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S. HRG. 109–276

RECENT DEVELOPMENTS IN ASSESSING FUTURE

ASBESTOS CLAIMS UNDER THE FAIR ACT

HEARING

BEFORE THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

NOVEMBER 17, 2005

Serial No. J–109–54

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 

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C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS 

Page

Specter, Hon. Arlen, a U.S. Senator from the State of Pennsylvania ................. 1

Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont .................... 1

prepared statement .......................................................................................... 188

WITNESSES 

Bates, Charles E., President and Senior Partner, Bates White, LLC, Washington, D.C. ........................................................................................................... 13

Holtz-Eakin, Douglas, Director, Congressional Budget Office, Washington, 

D.C. ........................................................................................................................ 2

Lederer, Mark, Chief Financial Officer, Manville Personal Injury Settlement 

Trust, Katonah, New York .................................................................................. 17

Martin, Denise Neumann, Senior Vice President, National Economic Research 

Associates, New York, New York ........................................................................ 21

Peterson, Mark A., President, Legal Analysis Systems, Thousand Oaks, California ..................................................................................................................... 19

Welch, Laura, M.D., Medical Director, Center to Protect Workers Rights, 

Washington, D.C. ................................................................................................. 15

QUESTIONS AND ANSWERS 

Responses of Charles E. Bates to questions submitted by Senators Leahy, 

Cornyn, Specter, Biden and Graham ................................................................. 35

Responses of Mark Lederer to questions submitted by Senators Durbin, 

Cornyn and Biden ................................................................................................ 55

Responses of Donald B. Marron to questions submitted by Senators Cornyn, 

Biden, and Durbin ................................................................................................ 73

Responses of Denise Neumann Martin to questions submitted by Senators 

Biden and Cornyn ................................................................................................ 84

Responses of Mark Peterson to questions submitted by Senators Specter, 

Biden, Cornyn and Durbin .................................................................................. 91

Responses of Laura Welch to questions submitted by Senators Cornyn and 

Biden ..................................................................................................................... 113

SUBMISSIONS FOR THE RECORD 

Bates, Charles E., President and Senior Partner, Bates White, LLC, Washington, D.C., statement and response to commentary ...................................... 117

Holtz-Eakin, Douglas, Director, Congressional Budget Office, Washington, 

D.C., prepared statement .................................................................................... 155

Lederer, Mark, Chief Financial Officer, Manville Personal Injury Settlement 

Trust, Katonah, New York, prepared statement ............................................... 190

Martin, Denise Neumann, Senior Vice President, National Economic Research 

Associates, New York, New York, prepared statement .................................... 206

Navigant Consulting, Inc., Washington, D.C., review of analysis ....................... 222

Peterson, Mark A., President, Legal Analysis Systems, Thousand Oaks, California, prepared statements ................................................................................ 232

Rabinovitz, Francine, Executive Vice President, Hamilton, Rabinovitz & 

Alscholer, Inc., New York, New York, prepared statement .............................. 246

STATS, George Mason Univerity, Washington, D.C., review .............................. 261

Towers Perrin, Jennifer L. Biggs, St. Louis, Missouri, statement ...................... 265

Welch, Laura, M.D., Medical Director, Center to Protect Workers Rights, 

Washington, D.C., prepared statement .............................................................. 276

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RECENT DEVELOPMENTS IN ASSESSING FUTURE ASBESTOS CLAIMS UNDER THE FAIR 

ACT 

THURSDAY, NOVEMBER 17, 2005 

UNITED STATES SENATE, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Committee met, pursuant to notice, at 2:02 p.m., in room 

SD–226, Dirksen Senate Office Building, Hon. Arlen Specter, 

Chairman of the Committee, presiding. 

Present: Senators Specter, Kyl, Cornyn, Coburn, Leahy, Feinstein, and Durbin. 

OPENING STATEMENT OF HON. ARLEN SPECTER, A U.S. 

SENATOR FROM THE STATE OF PENNSYLVANIA 

Chairman SPECTER. Good afternoon, ladies and gentlemen. The 

Judiciary Committee will now proceed with a hearing on Senate 

bill 852, asbestos reform. This is a major piece of legislation designed to reform asbestos litigation with the provision of a trust 

fund of $140 billion. 

With some 80 companies having gone into bankruptcy and thousands of people having suffered from mesothelioma, a deadly disease, there has been a controversy as to the adequacy of the $140 

billion and our hearing today is designed to address that issue 

head-on. 

I have been informed that we have four stacked votes at 3:30, 

and we have a great deal of testimony to hear before that time. It 

is hard to reconvene the Senate after a series of votes, especially 

late in the afternoon, so I am going to limit my opening statement 

to about a minute and yield now to my distinguished ranking member, Senator Leahy. 

STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR 

FROM THE STATE OF VERMONT 

Senator LEAHY. Well, Mr. Chairman, thank you for having this 

hearing. We have worked so hard on this bipartisan bill. We have 

had all kinds of projections. There is no absolute certainty on anything, except for one thing. In my consideration, the bill the Chairman has worked on and Judge Becker has done so much work on, 

and others, is a lot better than the situation we have today. 

After hearing all kinds of claims of where we are on funds, I am 

glad that CBO is here and I am glad to hear their projections. I 

will put my full statement in the record, but I think having Dr. 

2

Holtz-Eakin here gives us a chance to get a little bit away from the 

rhetoric and get more to the reality, and I appreciate that. And I 

appreciate what the Chairman has done. He has worked harder 

than any member of the U.S. Senate on this issue. 

[The prepared statement of Senator Leahy appears as a submission for the record.] 

Chairman SPECTER. A special note of appreciation to Judge Becker, who is with us today. We convened the so-called stakeholders 

in August of 2003 and worked about 2 years to hammer out many 

areas of agreement, with those meetings sometimes lasting several 

hours and consisting of 40, 50, 60 people. Judge Becker presided 

and did an extraordinary job in bringing the legislation to the point 

where it is today. 

Our first witness is the distinguished Director of the Congressional Budget Office. He twice served on the President’s Council of 

Economic Advisers. He has been on the faculties of Columbia and 

Princeton Universities. He has an extraordinary academic and professional background that he brings to this very important position. 

That, too, is a very brief statement of your background, Dr. 

Holtz-Eakin. We appreciate what CBO has done and we look forward to your testimony. 

STATEMENT OF DOUGLAS HOLTZ-EAKIN, DIRECTOR, 

CONGRESSIONAL BUDGET OFFICE, WASHINGTON, D.C. 

Mr. HOLTZ-EAKIN. Well, thank you, Mr. Chairman, Senator 

Leahy and members of the Committee. CBO is pleased to have the 

opportunity to appear this afternoon on this important issue. We 

have a statement for the record of written testimony which we 

have submitted. Let me in the five minutes focus in on just a few 

areas. 

CBO provided its estimate of S. 852 with two goals in mind. The 

first was to provide the necessary point estimates of the receipts 

and outlays that would appear in the Federal budget over the 10-

year budget window, and then, because it really is the central 

issue, to indicate the rough performance of the asbestos fund over 

the next five decades. 

Over that period, we project that there will be roughly $140 billion in revenues for the fund and the resolution fund would be presented with claims totaling somewhere between $120 billion and 

$150 billion. In addition, there would also be some financing and 

administrative costs. As the bill is written, it would terminate payment of new claims if the fund’s resources did prove to be inadequate. 

Now, a representative moderate cost scenario places the value of 

the claims at about $130 billion over the 50 years, near the middle 

of our projected range of 120 to 150. That representative cost scenario consists of about 100,000 pending and future claims for individuals with malignant conditions and almost 1.5 million claims for 

nonmalignant conditions. 

It is important to stress that the estimate is subject to great uncertainty in the economic environment, in the behavior of claimants, in the sources of funding and in the administration of the 

fund itself. And for that reason, it is not possible to say with perfect precision whether it works or it doesn’t work. Instead, it was 

3

only our goal to provide rough guidance regarding whether the outlays and funding were in the same ball park. 

Now, subsequent to our estimate, the Bates White consulting 

firm released its analysis of S. 852. It is a comprehensive, bottomsup professional analysis of the underlying epidemiology and the financial performance of the fund. The results do, however, contain 

some striking differences from CBO’s estimate and some others in 

the area. 

In particular, as shown in the chart, the Bates White analysis 

shows far greater claims for those with malignancies and far fewer 

claims for those with non-malignancies. For example, if we look at 

the second chart, the claims for Level VIII, lung cancer with asbestosis, are about three times higher, which would add about $40 billion to the claims, as we estimated it. 

The Level VII claims, lung cancer with pleural abnormalities, are 

about seven times higher. Level VI claims, other cancers, are about 

12 times higher. These together would add about $140 billion to 

CBO’s estimate of the claims. It is also true that with fewer nonmalignancies, claims would be lower, but here the magnitudes are 

smaller. The lower claims reduce the cost by about $30 billion. 

Now, by definition, these differences must derive from differences 

in exposure to asbestos, incidence of disease, eligibility for compensation, filing of claims for compensation and acceptance of those 

claims. We have had one meeting with the authors of the study 

and we have a limited understanding of the sources of the differences, and only with more understanding can we determine how 

it would affect the projected level of claims and the range of uncertainty. 

In closing, I guess I would just like to stress that CBO’s estimate 

and Bates White’s estimate come from different approaches. Our 

estimate of the fund is based on analyses by a number of experts, 

who in turn relied on a combination of epidemiological data, historical performance of the tort system and bankruptcy trusts and projections of the incidence of disease. As a result, it is built on the 

large amount of evidence we have from the current system and current legal environment. The Bates White estimate looks to be a de 

novo projection of performance in an entirely new environment. 

In principle, it would be desirable to reconcile these two and to 

be able to identify all the sources of differences. Both have their 

merits. An approach built on the existing system provides great 

guidance to the costs of compensating the same claimants in a new 

form. The other approach has the advantage of showing the incentives for different kinds of behavior in a new kind of system. 

Both have their disadvantages. The approach taken by CBO, the 

tops-down assessment of the current system, doesn’t perhaps fully 

capture all the incentives that one might imagine. But the alternative approach suffers from the disadvantage of having no evidence on which to base any empirical estimates. They are all based 

on the current environment. 

We look forward to your questions and are happy to have the 

chance to be here today. 

Chairman SPECTER. Dr. Holtz-Eakin, the projections by the socalled Bates study have Level VI and other cancers, which includes 

malignancies which are not caused by asbestos exposure. Can you 

4

approximate the dollar figure that that category covers, which is 

not asbestos-related so it would not be covered by this bill? 

Mr. HOLTZ-EAKIN. In our estimates, that is a number that is 

under $10 billion. It is in a range of $5 billion. The cost under 

Bates White would be tens of billions of dollars, something in the 

vicinity of 50. 

Chairman SPECTER. The Bates study also includes the Level VII, 

lung cancer with pleural plaques, and these two disease levels compensate malignant conditions accompanied by pleural thickening of 

the lungs. Are those appropriate for categorization of exposure in 

the bill, as you understand the situation? 

Mr. HOLTZ-EAKIN. Again, if I understand the question correctly, 

we have tried to understand the degree to which the underlying 

diseases would satisfy the weighted exposure criteria in the bill. 

Obviously, that requires to some extent how that would be administered and there are obvious questions about how the legislation 

would be administered, and then what assumptions were made in 

the Bates White study. I am just not sure at this point about how 

to cross-walk those two. 

