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30–086 PDF 2006

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

(

(II)

COMMITTEE ON THE JUDICIARY 

ARLEN SPECTER, Pennsylvania, Chairman 

ORRIN G. HATCH, Utah 

CHARLES E. GRASSLEY, Iowa 

JON KYL, Arizona 

MIKE DEWINE, Ohio 

JEFF SESSIONS, Alabama 

LINDSEY O. GRAHAM, South Carolina 

JOHN CORNYN, Texas 

SAM BROWNBACK, Kansas 

TOM COBURN, Oklahoma 

PATRICK J. LEAHY, Vermont 

EDWARD M. KENNEDY, Massachusetts 

JOSEPH R. BIDEN, JR., Delaware 

HERBERT KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

RICHARD J. DURBIN, Illinois 

MICHAEL O’NEILL, Chief Counsel and Staff Director 

BRUCE A. COHEN, Democratic Chief Counsel and Staff Director 

(III)

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

Page

IV

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

(1)

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 

2

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 

3

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 apVerDate 0ct 09 2002 15:22 Sep 29, 2006 Jkt 030086 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\30086.TXT SJUD4 PsN: CMORC
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preciate 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 perVerDate 0ct 09 2002 15:22 Sep 29, 2006 Jkt 030086 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\30086.TXT SJUD4 PsN: CMORC
5

petrators 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. 

6

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 addressVerDate 0ct 09 2002 15:22 Sep 29, 2006 Jkt 030086 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\30086.TXT SJUD4 PsN: CMORC
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es 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 

8

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 

9

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 

10

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. 

11

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? 

12

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. 

13

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. 

14

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. 

15

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. 

16

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 cutbacks, 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. 

17

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 

18

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 mid1970s are just now being diagnosed with life-threatening asbestosrelated 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 

19

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 subVerDate 0ct 09 2002 15:22 Sep 29, 2006 Jkt 030086 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\30086.TXT SJUD4 PsN: CMORC
20

mitted 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. HoltzEakin. 

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—

21

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? Con- gress 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 

22

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. 

23

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. 

24

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 

25

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 

26

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 hapVerDate 0ct 09 2002 15:22 Sep 29, 2006 Jkt 030086 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\30086.TXT SJUD4 PsN: CMORC
27

pen, 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 asbestosrelated 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 overVerDate 0ct 09 2002 15:22 Sep 29, 2006 Jkt 030086 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\30086.TXT SJUD4 PsN: CMORC
28

all 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. 

29

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]. 

30

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.]

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