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United States Government Accountability Office: 
GAO: 

Report to the Chairman, Committee on the Judiciary, House of 
Representatives: 

September 2011: 

Asbestos Injury Compensation: 

The Role and Administration of Asbestos Trusts: 

GAO-11-819: 

GAO Highlights: 

Highlights of GAO-11-819, a report to the Chairman, Committee on the 
Judiciary, House of Representatives. 

Why GAO Did This Study: 

Asbestos litigation arose out of millions of Americans’ lengthy 
occupational exposure to asbestos which is linked to malignant and 
nonmalignant diseases. To date, about 100 companies have declared 
bankruptcy at least partially due to asbestos-related liability. In 
accordance with Chapter 11 and § 524(g) of the federal bankruptcy 
code, a company may transfer its liabilities and certain assets to an 
asbestos personal injury trust, which is then responsible for 
compensating present and future claimants. Since 1988, 60 trusts have 
been established to pay claims with about $37 billion in total assets. 

GAO was asked to examine asbestos trusts set up pursuant to § 524(g). 
This report addresses: (1) How much asbestos trusts have paid in 
claims and how trusts are administered, (2) How trust claim and 
payment information is made available to outside parties, and (3) 
Stakeholder—plaintiff and defense attorneys, trust officials, and 
other interested parties—views on whether more trust and claimant 
information should be made available to outside parties and efforts to 
change the trust system and processes. GAO analyzed trust agreements 
for 44 of 60 trusts and trust distribution procedures for 52 of 60 
trusts, as well as financial reports for 47 of 60 trusts for 2009 and 
2010. GAO also interviewed U.S. Bankruptcy Court judges and the 
trustees, general counsels, or directors from 11 trusts. 

What GAO Found: 

From 1988 through 2010, GAO’s analysis of available trust payment data 
show that trusts have paid about 3.3 million claims valued at about 
$17.5 billion and that each trust has trust distribution procedures 
(TDP) that govern its administration and establish the process for 
assessing and paying claims. Typically, TDPs include sections related 
to the intake and evaluation of claims, payment processes, and audit 
programs. Claims that meet the TDP’s criteria for a particular disease 
are paid in the amount specified in the TDP. 

Most asbestos trusts we reviewed publish for public review annual 
financial reports and generally include total number of claims 
received and paid. Other information in the possession of a trust, 
such as an individual’s exposure to asbestos, is generally not 
available to outside parties but may be obtained, for example, in the 
course of litigation pursuant to a court-ordered subpoena. The 44 
trust agreements GAO reviewed all required that trusts submit annual 
financial reports to the U.S. Bankruptcy Court of jurisdiction. 
Although TDPs typically provide that the trusts will make claim and 
payment information available to claimants and other parties, each 
trust ultimately determines what information it will make available. 
Of the 47 trust annual financial reports for 2009 and 2010 that GAO 
reviewed, all included the total amount of payments made and most 
included the total number of claims received and paid. One trust’s 
financial report contained claimant names and amounts paid to these 
individuals. Of the 52 trust TDPs GAO reviewed, 33 (64 percent) 
included sections related to protecting the confidentiality of claimants
’ information and these sections often state that the trusts will only 
disclose information to outside parties with permission of the 
claimant or in response to a valid subpoena. 

Views differ on whether more trust and claimant information should be 
made available and there have been efforts to change the trust system. 
Plaintiff attorneys and trusts oppose proposals that would require 
additional disclosure of claimant information, such as amounts paid to 
individual claimants, stating that such information is available to 
the defense through subpoenas and that disclosure otherwise could 
compromise the confidentiality of claimants’ private information. 
Defense attorneys support additional disclosure, stating that such 
information could be used to offset asbestos defendants’ settlements 
in court and reduce fraudulent claims. In recent years, there have 
been various proposals to require additional disclosure of claimant 
information. One of these proposals was recently brought before the 
Judicial Conference of the United States, the primary policy making 
body of the U.S. courts. 

In commenting on a draft copy of this report, the Department of 
Justice and the Administrative Office of the U.S. Courts provided 
technical clarifications, which GAO incorporated where appropriate. 