Chairman SPECTER. Well, the Bates study estimates that these 

category of claims—VI, other cancers such as colo-rectal, et cetera, 

and VII, lung cancer with pleural plaques—range in the $157 billion to as much as $235 billion level. Are those estimates, in your 

judgment, realistic? 

Mr. HOLTZ-EAKIN. We thought the VIs and VIIs together would 

add about $140 billion to our estimate of the cost, and so we have 

those costing about $15 billion or so. That would move the estimate 

up to $150, $160 billion if you took those numbers at face value. 

Chairman SPECTER. The Bates study includes in the eligible population architects, bus drivers, taxi drivers, manicurists, barbers, 

cooks as all being sufficiently exposed to satisfy the bill’s exposure 

requirements. But those categories are really not covered by the 

bill at all, which covers only substantial occupational exposure. 

Do you have a view as to the propriety of including those categories, where the bill is explicit on covering only occupational exposure? 

Mr. HOLTZ-EAKIN. I don’t have a view on propriety, but I do 

know that when we tried to find our estimate of what the bill intended to cover, our estimate was our best estimate of the actual 

legislation as written and it did not appear to cover those claims 

to that degree. 

Chairman SPECTER. Well, by propriety I simply mean are they 

covered by the bill. 

Mr. HOLTZ-EAKIN. Yes. We took our best estimate of what the 

bill intended to cover. 

Chairman SPECTER. Well, are taxi drivers and manicurists subject to substantial occupational exposure, which is the requirement 

of the bill? 

Mr. HOLTZ-EAKIN. As I have stressed, we have two different 

kinds of estimates here. We counted on the experts in the area and 

we did not build a bottoms-up, occupation-by-occupation, industryby-industry estimate of coverage. We relied on the experts in the 

area and sort of took an assessment of the consensus in there, and 

5

that consensus didn’t cover nearly the claims that Bates White 

came up with. 

Chairman SPECTER. Directly, how do you account for the chart 

which shows the studies of ASG and Peterson low and Peterson 

high and CBO being at such great variance with the rising columns 

exhibited by the chart now being disclosed? That is my last question, Mr. Holtz-Eakin, because we are going to adhere very closely 

to the time, since we will have those three votes at 3:30. 

Mr. HOLTZ-EAKIN. I would love to be able to give you a precise 

answer to that. Obviously, we are very interested in that. To the 

extent that we understand it so far, there seem to be two different 

things going on. The first is a greater number of people estimated 

to be eligible for payments from the fund, and also out of those eligible a much greater claim rate and incentives to show up and file 

claims with the fund. 

We are trying to sort that out, but it is clearly very different 

than what we had anticipated. 

Chairman SPECTER. Senator Leahy. 

Senator LEAHY. Thank you, Mr. Chairman. 

These numbers, of course, are important because, as you can 

imagine, when we get into the debate beyond changing from a tort 

system or trial by jury system, the biggest part of the debate, of 

course, is going to be on numbers. For those who are supporting 

the legislation that the Chairman and I have written, their biggest 

concern—I mean, a lot of them are saying, OK, we will support it, 

but are we going to be able to stay within the numbers? 

The projections that relate to claims expected to be filed for cancer from asbestos exposure have the highest awards and, of course, 

the most impact. The table you gave me recently breaks out the 

claims you expect to be filed. I notice that you expect fewer overall 

claims for the malignant disease categories. What I am thinking 

about is in 2003 you estimated about 141,000 cancer filings. Now, 

you expect just under 100,000, 99,000. Why that difference in that 

period of time in the projection? 

Mr. HOLTZ-EAKIN. Our estimates have changed from the previous 

pieces of legislation basically for two reasons. The first is changes 

in the legislation itself, with changes in the awards classifications 

both in the amounts and who is eligible, and the passage of time 

which has affected the number of pending claims outstanding, 

which are an important aspect of the financial impacts. 

About half of the claims arise in the first 10 years and that is 

largely due to the overhang of pending claims. So with the passage 

of time, we have updated both the filing of new claims in the tort 

system, and also the resolution of some claims. The numbers will 

differ as a result. 

Senator LEAHY. Do you consider Dr. Bates’s projection for cancer 

victims to be out of the mainstream? 

Mr. HOLTZ-EAKIN. We were certainly surprised by the magnitudes, but I think it would be unfair to be dismissive just because 

of the numbers. I think I would like to understand the degree to 

which we can learn something from this study and use it in the 

same way that we have used the other experts’ studies to provide 

guidance to the Committee and the Congress on the overall performance of the fund, taking advantage of everything we know 

6

about the area. These are new. They certainly strike me as worth 

understanding, but we don’t understand them well enough yet to 

really judge them. 

Senator LEAHY. Does that mean CBO will be doing a reevaluation, or are these numbers we can go to the floor with? 

Mr. HOLTZ-EAKIN. I can say that we always are careful to make 

sure that if there is new evidence that would cause us to change 

our estimate, we would do that. If we have made some mistake or 

provided poor guidance to Congress, we, of course, would change 

our estimate. I don’t know that we are in that position yet. We 

don’t understand these numbers and at the moment I don’t have 

a plan of that sort. 

Senator LEAHY. The reason I mention this, Doctor, is if—and the 

one thing you should never try to predict are Senate schedules. 

Mr. HOLTZ-EAKIN. There are lots of things I don’t want to predict. 

Senator LEAHY. I would like to be able to predict the lottery 

numbers. But after 31 years here, I have given up trying to predict 

it. The one prediction I was able to safely make is when it was announced with great fanfare this year that the House and Senate 

would recess in early October, I knew that would never happen. 

Now, I am thinking that there is an outside chance we will get out 

of here by Christmas Eve, but I am doubting it. 

But assuming they keep to their projections, sometime after the 

Alito debate we will have this bill on the floor. That certainly is 

what Senator Specter and I hope. If there is going to be a reevaluation, I would urge that you get it done between now and then because we will rely on CBO numbers. 

Mr. HOLTZ-EAKIN. Well, we will certainly continue to work with 

the Committee and provide you what you need. 

Senator LEAHY. That is basically what I mean— 

Mr. HOLTZ-EAKIN. Sure. 

Senator LEAHY [continuing]. Just as long as the door doesn’t 

close as of today. 

Mr. HOLTZ-EAKIN. The door is not closed, sir. 

Senator LEAHY. Great. Thank you, Doctor. Thank you, Mr. Chairman. 

Chairman SPECTER. Thank you very much, Senator Leahy. 

Under the early bird rule, Senator Coburn. 

Senator COBURN. I wonder if you all read the additional views 

of the other Senators on the Committee before you attempted to define the costs of this trust fund. 

Mr. HOLTZ-EAKIN. We have attended many of the meetings at 

which— 

Senator COBURN. That isn’t what I asked you. I said did you read 

the additional views that were submitted by myself and Senators 

Grassley, Kyl and Cornyn. 

Mr. HOLTZ-EAKIN. Yes, as we were doing the estimates. 

Senator COBURN. Then you will be familiar with the concerns 

that were in there in terms of the anecdotal and case control, but 

lack of cohort studies associated with Level VIs and Level VIIs. Are 

you familiar with that? 

Mr. HOLTZ-EAKIN. I am not intimately familiar, but the staff has 

studied this. 

7

Senator COBURN. Is the assumption that you all made on Level 

VIs and Level VIIs the same as the assumptions that are made in 

the bill, disregarding what the other additional views were in 

terms of the medical criteria associated with Level VI and Level 

VII? 

Mr. HOLTZ-EAKIN. I am not sure what the question is. 

Senator COBURN. Well, the question is are the assumptions that 

you made on Level VI and Level VII based on the medical criteria 

in the bill, based on you see a certain number of people achieving 

that. 

Mr. HOLTZ-EAKIN. Yes. 

Senator COBURN. And you did not take into consideration any of 

the concerns that were raised by the other additional views of the 

Senators on this Committee with regard to the looseness of the 

medical criteria associated with that? 

Mr. HOLTZ-EAKIN. Well, I don’t think that is exactly how we put 

together the estimate. We certainly knew the concerns and they 

are one piece of the evidence that went into putting together our 

estimate, but we also went to the other studies in the area. We 

have met with the experts— 

Senator COBURN. Well, they did the same thing. They looked at 

only the medical criteria and the testimony, rather than the additional views. The concern I have is the accuracy of the CBO. And 

Senator Leahy put it right; you have got a tough job. Nobody 

knows whether you are going to be right or wrong, but the real 

problem is going to be if you are real wrong, if you are very wrong. 

What will happen is the very people we are going to want to help 

are not going to get help because the money will be gone in three 

or 4 years. 

Having read your study, I believe you ignored significantly the 

reality of the legal climate in this country that will connect other 

cancers and other diseases in both Level VI and Level VII. And 

without looking at the medical criteria and that incentive, I think 

you have underestimated by far, and so does Dr. Crapo and other 

experts who testified before the Committee, as to the motivation for 

securing the funding. 

So my question to you is did you look only at the criteria in the 

bill and what was said in the bill and the assumptions that are 

made in the bill on Level VI and Level VII as you looked at the 

number of claimants that you projected would be claiming under 

these cases, because that is the real difference. I mean, there is not 

a big difference, other than Level VI and Level VII, between the 

two studies. So where is the difference? The difference has to be 

there. 

Mr. HOLTZ-EAKIN. Certainly, that is a key difference, and I think 

the best way to answer the question is that when we do the estimates, we look at the new environment, as categorized by the legislation, in the economy and look at the incentives for people to file 

and the incentives for the administrator to accept or reject claims. 

I mean, that is all part of doing the estimate. 

Now, obviously, we came down in a different place than did some 

other people, and that happens. I think we also tried to be very 

clear that there are places that we can’t be sure about how things 

8

will play out simply given the legislation. You know, will the Institute of Medicine conclude that there is no relation? We don’t know. 

Senator COBURN. For example, there is much more doubt on 

Level VI and Level VII than there is anywhere else in this bill. 

Would you agree with that? 

Mr. HOLTZ-EAKIN. We tried to flag down certainties, as well. We 

tried to be honest about the fact that for 10 years we have to give 

numbers. Obviously, a 10-year estimate of this particular piece of 

legislation is not the answer to anyone’s question. So we tried to 

give some guidance to roughly how the fund would play out. 

But we tried, I thought, to be very, very clear about the uncertainties associated with doing it. And there is a list of those uncertainties and they are also in the estimate as we released it. 

Senator COBURN. So you can explain the difference between you 

and the Bates study because you can— 

Mr. HOLTZ-EAKIN. Not yet, not entirely, but we will. 

Senator COBURN. Well, you came down with a completely different set of numbers than what they did on Level VI and Level 

VII, correct? 

Mr. HOLTZ-EAKIN. We know that there are big differences in 

these claims. There is no doubt about that. What is the underlying 

source of the difference? Is it exposure, is it differences in estimates 

of eligibility, is it differences in filing rates, is it differences in acceptance of filed claims? I can’t break it apart that well and that 

is something that would be desirable. 

Senator COBURN. I think we are going to get to hear that today, 

aren’t we, Mr. Chairman? 

Chairman SPECTER. We are going to have a representative of the 

Bates study here, yes. 

Senator COBURN. Thank you very much. 

Chairman SPECTER. Thank you, Senator Coburn. 

Senator Feinstein. 

