy trusts established to settle asbestos claims have retained former U.S. Solicitor General Theodore B. Olson to represent them in a suit charging violations of the takings and due-process clauses.