View [hyperlink, http://www.gao.gov/products/GAO-11-819] or key 
components. For more information, contact William O. Jenkins, Jr., at 
(202) 512-8757 or jenkinswo@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Asbestos Trusts Have Paid at Least $17 Billion in Claims and Are 
Administered in Accordance with Trust Distribution Procedures: 

Most Asbestos Trusts Publish Annual Financial Reports Whose Details 
Vary; Parties May Obtain Other Information through Requests or 
Subpoenas: 

Views Differ on Whether Additional Claimant Information Should Be Made 
Available; Recent Efforts to Change the Trust System: 

Agency Comments and Our Evaluation: 

Appendix I: Select Federal Legislative Proposals Addressing 
Compensation for Asbestos-Related Harms or Death: 

Appendix II: GAO Contact and Staff Acknowledgments: 

Table: 

Table 1: Information Found in Trusts' 2009 and 2010 Annual Reports 
Obtained and Reviewed by GAO: 

Figures: 

Figure 1: Asbestos Mineral and Examples of Products That Contained 
Asbestos: 

Figure 2: Timeline of Events Surrounding the Establishment of Asbestos 
Trusts: 

Figure 3: Chapter 11 Bankruptcy Process through Which Asbestos 
Bankruptcy Trusts Are Created: 

Figure 4: Overview of the U.S. Bankruptcy System: 

Figure 5: Asbestos Trust Claim Process: 

Figure 6: Key Actors Involved In the Asbestos Bankruptcy Trust Payment 
Process: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

September 23, 2011: 

The Honorable Lamar Smith:
Chairman:
Committee on the Judiciary:
House of Representatives: 

Dear Chairman Smith: 

Asbestos litigation has been the longest-running mass tort litigation 
in U.S. history and arose out of millions of Americans' lengthy and 
widespread occupational exposure to asbestos, which has been linked to 
malignant and nonmalignant diseases.[Footnote 1] Asbestos is a term 
used to describe naturally occurring silicate minerals that had wide 
industrial, commercial, and household usage in the United States 
during the 20th century because of its flame-retardant and insulating 
properties. Even with U.S. asbestos consumption peaking in 1973 and 
dropping over the next 3 decades, estimates of the number of 
individuals exposed to asbestos in the U.S. range from approximately 
27 million to 100 million. 

Asbestos-related diseases have a relatively long latency period, 
meaning it usually takes decades from the time of exposure to asbestos 
or asbestos-containing products and the date of medical diagnosis of 
asbestos-related disease or asbestos-related death. As early as 1900, 
asbestos was recognized as a cause of occupational disease--namely 
asbestosis, a nonmalignant respiratory disease characterized by 
scarring of the lung tissue that may progress to impairment and death. 
By 1960, the connection between asbestos and mesothelioma--a cancer of 
the lining of the lungs, chest, or abdomen that typically causes death 
within 1 or 2 years of diagnosis--was established.[Footnote 2] 
Mesothelioma was not recorded as a separate cause-of-death category on 
death certificates until 1999 and is not recorded as a cause of death 
in all states or municipalities. Although lung cancer is reported as a 
cause of death, lung cancer caused by asbestos is not differentiated 
from other forms of lung cancer. In addition to potentially increasing 
the risk of mesothelioma, asbestos exposure has been linked to lung 
cancer and may be associated with other non-respiratory cancers, 
according to the Centers for Disease Control and Prevention and the 
National Cancer Institute at the National Institutes of Health. As a 
result of an incomplete history of asbestos-related diseases and 
because of the long latency period of these diseases, it is difficult 
to estimate the future trends of these diseases. Although estimating 
the number of past and future mesothelioma incidence is difficult, 
experts believe that the mesothelioma epidemic is receding with the 
peak number of incidence per year reaching approximately 2,500 in the 
United States in the early 2000s.[Footnote 3] 