Senator FEINSTEIN. Thank you, Mr. Chairman. As one who has 

wanted to see a bill, I am really concerned by what has happened. 

And I feel kind of sorry for you because you are really in the hot 

seat. Obviously, because you are neutral, we go to you for an opinion. 

I am looking at a chart and I am looking at this Level VI, where 

Bates’s base estimate is 212,000 and the upper-bound estimate is 

526,000. You are at 17,500. Now, that is an astronomical difference. 

Then I am also looking at the additional occupations that the 

Bates study brings into this, and I think somehow we are going to 

have to come to some agreement to either clarify the various classifications here or clarify the occupations, because the swing—and I 

have got them all here—the swing between the different studies is 

just far too great. So I don’t know how you are going to reconcile, 

and more importantly at this stage I don’t know how we are going 

to reconcile it. 

Do you have any thoughts on that? 

Mr. HOLTZ-EAKIN. Well, certainly, I think a little more time with 

Mr. Bates and the folks who put together the study is the first 

order of business for us, at least. It is often the case that we have 

estimates that differ from other experts in the area. This one is 

9

particularly dramatic, particularly in the Level VIs, but usually 

with the time to sit—people go at these things differently and so 

you have to first line up the methods and then piece by piece find 

out within those methods where the assumptions differ. That process, I think, is an important one and one that we are just not done 

with. 

Senator FEINSTEIN. Are you doing that now? 

Mr. HOLTZ-EAKIN. We have had one meeting. 

Senator FEINSTEIN. Right. 

Mr. HOLTZ-EAKIN. The studies came out recently. We have had 

one meeting. 

Senator FEINSTEIN. How long do you think it will take? 

Mr. HOLTZ-EAKIN. Some people hate to project schedules. I know 

the timetable in the Senate, though. 

Senator FEINSTEIN. The reason I am asking is because the 

present schedule has this being the first bill up in the new year. 

I think, Mr. Chairman, if this isn’t known before the new year 

so that we have an ample opportunity to understand and go over 

it, I don’t know how we can consider this bill on the floor in January. I mean, the differences are stark between Navigant, between 

Manville, between others that have done the studies. I think Senator Coburn has sort of hinted to this all along that there was a 

problem. We have to know where there is or is not with some definition before we vote on the floor. At least that is my very strong 

view. 

Chairman SPECTER. Well, Senator Feinstein, that is precisely 

what we are going to find out. You have very, very broad variances 

here to respond to your inquiry. CBO projects between 8,000 and 

27,000 under Level VI and 10,000 to 32,000 under Level VII. Bates 

White projects over 350,000 claimants, 212,000 for cancers and 

198,000 for lung cancers with pleural plaques. 

That is what Dr. Holtz-Eakin is going to study further to show 

that his estimates are more reliable. We are working on that currently and I think we have time between now and the end of January when we come back into session. We have the better part of 

2 months to get that job done. 

Senator FEINSTEIN. I hope so. Thank you. 

Chairman SPECTER. Thank you, Senator Feinstein. 

Senator Cornyn. 

Senator CORNYN. Thank you, Mr. Chairman. 

Dr. Holtz-Eakin, thank you for being here and for your service 

to the Congress and to this Committee in a very difficult job. I just 

want to make clear as much as I can that your estimate depends 

on the validity of certain assumptions in terms of how many claims 

would be made and what the mixture of those claims will be. Is 

that correct, sir? 

Mr. HOLTZ-EAKIN. Absolutely. 

Senator CORNYN. And you project, as you said, between $120 and 

$150 billion over 50 years, and I want to talk to you about the limitations that you have stated in the report because I think it is important for us to understand. As I understand it, the Bates and 

White study has, using different assumptions, said that the trust 

fund would have to pay out anywhere between $300 billion and 

10

$695 billion. So that dramatically demonstrates how important the 

validity of those assumptions are. 

Just in fairness to you and so it is accurately portrayed here, 

your report says these estimates, the CBO estimates, must be 

viewed with considerable caution. The reports says there might be 

a significant risk of under-estimating the number of future asbestos claims. That is, I think, what causes all of us heartburn in trying to figure out exactly what we are doing here. 

Let me just read one other paragraph. Your report says, ‘‘A more 

precise forecast of the fund’s performance over the next five decades is not possible because there is little basis for predicting the 

volume of claims, the number that would be approved, or the pace 

of such approvals. Epidemiological studies of the incidence of future 

asbestos-related disease and the claims approval experience of private trust funds set up by bankrupt firms can be used to indicate 

the range of experience of the Federal asbestos trust fund, but 

those sources cannot reliably indicate the financial status of the 

fund over such a long period of time.’’ 

Did I accurately state the limitations that you have included in 

your CBO estimate? 

Mr. HOLTZ-EAKIN. Certainly. We have tried to caution all along 

the difficulty of both translating what we know into a five-decade 

future and where it is not just the length, but the timing within 

that matters a great deal. The revenues come in fairly steadily. It 

is our anticipation that claims will come in much more front-loaded. 

The administrator will have to use the authority to borrow to pay 

those claims, and as a result the debt service costs are an important part of the financial performance of the fund. So it is not just 

the levels; it is when they show up that matters, and that is difficult. 

It is also the case that this is a different environment than the 

existing tort system and private trusts. It is meant to be. That is 

the purpose of the legislation, but it does mean we have no experience in that new environment; no one does. So any conjecture 

about behavior in that environment is just that, conjecture, and we 

have to be able to identity the important pieces of that. 

Senator CORNYN. Thank you for that. It is important for everyone to understand. It seems to me that there are three different 

methodologies for predicting future claims which, as you said, is 

conjecture. One is claims already filed in court in the past, obviously; No. 2, past claims experience with existing trusts; and, 

three, epidemiological estimates of people who will experience asbestos-related disease. 

It seems to me apparent that the CBO relied on some combination of the first two; that is, claims already filed in court in the 

past and past claims experience of existing trusts, while Bates and 

White relied on the third; that is, epidemiological estimates of people who experience asbestos-related disease. 

Can you comment on the merits of one methodology over the 

other? 

Mr. HOLTZ-EAKIN. We are not epidemiologists and won’t pretend 

to be, but there is a far cry between a projection of cancers and 

payments out of the fund, as laid out in the legislation. You would 

11

have to provide a link between the cancer and exposure to asbestos, and satisfying the weighted exposure requirements. Incidence 

of disease does not automatically match up with a claim. There has 

to be the decision to file a claim. The administration of the fund 

has to approve the claim, and the pace at which that is done is 

also, as I mentioned, important. 

So it is not obvious that the finest epidemiology, even given the 

uncertainties there, translates into the best financial forecast. 

There are a lot of steps in between and I would say knowledge on 

all three fronts is preferable. 

Senator CORNYN. Mr. Chairman, I would ask unanimous consent 

to include in the record a letter from the Statistical Assessment 

Service, an affiliate of George Mason University, which, as you 

know, has also reviewed the Bates and White study, as well as a 

copy of their report for the record. 

Chairman SPECTER. Without objection, they will be made part of 

the record. 

Senator CORNYN. Thank you. 

Chairman SPECTER. Senator Kyl. 

Senator KYL. Thank you, Mr. Chairman. 

Obviously, we are trying to move forward here with a solution, 

but as you pointed out, Mr. Holtz-Eakin, the estimates are critical 

to putting together a bill and yet they are very difficult to make, 

and variations depend significantly upon the assumptions that are 

made. 

Is it also the case that the assumptions change based upon the 

point in time at which they are made? For example, when the bill 

was first put together a couple of years ago, the assumptions would 

be necessarily different than they would be today and those assumptions would be necessarily different than, say, 6 months ago 

on things such as what has transpired in the meantime, such as 

the number of claims. I have been told, for example, that roughly 

$11 billion has been paid out since the beginning of this process. 

Could you speak to that phenomenon, as well, since you have already spoken to the other part of the assumption phenomenon, but 

just the passage of time and how that necessarily changes our assumptions as well? 

Mr. HOLTZ-EAKIN. The passage of time does matter. It matters 

for the economic environment. I don’t think that is central to our 

estimates, but interest rates are a part of this calculation and those 

projections will matter, especially over the first 10 years. The overhang of pending claims is certainly an important part of the financial performance of the fund. 

The magnitude will change with time as new claims are filed and 

are resolved in the tort system in one way or another. Our estimate 

assumes that things march on the timetable laid out in the legislation; that those individuals who have been severely harmed will be 

paid quickly, as the bill intends. The degree to which all of that 

transpires exactly on schedule affects the performance greatly and 

those are all important considerations. 

Senator KYL. I am sure you haven’t done this, but, for example, 

it would be interesting to try to determine whether, had this been 

in effect when the bill was first passed out of the Judiciary Committee, the result would be the same as it is today, and then try 

12

to project from that something out to, let’s say, six or 8 months 

from now, or whether, in fact, we would have been surprised by 

some of the developments. 

Do you have any sense at all—have you looked at it in that refined a way yet? 

Mr. HOLTZ-EAKIN. No, we haven’t. 

Senator KYL. Obviously, we are going to be relying a great deal 

on you. The variations that Senator Feinstein pointed out are simply so great here that we have got to come to grips with this. Since 

the whole concept of the trust fund is a rough justice kind of concept where you are making a lot of guesses and you know that 

going in, those guesses have got to be as accurate as possible. And 

so we will have to rely upon the expertise of groups like yours to 

help us understand all of the different elements that go into these 

estimates and whether or not they remain true over time. 

I know what I am concerned about is that even a study done two 

or 3 months ago discussed today may well not apply to the circumstances we face next March or April or May, and I don’t know 

for sure how we build that into what we are talking about either. 

Any comment, or you, too? 

Mr. HOLTZ-EAKIN. I think the heart of it, as has been mentioned, 

is the Level VIs, and I can say that certainly when the study was 

released and we became aware of it, it caught our attention. We 

have worked with this Committee, in particular, for many years 

and tried to produce high-quality estimates of previous pieces of 

legislation. So, obviously, it caught our attention. 

It is important to answer questions we don’t know the answer to 

right now. Are the differences due to a different estimate of the 

number of bodies who are eligible, not just exposed, but eligible 

under the criteria in the bill for compensation, or are there differences in the same number of bodies being eligible but very different behavior on the part of claimants to file claims and/or the 

administrator to accept claims, or is it a combination? I think those 

are the central things to resolve. 

Senator KYL. I appreciate it very much. Thank you. Thank you, 

Mr. Chairman. This is an important hearing. 

Chairman SPECTER. Thank you very much, Senator Kyl. 

Dr. Holtz-Eakin, we would appreciate it if you would stay with 

us while we hear the next panel because there may well be some 

issues raised which we will want your comments upon. 

In light of the questions raised, I think it fair to make a couple 

of comments before we turn to the second panel, and that is that 

recognizing the difficulties of any estimate, we have provided for 

that contingency in the bill by reverting to the tort system, by 

going back to court. Where the insurers and the manufacturers 

have agreed to put up $140 billion, they realize that may not be 

their total exposure. Some have estimated the exposure as high as 

$500 billion, $1 trillion, if we do not find a way for asbestos reform. 

There are also sunset provisions which have a detailing on how we 

change medical criteria and how we change a variety of standards. 

So you are not indispensable here, Dr. Holtz-Eakin. I just want 

you to know that if you are wrong—and anybody can be wrong and 

this is a best-estimate proposition, but you have great credibility in 

CBO. But we have fail-sale provisions. 

