Commentary: Why an Asbestos Deal May Go Up in Smoke

By Lorraine Woellert

For more than a decade, Corporate America has lobbied Congress for help to clean up the asbestos litigation mess. Now business groups are meeting face-to-face with insurers and labor unions for the first serious global settlement talks ever. But as peace negotiations progress, this is proving to be a much harder deal to close than anyone imagined.

The discouraging news from the bargaining table is deflating the once-high hopes of hundreds of companies mired in asbestos litigation. The political landscape to cap liability has never been better. President George W. Bush wants a deal, Republicans control Congress, and there is pressure to act before next year's election. "It has to happen this year," says Julie A. Rochman, senior vice-president of the American Insurance Assn. "A lot of companies involved in this won't be around if it doesn't."

But as negotiators burrow into details, BusinessWeek has learned that rifts have developed between onetime allies who are crucial to the deal's success. Big companies and small companies can't agree on how to allocate payments to the trust fund. Some businesses, worried that the fund might run dry and they'll be asked to open their wallets again, want the government to back the fund, but they're butting up against Senate budget hawks.

Senate Judiciary Chairman Orrin G. Hatch (R-Utah) fired the starting gun in the mad dash for a settlement on Mar. 26, when he ordered business and labor to find a solution to the asbestos crisis or have one imposed by Congress. The ultimatum kicked off two months of frantic talks that have led to a skeletal plan, which would require companies to establish a trust fund to pay sick victims, to be administered by the federal government.

Even as negotiators continue to debate fundamentals, Hatch is pushing ahead. On May 20, he released his own version of a plan: a $104 billion trust to be financed by business, insurers, and two dozen existing private compensation pools. Hatch's proposal would standardize payouts according to victims' illnesses. Patients with mesothelioma, a deadly lung cancer, would collect the most. Those with nonfatal lung inflammation would get nothing. And it would relieve companies of litigation costs by creating a special administrative court.

This might sound like a workable deal, but the parties are lukewarm. Insurers, which have hired Goldman, Sachs & Co. to crunch numbers, figure that $90 billion -- half paid by insurers, half by their corporate clients -- is more than sufficient to cover claims. Labor representatives, who say payouts should be larger, came up with a demand of $120 billion.

As if the question of the trust fund's size isn't difficult enough, tempers are flaring over how to assess contributions. Big Business' idea is a tiered system based on revenues and historic liabilities. But some smaller companies think that puts too great a burden on them. "We don't think we should be subsidizing everyone else," says a lawyer who represents one of these players.

Execs of all stripes agree that any settlement must forever end their liability. That's fine with Big Labor, as long as the government guarantees the trust fund is flush. But key Senate Republicans are balking -- they don't want taxpayers left holding the bag. A federal fund created in 1977 to pay coal miners who developed black lung was funded with a tax on mining companies. It wasn't enough; the fund is $8 billion in debt.

So the struggle to find workable compromises gets harder. "The Hatch bill is a step backward," says a frustrated Jon Hiatt, general counsel of the AFL-CIO. The deeper the many stakeholders dive into the fine print, the sharper their disagreements become. That's why the historic opportunity for an asbestos deal may yet slip away.

Woellert follows legal issues from Washington.

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