To date, approximately 100 companies have declared bankruptcy at least 
partially due to asbestos-related liability. The large and 
unpredictable asbestos-related liability due to the number of 
individuals exposed and the number of asbestos related lawsuits filed 
in the tort system are factors that may contribute to the decision by 
companies facing asbestos-related liability to file for bankruptcy. 
Generally, filing for bankruptcy halts civil lawsuits and other 
actions against the debtor company (the company filing for bankruptcy) 
for the duration of the bankruptcy process.[Footnote 4] For those 
companies seeking to reorganize pursuant to Chapter 11 of the federal 
bankruptcy code, 11 U.S.C. § 524(g) affords the debtor company an 
opportunity to channel (by way of a channeling injunction) all future 
asbestos-related liabilities to an asbestos personal injury trust 
established as part of the company's reorganization and in accordance 
with § 524(g)[Footnote 5] Pursuant to § 524(g), the asbestos personal 
injury trust assumes the debtor company's asbestos-related liabilities 
while assets of the debtor company are transferred to the asbestos 
trust for investment and management. The trusts then pay present and 
future asbestos-related claims, thus relieving the reorganized company 
of all present and future asbestos-related liabilities. 
Postbankruptcy, the trusts implement a nonadversarial administrative 
process--independent of the court system--to review claimants' 
occupational and medical histories before awarding compensation. The 
trusts operate without judicial or federal government oversight, but 
generally provide annual financial reports to the U.S. bankruptcy 
court of jurisdiction in accordance with provisions set forth in each 
trust's trust agreements (the instruments that establish a trust). 

In the last decade, with the number of asbestos-related bankruptcies 
increasing, the number of asbestos personal injury trusts increased 
from 16 trusts with a combined total of $4.2 billion in assets in 2000 
to 60 with a combined total of over $36.8 billion in assets in 2011. 
In addition to companies that have reorganized through the bankruptcy 
process, there are other solvent companies that remain vulnerable to 
asbestos-related lawsuits as defendants in the tort system. These 
companies, as well as their insurance carriers whose policies are 
often responsible for paying amounts awarded by settlement or verdict 
to asbestos victims, are interested in amounts paid to individuals by 
trusts because these amounts may be used to offset the amounts owed to 
prevailing plaintiffs by solvent companies. 

In this overall context, you asked us to conduct a review of asbestos 
trusts set up in accordance with Chapter 11 and § 524(g) of the 
federal bankruptcy code. Specifically, this report addresses: 

1. How much asbestos bankruptcy trusts have paid in claims and how 
those trusts are administered, 

2. How trust claim and payment information is made available to 
outside parties, and: 

3. Stakeholder--plaintiff and defense attorneys, trust officials, and 
other interested parties--views on whether more trust and claimant 
information should be made available to outside parties and recent 
efforts to change the current trust system and processes. 

To conduct our work, we obtained and analyzed publicly available 
documents related to asbestos trusts. To find these documents, we 
searched individual trust websites and the Public Access to Court 
Electronic Records (PACER) database.[Footnote 6] We obtained and 
analyzed trust agreements (TA) for 44 of the 60 trusts as well as 
trust distribution procedures (TDP) for 52 of 60 trusts established 
from 1988 to 2011 to determine how these trusts are structured and 
operated, and how they assess and pay asbestos claims. We also 
reviewed TDPs and TAs to determine trusts' policies for sharing 
information with, or making information available to, outside parties. 
We obtained and analyzed 47 of 56 annual financial reports for 2009 
and 47 of 58 annual financial reports for 2010 that trusts submitted 
to U.S. bankruptcy courts and were available through PACER to 
determine the total number of claims paid by these trusts and the 
amounts paid out in claims. However, the reports we obtained for some 
trusts did not include the number of claims paid. Therefore, we were 
not able to determine the total number and value of claims paid for 
all of the trusts for which we obtained documentation.[Footnote 7] 

In addition, we interviewed trust officials, including trustees, 
general counsels, and executive directors representing 11 of the 60 
asbestos bankruptcy trusts to discuss how these trusts operate and how 
they assess and pay claims, and to obtain their views on the 
availability of trust-related information to outside parties. We 
selected 8 of the 11 trusts with which we conducted interviews because 
they were the largest, each with initial assets in of $2 billion or 
more. In total, these 8 trusts had over $18 billion in initial assets 
(about half of the total initial assets for the 60 trusts). We 
selected the remaining 3 trusts randomly from the remaining trusts 
with initial assets of less than $2 billion to understand the 
operations of selected smaller trusts and to include their 
perspectives. Although the results of the interviews are not 
generalizable to all 60 trusts, they provided explanations of trust 
documents and insights into trust administration and operations. 