13

I would like to turn now to panel two. 

Senator FEINSTEIN. Can I ask one quick question? 

Chairman SPECTER. Are you sure it is quick, Senator Feinstein? 

Senator FEINSTEIN. It is. 

Chairman SPECTER. OK. 

Senator FEINSTEIN. Part of the bill says ‘‘employment in an industry, in an occupation, where for a substantial portion of a normal work year for that occupation the claimant,’’ and then there 

are a list of criteria, ‘‘must have handled raw asbestos fibers, must 

have fabricated asbestos-containing products, so that the claimant 

in the fabrication process was exposed to raw asbestos fibers; must 

have altered, repaired or otherwise worked with an asbestos-containing product,’’ et cetera, et cetera. 

So you apply all of these, do you, when you are going to look at 

what this other evaluation has brought in to see if they apply these 

things? 

Mr. HOLTZ-EAKIN. One of the things we are interested in learning more about is how those criteria are applied in the other estimates. 

Senator FEINSTEIN. But you have applied them in your estimates? 

Mr. HOLTZ-EAKIN. We have done our very best to price the bill 

as it stands. 

Senator FEINSTEIN. Thank you. Thank you, Mr. Chairman. 

Chairman SPECTER. Thank you, Senator Feinstein. 

Thank you, Dr. Holtz-Eakin. 

[The prepared statement of Mr. Holtz-Eakin appears as a submission for the record.] 

Chairman SPECTER. We now turn to Dr. Bates, Dr. Welch, Dr. 

Peterson, Mr. Lederer and Dr. Martin. 

Our first witness is Dr. Charles Bates, President and Senior 

Partner at Bates White, a national consulting firm dealing with 

economic analysis. Dr. Bates had served as Vice President of A.T. 

Kearney. He began his career on the faculty of Johns Hopkins University in the Economics Department. He holds a bachelor’s degree 

in economics from the University of California and a master’s and 

doctorate from the University of Rochester. 

Welcome, Dr. Bates. We look forward to your testimony. 

STATEMENT OF CHARLES E. BATES, PRESIDENT AND SENIOR 

PARTNER, BATES WHITE, LLC, WASHINGTON, D.C. 

Mr. BATES. Good afternoon, Mr. Chairman and members of the 

Committee. Given the time constraints, I am going to abbreviate 

my planned oral comments, cut them approximately in half, but 

will submit the entire written portion for the record. 

Chairman SPECTER. Your full statement will be made a part of 

the record, as will all statements. 

Mr. BATES. We conclude that the proposed trust fund is underfunded. The reason is that the FAIR Act establishes an entitlement 

for compensation to large numbers of lung and other cancer patients who currently do not have valid tort claims. Whereas lung 

claimants face the prospect of jury trials where they need to establish asbestos as the likely cause of their cancer, the FAIR Act replaces this with a contributing factor standard of proof. The tort reVerDate 0ct 09 2002 15:55 Feb 22, 2006 Jkt 025947 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\25947.TXT SJUD4 PsN: CMORC
14

quirement is much harder to establish because although asbestos 

contributes to the risk of lung cancer, it is rarely the principal 

cause. 

The FAIR Act proposes to compensate pending and future claimants who fall into one of the specified disease categories. There is 

relatively little controversy about the number of claims for mesothelioma, lung cancer with asbestos, and impaired non-malignant 

disease. This is because most of these claimants already have incentives to file in the tort environment, and hence extrapolating 

from the historical filing behavior as CBO has done is fairly accurate. 

However, our estimate differs from the CBO estimate for the two 

remaining disease categories—Level VII, lung cancers with pleural 

markers, and Level VI, other cancers. These two disease categories 

pose the greatest threat to the fund’s financial viability. 

Historically, claims corresponding to Level VII, lung cancer, and 

Level VI, other cancer categories, are rarely compensated in the 

tort environment. The tort environment requires claimants to show 

that asbestos was the cause of their disease. These cases are hard 

to win, since lung and other cancers lack the strong link to asbestos that mesothelioma has. If someone has mesothelioma, it was 

most likely caused by asbestos exposure. In contrast, if someone 

has lung cancer, it was most likely caused by smoking. 

The FAIR Act weakens the tort criteria. It only requires claimants to show that asbestos was a significant contributing factor. 

Many researchers, including Dr. Nicholson, state that asbestos exposure increases the incidence of lung and other cancers. We believe that doctors will interpret this finding to mean that asbestos 

was a significant contributing factor for lung and other cancers. 

Our research indicates that 20 million people alive today have 

worked in occupations that will qualify under the FAIR Act. Millions of these individuals will develop lung and other cancers mostly from causes other than asbestos. Hundreds of thousands of them 

will also have pleural changes. 

It is not possible to reliably know how many of these qualifying 

lung and other cancer claimants will file with the fund. However, 

the FAIR Act greatly increases the incentive for these individuals 

to file for compensation. Depending on their smoking history, these 

claims would receive between $200,000 and $800,000 from the 

fund. 

This morning, I had the opportunity to review the written testimony of several members on the panel today who are critical of our 

study. I would like to thank these members for bringing to light 

several of the issues that clarify our analysis. Their criticisms are 

essentially three points. 

First, they argue that we do not account for differences in exposure level within the population studied. This is incorrect. All of 

our models explicitly account for each individual’s amount of exposure. Of the 27 million people in our study population alive in the 

year 2000, 18 million have low exposure levels and account for only 

a small fraction of the qualifying claimants. 

Second, our critics assert that we overstate the number of individuals from low-exposure occupations who will qualify for compensation under the FAIR Act. This group is not the source of the 

15

shortfall. These 18 million individuals account for only $30 billion 

of our $300 billion entitlement estimate. In contrast, the 9 million 

individuals with medium- to high-level exposure account for $270 

billion, 90 percent of our low-end estimate. Even entirely excluding 

the low-exposure group, the trust fund remains insolvent. 

Third, our critics assert that we assume a hundred percent of 

qualifying claimants would file with the fund. Actually, this grossly 

mischaracterizes our report. We explicitly address the difference 

between the entitlement created and the realized claiming rate. If 

all levels other than Level VI and Level VII file at their historical 

tort rates, then the trust has only sufficient funds to compensate 

at most 13 percent of qualified other cancer and non-asbestotic 

lung cancers. Given the financial incentive created by the FAIR Act 

for these cancers, I believe it is very unlikely that such a large fraction of these qualifying individuals would not file for their entitlement. 

Thank you again for the invitation to appear today. I hope this 

summary has been useful. I would be happy to address any questions and I welcome the opportunity to work with Dr. Holtz-Eakin 

to reconcile our estimates. 

[The prepared statement of Mr. Bates appears as a submission 

for the record.] 

Chairman SPECTER. Thank you, Dr. Bates. 

Our next witness is Dr. Laura Welch, Adjunct Professor of the 

Department of Environmental and Occupational Health at George 

Washington University, a department she previously chaired. She 

has held positions on the faculties of Yale University and the Albert Einstein College of Medicine. She has a very distinguished 

background in occupational care in health clinics. 

We welcome you here, Dr. Welch, and the next 5 minutes are 

yours. 

STATEMENT OF LAURA WELCH, M.D., MEDICAL DIRECTOR, 

CENTER TO PROTECT WORKERS RIGHTS, WASHINGTON, D.C. 

Dr. WELCH. Thank you, Chairman Specter and members of the 

Committee. Thank you for having me here. As you know, I am here 

to give you some of my thoughts about the report that Dr. Bates 

was just discussing, which, as we have already said, estimates projected claims and costs of the proposed fund and comes up with 

numbers and dollars that are much higher than other estimates. 

I want to focus some more on the medical criteria and some of 

the epidemiology. I am not going to come up with numbers and I 

would defer to other people on the panel in terms of the specific 

estimates. But I want to restate the rationale for the trust fund 

and some of the key points of the medical criteria which I think 

are important as we are talking about these different levels, the 

Level VIs, the Level VIIs. 

Everybody agrees that the fund’s goal is to compensate people 

who are sick from asbestos-related disease, and the agreement was 

people who had asbestos-related disease but no impairment are not 

compensated under this fund. I would like to point out that people 

who have asbestos-related cancer are sick. I think everyone would 

agree with that. 

16

Individuals who have lung cancer with pleural plaque and substantial occupational exposure to asbestos have an asbestos-related 

cancer and must be compensated under this trust fund. Eliminating this group of workers from compensation under the fund 

would undermine the principles on which the trust is founded. 

Then the medical criteria that were originally agreed upon by the 

Judiciary Committee in 2003 in conjunction with S. 1125 at that 

time were developed carefully in a bipartisan manner and based on 

sound science. In my view, those criteria were conservative. They 

don’t include everybody that experts would say have an asbestosrelated cancer. It is a conservative criteria. 

But this year during the markup on the current bill, the criteria 

were made even more restrictive by eliminating the category of 

lung cancers with significant asbestos exposure but no x-ray 

changes. In my opinion, that change is contrary to the scientific 

evidence and it excludes asbestos-related cancers. That is kind of 

the background in which we are approaching some of these estimates. 

Having read both the Bates and White report and then the additional PowerPoint presentations, my understanding of the estimates were that the report over-estimates the population eligible 

by including occupations such as Senator Feinstein was mentioning, occupations that maybe have a potential exposure to asbestos, but a low likelihood. 

The bill is going to compensate not populations, but individual 

people. Individual people have to come forward and demonstrate 

that an individual person has exposure that meets the criteria 

under the bill. So putting in a population where there is the potential for exposure, not very many of those people in those low-exposure populations will be able to demonstrate what is required 

under the bill. 

In addition, in my written comments I describe how I think that 

the estimate of pleural disease in the population at risk is much 

too high, as well. So you take the population at risk in pleural disease and the proportion of cancer in that population and you get 

a large number, but I don’t think that that method is appropriate 

to basically multiply those things times each other. The proportion 

of pleural disease, I think, is too high. 

One important point I want to make is that—and Senator Feinstein already pointed this out—the bill requires substantial occupational exposure, as she had read the definition, and also weighted 

years, so that for Levels VI, VII and VIII you have to have jobs 

that have substantial occupational exposure and then between 8 

and 15 years in those jobs, using a weighted formula. 

I can’t imagine it is possible for someone who was a barber, a 

manicurist, a forester or any of those occupations to demonstrate 

that. It is possible. If someone can make the case, they can be compensated, but the subset of people exposed to asbestos who are eligible under the weighted formula is a very small number of the potential people who have had exposure in the past. 

So let me say I think there is certainly uncertainty about the 

number of claims that can be filed and the funding that is needed. 

The AFL and the Building and Construction Trades are also conVerDate 0ct 09 2002 15:55 Feb 22, 2006 Jkt 025947 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\25947.TXT SJUD4 PsN: CMORC
17

cerned that the level of funding could be insufficient, particularly 

in the early years when the number of claims will be the greatest. 

The original legislation had provided for contingency funding and 

we would support having that in there. But at a minimum, the return to the tort system must be maintained so that the individuals 

who are sick from asbestos-related disease don’t bear the burden 

of the uncertainty; that they are not left high and dry, as we might 

say, because of the uncertainty. I think, Mr. Chairman, you pointed 

out the importance of keeping that failsafe in there. 

So let me stop there and take any questions. 

[The prepared statement of Dr. Welch appears as a submission 

for the record.] 

