Statement of Judiciary Committee Chairman Lamar Smith Full Committee Markup of H.R. 4369, the "Furthering Asbestos Claim Transparency Act of 2012"

Statement of Judiciary Committee Chairman Lamar Smith
Full Committee Markup of
H.R. 4369, the “Furthering Asbestos Claim Transparency Act of 2012”

Chairman Smith: Asbestos was once labeled the “miracle product” because of its versatility and low cost.  But since its invention, research has shown asbestos to be the cause of serious respiratory illnesses and even certain types of cancer. 

The thousands of American workers who were exposed to asbestos in shipyards, on the floor of manufacturing plants, and in other trades have a right to be compensated for their asbestos-related injuries under applicable federal and state laws.  But they do not have a right to exploit the compensation system and make fraudulent or duplicative claims.

In 1994, Congress responded to the increase in volume of asbestos litigation lawsuits and enacted section 524(g) of the Bankruptcy Code.  That section allows a chapter 11 debtor to create a trust to handle future asbestos liability in its plan of reorganization. 

524(g) strikes a fair deal:  the debtor promises to adequately fund the trust with enough cash to pay future asbestos claims, and the court enters a channeling injunction that prohibits future asbestos plaintiffs from suing the reorganized debtor after bankruptcy.

 Since that time, trial lawyers have turned asbestos litigation into a full scale industry.  They have aggressively expanded the scope of defendants to include employers who exposed employees to asbestos, manufacturers and distributors.  One can barely watch a TV program without seeing a paid advertisement by trial lawyers looking for new asbestos plaintiffs.

The addition of new defendants to the asbestos liability pool has caused a dual-track compensation system to emerge.  Plaintiffs file state law tort claims in state court and also file for compensation from 524(g) trusts.  The state tort system is transparent—anyone can walk into the courthouse and ask the clerk for copies of the pleadings.  But asbestos trusts are managed in secret.

The lack of disclosure from 524(g) trusts has allowed fraud to be perpetrated by claimants who file a claim with the trust and use facts completely different from their state court pleadings.  And when fraud is perpetrated by a trust claimant today, that means less money is in the pot for a valid trust claim tomorrow.  Ironically, fraud in the asbestos trust system actually causes harm to those for whose benefit it was constructed.

H.R. 4369, the Furthering Asbestos Claim Transparency, or “FACT” Act, brings asbestos trust claim procedures into the light of day.  The bill, introduced by the gentleman from Arizona, Mr. Quayle, simply requires these trusts to disclose who gets paid and on what basis.  The trusts will have to disclose no more than is public when a plaintiff files pleadings in a tort suit in state court.

The FACT Act is about transparency, not about denying those who are ill because of asbestos exposure just compensation.  If claimants and the trusts have nothing to hide, they should not fear transparency.  But if there is fraud in the system, transparency will help root it out and preserve trust funds for future claimants with valid claims.