Chairman SPECTER. Thank you very much, Dr. Welch. 

Our next witness is Mr. Mark Lederer, who is the Chief Financial Officer of the Manville Personal Injury Settlement Trust, giving him very extensive experience in the issues which we are looking at today. He has a bachelor’s and master’s from Johns Hopkins 

University and an MBA from Columbia. 

Thank you for coming in today, Mr. Lederer, and we look forward 

to your testimony. 

STATEMENT OF MARK LEDERER, CHIEF FINANCIAL OFFICER, 

MANVILLE PERSONAL INJURY SETTLEMENT TRUST, 

KATONAH, NEW YORK 

Mr. LEDERER. Mr. Chairman and members of the Committee, my 

name is Mark Lederer and I am the Chief Financial Officer of the 

Manville Personal Injury Settlement Trust, which I will refer to 

today as the Manville Trust or simply the Trust. I may also refer 

to the Claims Resolution Management Corporation, or CRMC, the 

trust operating company that processes trust claims and maintains 

its data, which is located in Falls Church, Virginia. In the past, you 

have heard testimony from David Austern, the President of CRMC 

as well as the general counsel of the trust. 

I will make only some brief summary comments here. I start by 

noting that the testimony I am giving reflects my personal opinions 

and not necessarily the position of the Manville Trust or of CRMC. 

You may recall that trustees have written to you stating their opposition to the FAIR Act, specifically the provisions that would confiscate the assets of the existing asbestos trusts. 

From an initial funding of only $2.2 billion, the Manville Trust 

has paid out approximately $3.4 billion in claims, with approximately $1.7 billion in remaining assets, approximately equal to the 

estimated proceeds available to unsecured creditors if the Manville 

Corporation had been liquidated rather than reorganized. The 

Manville Trust has more experience with asbestos claims and projections than any other trust. Johns Manville was by far the dominant producer of asbestos and asbestos-containing products. 

While asbestos claimants today seek compensation from scores or 

hundreds of different sources, most and eventually all file a claim 

with the Manville Trust, which has an efficient administrative procedure much like the one envisioned in the FAIR Act. Approximately 765,000 claims have been received, but of that number 

73,000 have been withdrawn, many of them being duplicative and 

incomplete. And over 650,000 have been resolved. It is because the 

18

Manville Trust has data relating to such a large share of the universe of asbestos claimants that people with different perspectives 

on the FAIR Act have relied on the Manville Trust data over the 

past 3 years. 

I am not testifying today as an expert in projecting claims, but 

as one of the most experienced consumers of such projections. Reflecting this background, I did not come to criticize anyone’s methodology. Rather, I came here to report on the Manville Trust experience with claims and claims projections which may shed some 

light on predictions that have been made regarding future claiming 

behavior. 

The Manville Trust has commissioned seven claims projections 

over the last dozen years and has taken a lead in working with the 

experts who have performed the projections. The total number of 

claims the Manville Trust has received since its inception in 1988 

has greatly exceeded projections. Every forecast has been exceeded 

by the ensuing forecast until the last forecast made this year. 

As a result, the Manville Trust is able to pay only a fraction of 

the full value of claims. Our limited fund status and our goal to 

treat all claimants equally makes it imperative that our payments 

are based on reliable claim forecasts. 

Not all types of claims have been equally unpredictable. The 

huge numbers of claims exceeding projections overwhelmingly have 

been non-cancer claims. To date, the underlying epidemiology 

makes projecting cancer claims more reliable than non-cancer 

claims, where socio-economic and legal considerations play a larger 

role. The number of cancer claims has been relatively stable, but 

with an upward trend, and it has been my experience that significant changes in criteria, process and financial incentives have and 

can dramatically change filing levels. 

The value of compensation the Manville Trust currently pays is 

far less than the amount the contemplated fund would pay under 

the FAIR Act. However, in the current system expert plaintiffs’ attorneys typically file claims against dozens of defendant trusts on 

behalf of each cancer claimant. The total value of settlements that 

the average cancer claimant currently collects from all sources has 

not been disclosed. Given that so much is uncertain regarding the 

forecasts, every effort should be made to learn as much as possible 

about current conditions. 

Whatever the total value of settlements is in the current system, 

it is clearly a multiple of the value of unimpaired non-cancer 

claims. And it is our experience that the asbestos plaintiffs bar has 

been highly effective in identifying individuals with those lowervalue claims. 

A huge increase in lung cancer claimants with significant occupational exposure and underlying disease seems out of place in the 

context of over 20 years of claim experience. For that reason, and 

subject to learning more, the Manville Trust does not currently anticipate any large increase in the rate of cancer claims over its current projections. 

The FAIR Act would create a different compensation environment than the current system, and the Manville Trust forecasts 

were not designed to predict behavior in that changed environment. 

How useful the Manville Trust’s years of experience are in preVerDate 0ct 09 2002 15:55 Feb 22, 2006 Jkt 025947 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\25947.TXT SJUD4 PsN: CMORC
19

dicting claim filings under the Act depends in large part on the degree of difference between the systems for compensating claimants 

historically, including but not limited to the Manville Trust, and 

what is being proposed. I leave it to the Committee to decide the 

weight it chooses to place on the Manville Trust experience. If 

members of the Committee have further questions regarding that 

experience, I will try to answer them to the best of my ability. 

Thank you. 

[The prepared statement of Mr. Lederer appears as a submission 

for the record.] 

Chairman SPECTER. Thank you, Mr. Lederer. 

We now turn to Dr. Mark Peterson. For the past 14 years, he has 

been special adviser to the courts regarding the Manville Trust. He 

has extensive experience with the Federal courts and is an expert 

on how asbestos claims are valued. He has a law degree from Harvard and a doctorate from UCLA. 

Thank you for coming in today, Dr. Peterson, and we look forward to your testimony. 

STATEMENT OF MARK A. PETERSON, PRESIDENT, LEGAL 

ANALYSIS SYSTEMS, THOUSAND OAKS, CALIFORNIA 

Mr. PETERSON. Thank you, Mr. Chairman and members of the 

Committee. Both CBO and Bates White have recently warned of 

risks of S. 852. My written testimony comments on both, but I will 

talk primarily today about the CBO forecasts and warnings. 

CBO has stated a series of warnings about the risks of 852. They 

say the resources may be insufficient and would lead to the fund’s 

sunset. They say that the value of claims may exceed $140 billion. 

They said that in addition to that, there will be significant interest 

costs. 

Both of these estimates of liabilities and interest costs may be 

too low. CBO acknowledges that its forecasts are uncertain and 

says that they could be under-estimates, and that is the historic experience, as Mr. Lederer just described. CBO warns that the receipt of the $140 billion is, as they say, highly uncertain and forecasts of that are unreliable. They say the fund will incur a large 

debt, that S. 852 could increase insolvencies that would jeopardize 

the ability to repay the debt, and the Government general fund 

may have to repay the debt. Those are all warnings in the report. 

CBO’s report does not flesh out these warnings. How much interest? How much debt? What are the risks of sunset? To examine 

these questions, we used the available data in CBO’s present and 

prior reports to understand and quantify these risks. We accepted 

CBO’s estimate of the number of pending claims, the number of future claims, and used the values in S. 852 to place values on them. 

For each year, we calculated the liability that would have to be 

paid under the terms of the bill based on the number of claims 

from CBO’s analysis using the distribution of diseases among the 

categories of the legislation as CBO says they are and applied 

those values. We then ran a year-by-year cash-flow analysis calculating for each year the total liability that would be payable that 

year and the revenue that would be available to pay it, assuming 

warnings may be untrue, according to CBO—we assume that the 

funds will come in as the statute says. 

20

We look at the borrowing capacity in each year and the amount 

of borrowing that would need to be made in that year and cumulatively. We look at the interest that must be paid that year. We determine the sunset, if there will be a sunset, when the fund’s obligations exceed its resources, the revenues that in that year and future borrowings will be greater than its obligations, what the fund 

would owe to people whose claims have already been allowed but 

the second, third and fourth years have not been paid, the new 

claims arising that year, the interest for that year, and the debt 

burden that will have to be repaid, the principle and future interest. 

Using this full set of CBO assumptions, we find that indeed the bill would sunset, and when it sunsets, it would have $35 billion 

of principle debt that needs to be repaid, and that overall to repay 

that debt up to that time it will have $35 billion of interest that 

will be payable from the fund. It will be able to pay only $103 billion to claimants. 

We looked further, having been warned by CBO that its forecasts 

are uncertain, at a number of their assumptions. One is that only 

22,000 pending claims have arisen in the last 3 years, which is a 

quarter of million less than the number of claims that have actually arisen in that year, and that otherwise CBO forecasts are likely to rise now on an annual basis. 

We looked at what is their impossible startup date of January 

2006. It can’t happen. We looked at the low qualification rate that 

they use, which is rejected, in fact, by the sources, the Tillinghast 

work that was done for the Manville Trust in the forecast that Mr. 

Lederer referenced. 

We corrected their forecast for all of these and when we re-ran 

the forecast, we saw that the bill would sunset within two to 4 

years under CBO’s assumptions, corrected for what I believe were 

inadequate assumptions they had. The debt at the time of sunset 

would be between $48 and $64 billion. Claimants would only get 

$82 billion. 

We also know that the forecasts of the number of claims and the 

qualifications within disease categories are uncertain. To examine 

this uncertainty, we used Tillinghast’s forecasts for Manville. There 

are 15 different scenarios that vary with the number of claims and 

the distribution of claims. These show that when you apply those 

to S. 852, we actually get fewer numbers of claims than CBO forecasts, but many more mesothelioma claims—69,000, compared to 

49,000. The issue about the under-counting of cancers is not simply 

lung cancers, but also mesotheliomas. 

The results of all these 15 analyses show that the fund will fail 

quickly, mostly in the first or second year. Only two of the 15 forecasts say that it would last into the third year. The debt at sunset 

would be between $60 and $67 billion. The amount paid to claimants would be between $73 and $77 billion. 

All of these forecasts, all of these variations, including CBO’s 

original forecast, confirm the risks that CBO warns about. The liability will exceed the revenues most likely in the first or second 

year. Interest paid by the fund will be between $35 billion and $77 

billion. There will be an early sunset because of the high debt. Because of the high debt initially and the great risks that CBO identiVerDate 0ct 09 2002 15:55 Feb 22, 2006 Jkt 025947 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\25947.TXT SJUD4 PsN: CMORC
21

fies, there will be an early sunset which will leave the debt at the 

time of sunset at between $35 and $67 billion. 

Chairman SPECTER. Dr. Peterson, how much more time will you 

need? 

Mr. PETERSON. I have one sentence. The claimants will likely re- ceive only $75 to $82 billion. 

[The prepared statement of Mr. Peterson appears as a submission for the record.] 

Chairman SPECTER. Thank you very much, Dr. Peterson. 

We have one more witness and I am advised that Senator 

Coburn has to depart in about 10 minutes. My plan would be to 

hear from Dr. Martin and then yield to you first, out of turn, so 

that you may question. Is that satisfactory, Senator Coburn? 

Senator COBURN. Thank you, Mr. Chairman. 

Chairman SPECTER. Our final witness on the panel is Dr. Denise 

Martin, Senior Vice President of National Economic Research Associates. An expert in tort economics and antitrust litigation, she authored the text Estimating Future Claims: Case Studies from Mass 

Tort and Product Liability. She is a magna cum laude graduate 

from Wellesley and has a master’s and doctorate in economics from 

Harvard. 

Thank you for agreeing to testify, Dr. Martin, and we look forward to your 5 minutes. 

STATEMENT OF DENISE NEUMANN MARTIN, SENIOR VICE 

PRESIDENT, NATIONAL ECONOMIC RESEARCH ASSOCIATES, 

NEW YORK, NEW YORK 

Ms. MARTIN. Thank you, Mr. Chairman and members of the 

Committee. It is an honor to be here today. 

The Congressional Budget Office has estimated that the cost of 

compensating asbestos personal injury claimants under the FAIR 

Act is between $120 and $150 billion. To prepare that estimate, the 

CBO relied on standard, accepted forecasting methods, the same 

methods that were used to make the claims projection when the 

FAIR Act was initially proposed and the same methods that have 

been used to forecast claims in the tort system by virtually every 

expert, including by Bates White. 

Here, however, Bates White has rejected these standard methods 

and relied on a series of flawed assumptions. The resulting claims 

projections simply do not stand up to scrutiny. At every critical 

step, their revised approach gets it wrong. Let me highlight some 

of these fatal flaws. 

The Bates White analysis firstly grossly overestimates the population at risk from asbestos disease, conflicting with other published and accepted studies. Part of the problem is the inclusion of 

many industries and occupations in which workers had little or no 

asbestos exposure. We looked at the underlying data and found, as 

Senator Feinstein said, that Dr. Bates counts barbers, beauticians, 

bus drivers, salesmen and parking lot attendants in his asbestosexposed group. It is highly unlikely that most workers in these 

groups will qualify for compensation under the FAIR Act. Using 

this flawed assumption, however, Bates White asks us to believe 

that half the adult male population in 1980 would have had enough 

asbestos exposure to qualify. 

22

Having overestimated the population at risk, Bates White gets it 

wrong again. Their analysis underestimates the critical impact of 

the FAIR Act’s exposure and medical requirements. The FAIR Act 

requires 15 years and 12 years of weighted exposure to asbestos for 

Levels VI and VII, which covers claims of lung and other cancers. 

That requirement will decrease the potentially eligible population, 

but it is ignored by the Bates White analysis. Instead, they appear 

to count every worker who ever spent a day in these supposedly exposed industries and occupations as a potential claimant. But every 

bus driver and every beautician is not going to file a valid claim 

under the FAIR Act. 

Bates White also gets it wrong when adjusting for the FAIR Act’s 

medical requirements. For a claim to be compensated under Levels 

VI and VII of the FAIR Act, the claimant must provide evidence 

of bilateral pleural disease. But Bates White relies on studies of 

populations that were more heavily exposed to asbestos than the 

taxi drivers and salesmen included in their greatly exaggerated 

population. That flawed assumption means that they are over-estimating the prevalence of pleural changes in these workers, and so 

are over-estimating the compensable lung and other cancer claims 

that could potentially arise from these populations. 

Finally, Bates White gets it wrong because unlike the CBO, they 

assume that they claiming rates for cancer would be 100 percent, 

much higher under the FAIR Act than they are under the tort system. That outcome just isn’t plausible. Plaintiffs’ attorneys already 

have every incentive to file these claims in the current system and 

are doing so today. Given the nearly 40 years of asbestos litigation 

in this country, it is clear that claiming rates will not approach 100 

percent. 

The FAIR Act requirements for payment of lung and other cancer 

claims are more stringent than they are under the tort system. So 

contrary to the Bates White prediction, there is no reason to expect 

a massive surge in lung and other cancer claims in the trust fund. The bottom line is that the Bates White $300 billion estimate, 

which it erroneously describes as conservative, adds more than 

350,000 lung and other cancer cases that by standard methodologies, including that used to prepare the CBO, would not add to the 

liability of the trust. This goes to the heart of the problem with the 

Bates White study. 

Let me conclude. We have closely reviewed the Bates White analysis, methodology and supporting assumptions. The study does not 

apply standard, accepted methods for claims estimation, even 

though these are the same methods that Bates White has relied on 

in the past. In deviating from these standard methods, they get it 

wrong at each juncture. Their analysis over-estimates the at-risk 

population. It does not take into account key medical and exposure 

requirements of the FAIR Act. It unrealistically assumes a 100-percent claiming rate. The study is filled with flawed assumptions and 

errors of omission. In short, the cost estimates in the Bates White 

report just do not add up. 

Thank you. 

[The prepared statement of Ms. Martin appears as a submission 

for the record.] 

Chairman SPECTER. Thank you very much, Dr. Martin. 

23

Senator Coburn, as I said, has other commitments. 

Senator COBURN. I will be very brief, if I may. 

Chairman SPECTER. You are welcome to my 5 minutes, Senator 

Coburn. 

Senator COBURN. First of all, I would make a couple of notes for 

the record. In the criteria that this bill makes, we allow use of CT, 

which is not standard today. So many, many more people will qualify for pleural disease because we are going to use a test that has 

never been used for that, and you can show any type of pleural disease even in me or almost anybody at this table. So we have 

changed the standard and you can’t move back and forth. 

The second thing I would say—and I will say it again and I said 

it—there is no cohort study in the medical literature—that means 

forward-thinking study—relating cancer of the lung to asbestos exposure without the evidence of asbestosis. Now, there are case control studies, but there is no forward-looking study, which are the 

ones we depend on to make final judgments. The fact is that our 

bill allows those claims. 

So what I want to do is just take a minute and allow Mr. Bates 

to respond to the claims of Dr. Martin in terms of the four things 

that she just said where you got it wrong. 

Mr. BATES. Thank you, Mr. Coburn. I believe that I have primarily addressed the fundamental issues in our opening comments, 

because we had a chance to review the written comments of Dr. 

Martin this morning. I disagree emphatically with what she is saying. 

We do not use methods which are not standard nor unaccepted. 

We simply do not rely on the fact that the claiming rates that we 

have seen in the tort environment will automatically extend over 

into what the trust fund does. The incentive that is created by the 

trust fund is different for different claiming groups, so that we simply take the methods that are one step removed prior to where the 

estimates of the claims are made and go back to the initial estimates of what the underlying population and what the amounts of 

the disease are. 

We have had a number of people here mention that we used 

things like barbers, taxi drivers, and so on. Our model will exclude 

almost all of the, virtually all of them, because they simply will not 

meet the exposure requirements. We simply did not pre-judge the 

situation by excluding them from the studies that we have seen in 

industrial hygiene which actually have estimated some levels of exposure for some of these individuals. 

So on the basis of our scientific study, we have included all of 

the potential from the industrial hygiene studies and then let the 

computer models and let the data exclude who will and will not 

qualify, based on the criteria that are specified. 

As I indicated before, the issue of the large number of unexposed 

people is a red herring in this situation. Eighteen million of them 

account for a very small fraction of the overall disease and the 

overall qualifying population. They account for 10 percent, if you 

will, of the overall estimate we make at the low end, and we have 

not talked about the other risk factors which come into play. 

To clarify further, in our analysis where we were doing the estimates of what the pleural rates would be, we, in fact, came up with 

24

a point estimate looking across the various groups from approximately 13 percent as being the approximate low-end prevalence 

rate. We applied our judgment initially and assumed half of the 

low-end even from the numbers that we did have from the studies 

would not qualify and immediately just took that right off the top, 

basically reducing the level down to 10 percent. So we have effectively already removed half that population even before we did our 

initial estimate. 

So, in summary, I would say that we applied, I believe, the very 

best possible methods, and I believe the only appropriate methods 

to use within the context to first estimate the appropriate population, the number of individuals who would qualify, apply the actual standards that the trust fund would be applying, and estimate 

the number of people who would qualify, and then present that 

number. We have also discussed what the potential claiming rates 

would have to be in order for the fund to be viable at that rate. 

Thank you, Mr. Coburn. 

Senator COBURN. Thank you. Thank you, Mr. Chairman. 

Chairman SPECTER. Thank you, Senator Coburn. 

Senator Leahy. 

Senator LEAHY. Thank you, Mr. Chairman. 

Dr. Welch, you sometimes probably feel you live in this Committee, but thank you for agreeing to testify again. You did a lot 

in formulating the Hatch-Leahy medical criteria last Congress. You 

were extremely helpful to Senator Specter and myself in formulating this bill. 

Can you give us your opinion on how similar the eligibility criteria is for compensation under the current bill—how similar it is 

to existing bankruptcy trusts, or even the current tort system? I 

mean, how is the medical criteria in our bill going to impact expected filing rates and awards? 

Dr. WELCH. Well, I think you will remember that when we started with the process, we started with the Manville criteria as kind 

of a model to work with and the final criteria are not exactly the 

same. But they are more similar than different, in my opinion, to 

the Manville and other bankruptcy trusts. The bankruptcy trusts 

are similar to each other for the purpose of ease of administration, 

multiple different trusts. They include compensation for lung cancer with pleural disease. This bill handles them in a slightly different way and the fund values are different, but I think it is similar. It is, as I said, more similar than dissimilar. 

Senator LEAHY. What about—and I want to make sure I get it 

correctly—the eligible population used by Dr. Bates in his projection of cancer claims to be filed under the fund? Do you agree with 

that? 

Dr. WELCH. Well, what Dr. Bates said here today I could not discern from reading his report, his PowerPoints, the answers to the 

questions from the Committee. So what he is saying here today—

and I think Dr. Martin had the same impression—he is saying here 

today something completely different from what we got out of 

poring through 100 pages. 

I can’t run his model. I don’t know that anybody has run his 

model or has it available to understand how he is saying he gets 

rid of these populations that we thought were excess. But I think 

25

whenever you look at it, the numbers are still a lot larger. If you 

took the Nicholson estimates and said how many of those people 

are still alive today, it would only be 10 million, not 27 million. It 

is just different and I can’t tell you exactly how, but every way we 

look at it the population at risk comes out a lot higher. 

Senator LEAHY. You mentioned Dr. Martin and I just wondered 

if I might followup a little bit on that. We wonder how the filing 

rates, of course, are going to be affected by the creation of the asbestos trust fund. I mean, that is a huge question because either 

we get the trust fund right or we are way off based on the filing 

rates. Dr. Bates has said they will skyrocket. What is your opinion? 

Ms. MARTIN. There has been a long history of asbestos litigation. 

In my opinion, the filing rates have gone as high as they are likely 

to go. There is nothing different about the FAIR Act. As we were 

just discussing, its requirements, its medical and exposure requirements are similar to that under the Manville Trust. When the 

Manville Trust implemented the 2002 TDP, claims fell off a lot, 

showing that you can contain claims with appropriate exposure and 

medical criteria. The incentives exist in the tort system. There is 

no reason to think new incentives are going to be created under the 

FAIR Act. 

Senator LEAHY. Dr. Bates, we have been talking a lot about you. 

I don’t want you to be in a position where you can’t speak, but you 

say in your report that, and I quote it, ‘‘The size of the population 

in 2002 that would satisfy the occupational exposure criteria of this 

bill ranges from 27 million to 34 million.’’ But the disease levels in 

the bill, except for mesothelioma, establish exposure criteria that 

require an individual had at least a specific number of weighted 

years of substantial—not just occupational exposure, but a substantial occupational exposure to asbestos. 

Did you take that into consideration when you said what you did 

on page 17 of your report? 

Mr. BATES. Yes, Senator Leahy, we did. I believe that that characterization there, as you can see from the comments today, includes many people who would have longer periods of exposure at 

perhaps quite low levels. And, of course, as I have indicated, we 

went ahead and allowed the models to go ahead and predict what 

the disease output would be from those individuals. The consequence of that is that very little disease comes out of the people 

even if they have fairly low-level exposures. So it is really not the 

issue here. 

Senator LEAHY. You conclude up to 34 million would meet the 

criteria, but the term ‘‘substantial occupational exposure’’—let me 

read from the bill—means that ‘‘the claimant either handled raw 

asbestos fibers; fabricated asbestos-containing products; altered, repaired or otherwise worked with an asbestos-containing product; or 

worked in close proximity to these kinds of asbestos operations and 

was exposed on a regular basis to asbestos fibers.’’ 

I mean, are you saying up to 34 million people could fit those criteria? 

Mr. BATES. I would say that based on the industrial hygiene 

studies that there is the potential for that, but we actually account 

for the actual levels of exposures that the individuals do have in 

calculating the amount of the disease. So that is simply the initial 

26

potential qualifying population which then has to be calibrated to 

the amount of disease and the exposure level for that population. 

Senator LEAHY. Do you want to add to that, Dr. Welch? Then I 

will submit the rest of my questions. 

Dr. WELCH. Well, I want to just add one observation that Dr. 

Bates in his report appeared to make the assumption that you 

could take a population exposed to asbestos and assume that the 

same amount of asbestos—if you exposed a hundred people or a 

million people, the same disease proportion would—you could attribute the disease in that population. 

But it wouldn’t apply because those hundred people might meet 

the weighted criteria, but if you took that exposure and spread it 

among a million people, none of them would meet the criteria. So 

you can’t take the same exposure amount and spread it out in a 

bigger group and assume that those cancers will be eligible. They 

would not because it is per-individual, not per-population. Again, I 

don’t know all the models, but that is one of the issues that he 

raised in his report and I don’t know if that is appropriate. 

Chairman SPECTER. Thank you, Senator Leahy. 

Mr. Bates, I listened to your answer to Senator Leahy about the 

definition of substantial occupational exposure and had a hard time 

following it. We have taken the voluminous charts which you have 

submitted to us and when we talk about bus drivers and taxi drivers and manicurists and barbers and cooks, it is a very small enumeration from the many in this chart which have been yellow-lined 

by my staff. 

When you make a projection on 27 to 34 million people being exposed, Dr. Welch has advised that the figure she sees is at about 

10 million. And if you project from $132 billion from CBO to 27 

million or 34 million, you come in my mathematics to $355 billion 

to $431 billion, which may account for the tremendous variance. 

How can you possibly include the category of taxi drivers and 

manicurists in light of the clear-cut definition of substantial occupational exposure and the 8- to 15-year exposure rate required by 

the bill? How can you do that? 

Mr. BATES. Well, Senator Specter, as I already indicated, the 

issue is really not those individuals in terms of the viability of the 

fund. If you look at the individuals who have moderate to heavy 

exposure, that is about 9 million individuals within the study, and 

that accounts for 90 percent of the dollars that we estimate. 

Virtually all of the problem is associated with those medium- to 

heavy-level categories. We simply did not pre-judge the situation 

about what categories of individuals based on some a priori description on our judgment, but rather relied on the industrial hygiene studies which tell us which are the individuals that have any 

exposure level over long periods of time within their business and 

allowed the models to then pick out which ones would or would not 

qualify. 

Chairman SPECTER. Thank you, Dr. Bates. Let me move on. Dr. 

Martin and Dr. Welch have pretty thoroughly decimated your estimates and your methodology. 

Dr. Peterson, in a minute or less, can you tell me if you agree 

or disagree with the analysis of Dr. Welch and Dr. Martin in totally disagreeing with Dr. Bates? 

27

Mr. PETERSON. I agree with Dr. Bates that there is a risk that 

there will be more lung cancer claims filed. 

Chairman SPECTER. Would you deal with the analysis of Dr. 

Welch and Dr. Martin, please? 

Mr. PETERSON. Well, I disagree with Dr. Martin’s characterization of the claiming rates and propensity to sue in several regards. 

She says that they have reached their peak. That is something I 

have heard for 25 years of forecasting. All the forecasts that Mr. 

Lederer referred to when people have to revise it later is because 

people at the time said they reached their peak. She said they can’t 

approach 100 percent, but the Manville Trust propensity to sue for 

mesothelioma is 85 percent. The standard— 

Chairman SPECTER. Let me interrupt you, Dr. Peterson. I want 

to go to Mr. Lederer and I want to come back to Dr. Bates for a 

minute. 

What is your reaction to the testimony of Dr. Martin and Dr. 

Welch on Dr. Bates’s methodology? 

Mr. LEDERER. Well, I think that I have great concerns about 

things like some of the peripheral occupations and industries that 

we are talking about in terms of substantial occupational exposure. 

For the Manville Trust, in 2002 when we established the new TDP 

which has criteria very similar to the bill, we established a table 

of significant occupational exposure. And in our several years of experience in actually implementing the trust in that bill, we have 

not added a single occupation or industry to it. 

We have made a very limited number of exceptions. They have 

only been related to basically railroad sites. They have been sitespecific covering not many individuals. So I have great concerns 

when we talk about these other occupations and bringing them in. 

The Manville Trust would not treat them as having SOE. 

Chairman SPECTER. Dr. Bates, the staff had asked you for an 

itemization as to who your clients are. You have been retained by 

the American Legislative Exchange Council, which has been financed by a number of companies actively opposed to the bill—

ExxonMobil, Liberty Mutual. 

Would you provide the Committee with a full list of people who 

are involved in the American Legislative Exchange Council? 

Mr. BATES. Senator Specter, I will be happy—I do not have that 

list, but I will be happy to provide that. 

Chairman SPECTER. You would be happy to provide it. The second part of the same question: We asked for a contract and you 

said you had nothing in writing. Would you submit a specification 

of whatever contractual arrangements you have with the American 

Legislative Exchange Council? 

Mr. BATES. Yes. I will have to talk with my partner who handled 

the administrative procedures. I am not aware of the details of 

that. 

Chairman SPECTER. And would you also advise the Committee as 

to what your total fee was for this report to this group? 

Mr. BATES. Certainly. 

Chairman SPECTER. Thank you. 

Senator Feinstein. 

Senator FEINSTEIN. Thank you very much, Mr. Chairman. 

28

Dr. Welch, may I begin to ask you some questions? Many have 

raised concerns that the medical criteria is too loose. Senator 

Coburn referred to that somewhat earlier. Let me go through various concerns one by one and get your response. 

One criticism is that the language referring to bilateral pleural 

disease should be deleted? Do you agree? 

Dr. WELCH. What would be substituted, unilateral or—I don’t 

quite understand what the— 

Senator FEINSTEIN. I can’t answer that. I don’t know. 

Dr. WELCH. Then I don’t know exactly what the implication 

would be. 

Senator FEINSTEIN. That Level IIs will compensate smokers, but 

not those who have asbestos disease. 

Dr. WELCH. No. I mean, Level II is set to the people who have 

asbestosis, but who also have smoking-related disease. They have 

both, and the compensation level is very low for Level II, but it is 

for people who have asbestosis. 

Senator FEINSTEIN. That there is no casual relationship between 

asbestos exposure and other forms of cancer—no causal relationship. Excuse me. 

Dr. WELCH. I disagree with that. Actually, Senator Coburn, before he left, said there was no prospective epidemiologic study. 

There actually have been two published this year, one that looks 

at the relationship between asbestos exposure and colon cancer, 

and the other that looks at the relationship between asbestos exposure and lung cancer, both out of the Yale University School of 

Medicine that are very relevant to this Committee. And the colon 

cancer one finds a causal relationship. 

Senator FEINSTEIN. Next one: according to Dr. Crapo, pleural 

plaques do not predict enhanced risk of lung cancer. Rather, this 

enhanced risk is found only with asbestosis. Therefore, the new 

Level VII should be eliminated. 

Dr. WELCH. I completely disagree. It is exposure to asbestos that 

causes lung cancer. The people with asbestosis are, by definition, 

people who have had very high exposure because you need high exposure to get asbestosis. So their risk of lung cancer would be higher than the general population. Plaque also is an exposure marker. 

So that group of people have higher risk of lung cancer. 

The Cullen study, which actually looks at people highly exposed, 

people highly exposed with plaque and people highly exposed with 

asbestosis, finds a risk of exposure in each one of those groups. So 

it is again very relevant to this question and I think it is a very 

good study. 

Senator FEINSTEIN. The last one: CT scans should not be used. 

Their use will mean more smokers will qualify for compensation. 

Dr. WELCH. The American Thoracic Society recently came out 

with a statement on the diagnosis of asbestos-related lung disease 

and makes the point that CT scan is the best available test for diagnosis of asbestosis. It is better than chest x-ray; it is more specific. I mean, the findings on CT scan can be more specific, more 

clearly diagnose asbestosis than a chest x-ray. 

Senator FEINSTEIN. Well, let me ask you, there is so much imprecision now about the numbers, whether this comes in within the 

$140 billion or doesn’t. That is a big chance for legislators to take 

29

in voting for a bill. If you had to tighten this up, what would you 

recommend? 

Dr. WELCH. Really, I think the bill is very tight. If you figure out 

the amount of exposure that is required by those weighted years, 

it is higher than what is used for compensation across the world. 

It is higher than what the Helsinki criteria recommends. It is very 

high; it is a very high standard to meet. If there are more people 

who deserve compensation under those standards than the $140 

billion, then you need more money than $140 billion. 

Senator FEINSTEIN. I want to ask the others that same question. 

Mr. Peterson? 

Mr. PETERSON. I would agree with Dr. Welch. 

Senator FEINSTEIN. So in other words, the levels cannot be tightened? 

Mr. PETERSON. I don’t believe they can be tightened in any significant way, but they constitute a risk that there are going to be 

considerably more claims than we have been talking about. Frankly, it is a nicely designed system that just doesn’t have enough 

money. 

Senator FEINSTEIN. Mr. Lederer? 

Mr. LEDERER. I really would sort of defer that question to other 

members of the panel that have more expertise in medicine. 

Senator FEINSTEIN. The same thing for Dr. Martin? 

Ms. MARTIN. Yes, Senator. 

Senator FEINSTEIN. Dr. Bates? 

Mr. BATES. I haven’t studied that, but what I have studied is the 

amount of money that would be required to pay the bill as specified 

and it is simply not enough money. 

Senator FEINSTEIN. All right. Now, essentially, if I look at what 

you are saying correctly, you are saying that out of 192 million 

adults 21 and older in the United States in 2000, 27 to 34 million 

would satisfy the criteria in the bill. That means that individuals 

will show substantial occupational exposure. Now, that would 

mean that between 14 and 17 percent of the entire adult population would qualify. 

Mr. BATES. Senator Feinstein, I believe there are people who 

have worked in occupations where there has been asbestos exposure over long periods of time. What the exact list of the occupations will be that comes out of that is not something that is specified. There is not a clear-cut definition of what will qualify based 

on how the fund will do. We simply used all of the individuals who 

have a sufficient amount of time in jobs where industrial hygienists 

had specified their— 

Senator FEINSTEIN. But it is a substantial amount of time. I don’t 

mean to interrupt you, but just to discuss it for 50 seconds, it is 

between 8 and 15 years of weighted exposure. 

Mr. BATES. Yes, I understand, Senator Feinstein. 

Senator FEINSTEIN. That is a long time. 

Mr. BATES. Yes, I agree, but I believe that when you look at individuals and you look at the turnover in job rates that individuals 

have that that is what you will find. That is the result of the research. 

Senator Feinstein, I did not expect to find this result when I 

started this. I was very, very skeptical of it. Doing this work that 

30

I have over the time, when my study team first presented to me 

the notion that this would be the number of people who would 

qualify and this is what we would see for Level VI and Level VII, 

I told them they couldn’t possibly be right. 

I had them go back to the ground-up and rework the analysis 

and explain to me in every detail, and I became convinced over 

time that this was the issue. I had no bias about that. 

Chairman SPECTER. Dr. Bates, I am sorry to interrupt you. We 

have two more members to inquire and I will turn now to Senator 

Cornyn. 

Senator CORNYN. Thank you, Mr. Chairman. I guess the task 

that we have to undertake is to determine what the best methodology is to estimate future claims and the mix of those claims. And 

as Senator Feinstein has pointed out, that is no easy task, but I 

would note that the Statistical Assessment Service at George 

Mason University has issued a report which has been made part 

of the record which concludes, in part, that by looking at the overall number of people who suffered asbestos-related injury, Bates 

White comes up with the most accurate measure of how many people will apply to the trust fund. So that is another view confirming 

the Bates White study, and I offer that just for people to take into 

consideration. 

In looking at the various methodologies, we talked about claims 

filed in court as one, claims experience with existing trusts, I 

guess, like the Manville Trust, and, third, the epidemiological estimates that Bates and White use. 

Mr. Lederer, you indicated that all previous attempts to forecast 

the number of claims against the Manville Trust have been off, and 

that the actual experience has significantly exceeded those forecasts. Is that correct? 

Mr. LEDERER. That is correct, except for the most recent forecast, 

which is this year. 

Senator CORNYN. Let me also explore a little bit of that with you. Under this bill, some cancers would receive up to $200,000 per 

claim and under the Manville Trust it is my information that those 

same types of claims would receive only about $4,500, on average. 

Can you confirm that? 

Mr. LEDERER. If we are talking about the other cancer claims, our scheduled values are $40,000. We are only able to pay 5 percent of that now, so it is actually lower than that. It is only $2,000. 

Senator CORNYN. But doesn’t it make sense that if a claimant 

can receive $200,000, they are much more likely to make that 

claim than if they can only receive $2,000? 

Mr. LEDERER. Well, I think it goes to the issue, though, that 

there are multiple defendants out there. People rarely file claims 

solely against the Manville Trust. You can’t look at the situation 

as just what is the amount of the Manville recovery. You have to 

look at it from the plaintiffs’ lawyers point of view, which is what 

is the total recovery on the claim, and that is going to motivate 

them whether or not to file this claim when they look at it net of 

their costs. 

So I think you really need to know what the other defendants are 

paying, along with the Manville Trust. I think if you look at the 

history there, unfortunately, there isn’t a national data base of 

31

claims in one location that one can go to to figure out what the 

total recovery is. But if you put the pieces together, you might find 

out that the amounts paid historically are closer to what is in the 

FAIR Act than maybe we imagined previously. 

You know, to me, this is an area where there has been a lot of 

speculation and we are speculating about exposed populations. I 

just take it from a more practical point of view, which is there is 

information out there that is relatively certain, which is what has 

been the claiming rate in the past, what have people paid, what 

have been the costs. Yet, that information which would be very 

helpful has not come forward. So, you know, it is unfortunate because I think if you had the comparison between the older settlement information, not just the Manville Trust, but all defendants 

against the FAIR Act, then you could really judge whether there 

is a financial incentive, whether there is a higher incentive, because that is what we are really talking about here. What is the 

change in the incentive? 

Senator CORNYN. Well, would you agree with me that people are 

much more likely to make a claim for more money than less 

money? 

Mr. LEDERER. Absolutely, but let me just give you an example. 

If the FAIR Act— 

Senator CORNYN. No, I am sorry. My time is really limited. 

Mr. LEDERER. I am sorry. 

Chairman SPECTER. Senator, I will give you more time if you 

need it. 

Senator CORNYN. Will you? OK, thank you. I was just afraid the 

time would run out. 

Mr. LEDERER. You know, if at a particular level the compensation is, say, $1 million and the historic compensation, though, in 

the system is, say, $500,000, yes, the FAIR Act is considerably 

more than what has been paid in the past. But it isn’t necessarily 

the absolute amount. It is whether it is a sufficient amount to generate the interest on the part of the claimant and the plaintiff’s 

lawyer that may represent that claimant in order to file the claim. 

So I don’t think we should just look at it in absolute terms, but relative terms as to what their return on capital is. It is a business. 

Senator CORNYN. Thank you for that. Would you also agree with 

me that if you just look at previous court cases, a non-adversarial 

claims process such as that included in the FAIR Act, like the 

Manville Trust, would be much more likely to generate more claims 

as compared to what you might see in court-filed lawsuits? 

Mr. LEDERER. I would, but again I would say we don’t have the 

historical data—I don’t have the historical data to indicate how 

many lung cancers in the past have actually had to go to litigation 

as opposed to settle. So, clearly, the ones that had to go to litigation paid more, but it may be that a fairly large proportion of those 

lung cancers settled, in which case their costs would be less. 

I mean, the kinds of cases we are talking about here are very serious lung cancer cases with significant occupational exposure and 

underlying markers. These are not the kinds of cases that the Manville Trust would ignore, nor do I think any other defendant. I 

mean, you would want to settle these kinds of cases. 

32

Senator CORNYN. Well, the concern we have here—and this will 

be my last statement—is that we need some oak tree to hug in this 

process, something that would give us the confidence that we are 

doing the right thing for the most people. And, it is not acceptable 

to do something that will end up in a grossly underfunded trust 

and revert to the same broken tort system, or perhaps as the Budget Committee recently opined, ask the American taxpayer to pick 

up the tab. 

Thank you very much, Mr. Chairman. 

Chairman SPECTER. Thank you, Senator Cornyn. 

Senator Durbin. 

Senator DURBIN. Thank you very much, Mr. Chairman. I know 

Senator Kyl and I want to both make this roll call, so I will try 

to make it shorter than five minutes. Let me just say that I think 

it is fair to conclude— 

Senator KYL. Senator, might I just interrupt you? Why don’t I 

simply submit some questions for the record and I will go ahead 

and that way we won’t have to worry about truncating your time? 

I thank you very much. 

Senator DURBIN. Thank you very much. 

It is fair to conclude that what we what we have heard today and 

what we have read suggests that the estimated cost of this undertaking, this program—by CBO estimates, we see a shortfall of up 

to $10 billion; the Bates White study, a shortfall of $161 to $421 

billion, and Dr. Peterson’s testimony believes a shortfall of up to 

$50 billion. 

If you accept those premises, the FAIR Act, as currently written, 

is not financially sound and it forces us to make one of three 

choices if we are go to go forward: to reduce victim compensation, 

to increase the assessments on businesses to pay into the fund, or 

to make the Federal Government the guarantor of the trust fund 

and say whatever the cost, we are going to pay it, and the taxpayers will ultimately be the source of that money. I don’t know 

what other conclusion we can draw from what we have heard 

today. 

Is there anyone else who has another thought on this that I am 

missing? 

[No response.] 

Senator DURBIN. All right, then I will take that as a yes. Those 

are three options as we face them. 

I would like to ask you, Dr. Welch, Peg Seminario from the AFL–

CIO has expressed deep concern that the cost estimates done by 

the CBO under-estimate the number of mesothelioma claims. Data 

from the National Center for Health Statistics show that the number of deaths actually reported to be from mesothelioma in the U.S. 

are running 25 percent higher than the number of claims that have 

been projected by the CBO in their cost estimates. 

She also claims the total number of meso deaths in America has 

not yet peaked and we should expect to see an increase in data in 

the coming years. Additionally, a recent study by the National Institute of Occupational Safety and Health suggests an even higher 

number of mesothelioma deaths, which would obviously increase 

the size of the claims relied upon by the CBO estimate. 

33

Are you familiar with her work and these Government estimates, 

and do you reach the same conclusion? 

Dr. WELCH. Well, actually, Dr. Peterson, I think, addressed that, 

the mesothelioma estimates in some detail, didn’t you? 

Mr. PETERSON. Yes. 

Dr. WELCH. And I think he and Peg—I do agree with their analysis, although they certainly understand it in more detail than I 

do. Mesothelioma is an important kind of pegged disease because 

everybody agrees it is asbestos-related. 

Senator DURBIN. Yes. 

Dr. WELCH. And the numbers are small, but the values are very 

high, so getting that number correct—if we are wrong about that 

number, then we are probably wrong about the other estimates as 

well. 

Senator DURBIN. And as I understand it, Dr. Bates, you have 

said that some of the—let me just say as a preface some of us on 

the Committee have been trying for a long time to figure out how 

Goldman Sachs came to these numbers, $140 billion. We have 

asked for data, we have asked for information. We have never seen 

it. I don’t know what they used to reach the $140 billion figure, 

and it is frustrating that that is what we are working off of with 

no proof. 

Dr. Bates, you refer in your analysis to the fact that the Nicholson study is an old study back in the 1950’s, if I am not mistaken. 

Dr. BATES. No. In 1982, it was published. 

Senator DURBIN. 1982, I am sorry. So your estimates are updating what the Nicholson study had found. Is that correct? 

Mr. BATES. That is correct. 

Senator DURBIN. So if the used—and I don’t know what Goldman 

Sachs used. It is a mystery as to what they used. Then it is understandable that these figures—once we consider that the black lung 

estimated claimants turned out to be dramatically higher than we 

thought and the Manville Trust situation resulted in more claims, 

it leads me to the conclusion that we tend to low-ball the exposure 

of these funds and then learn later that we need more money. 

Is that a fair general conclusion? 

Mr. BATES. I believe that you need to pay attention to the economic incentives that are there, and the economic incentives created under the FAIR Act are ones that will increase the claimants 

over the tort environment. 

Senator DURBIN. Mr. Chairman, the last thing I will ask is this: 

You have asked for Dr. Bates to produce his contract and how 

much he is paid and his list of clients. Would it be fair to ask the 

same thing of the Asbestos Study Group, Navigant and Goldman 

Sachs? 

Chairman SPECTER. Certainly. You have asked them. 

Senator DURBIN. Well, I can ask all I want, but as Chairman you 

can get it. 

Chairman SPECTER. Well, I will repeat my answer. Dr. Bates has 

come forward with a report which is grossly at variance with everything else that I know and I have heard, and his group is actively 

opposing the bill and I think the questions I put to him were very 

light. 

34

Senator DURBIN. The last question I might ask is we would not 

want to also know if there is any bias in those who are actively 

supporting the bill? 

Chairman SPECTER. Senator Durbin, I am not a witness here and 

I have answered your question. 

Thank you very much, Dr. Bates, Dr. Welch, Dr. Peterson, Mr. 

Lederer and Dr. Martin. We appreciate it very much. 

[Whereupon, at 3:50 p.m., the Committee was adjourned.] 

[Questions and answers and submissions for the record follow.] 

[Additional material is being retained in the Committee files.]

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