We also interviewed officials from the Administrative Office of the 
U.S. Courts, the Department of Justice's U.S. Trustees Program, and 
the Federal Judicial Center. We also interviewed four U.S. Bankruptcy 
Court judges referred to us by the Administrative Office of the U.S. 
Courts because of the judges' experience in presiding over asbestos-
related bankruptcy cases to discuss the role that the federal 
government, including the courts, plays in the establishment, 
administration, and oversight of asbestos trusts. In addition, we 
discussed these officials' views on the extent to which trust and 
claimant information is made available to outside parties. We 
interviewed two professors of law, who have published and are well-
known experts in the areas of asbestos litigation and bankruptcy 
trusts, and two researchers. We learned of these academic experts 
through our literature searches and discussions with court officials 
and others. In addition, we interviewed representatives from two 
associations for both plaintiff and defense attorneys to discuss their 
constituents' views on the availability of individual claimant 
information and the extent to which trust information is available. We 
learned of these attorneys through our discussions with academic 
experts and others. While the results of these interviews are not 
generalizable to all parties involved in the establishment and 
administration of trusts, they provided insight into the views of 
these various parties. In addition, we observed a conference on 
asbestos bankruptcy proceedings and trust operations which included 
expert panel discussions led by plaintiff and defense attorneys, 
researchers, and bankruptcy judges on emerging trends and the 
discovery of trust and claimant information.[Footnote 8] We used 
information from a 2010 RAND Corporation study to determine the number 
of claims and amounts paid by trusts prior to 2009 and to understand 
trust operations and claimant compensation processes.[Footnote 9] We 
also drew upon information from a 2011 RAND Corporation study to 
describe the varying positions on trusts providing claimant 
information beyond what is presently available in annual reports and 
through the judicial system.[Footnote 10] We determined that the scope 
and methodology of the RAND reports were sufficient for us to rely on 
their results. We also reviewed various applicable legislative and 
other proposals, as well as other actions intended to change the 
current asbestos trust and compensation systems and require additional 
disclosure of claimant information. 

We conducted this performance audit from October 2010 through 
September 2011 in accordance with generally accepted government 
auditing standards. Those standards require that we plan and perform 
the audit to obtain sufficient, appropriate evidence to provide a 
reasonable basis for our findings and conclusions based on our audit 
objectives. We believe that the evidence obtained provides a 
reasonable basis for our findings and conclusions based on our audit 
objectives. 

Background: 

History of Asbestos Use and Litigation: 

Asbestos is a naturally occurring silicate mineral that was widely 
used in the United States in the 20th century for industrial, 
commercial, and residential purposes primarily for its flame-retardant 
and insulating properties. Examples of products containing asbestos 
included roofing shingles, ceiling and floor tiles, paper and cement 
products, and friction products such as automobile clutch, brake and 
transmission parts. Figure 1 below provides an illustrative example of 
asbestos and some of the products in which asbestos was used. 

Figure 1: Asbestos Mineral and Examples of Products That Contained 
Asbestos: 

[Refer to PDF for image: illustration] 

Serpentine rock with vein of asbestos in its natural form. 

Asbestos is a sound absorption and fire resistance fibrous mineral. 

Products that have contained asbestos: 

* Attic and wall insulation; 
Steam pipes, boilers, and furnace ducts insulated with an asbestos 
blanket or asbestos paper tape; 
* Vinyl floor tiles and the backing on vinyl sheet flooring and 
adhesives; 
* Asbestos paper, millboard, or cement sheets used to protect walls 
and floors around woodburning stoves; 
* Door gaskets in furnaces, wood stoves, and coal stoves; 
* Soundproofing or decorative material sprayed on walls and ceilings; 
* Patching and joint compounds for walls and ceilings, and textured 
paints; 
* Asbestos cement roofing, shingles, and siding; 
* Artificial ashes and embers sold for use in gas-fired fireplaces; 
* Fireproof gloves, stove-top pads, ironing board covers, and certain 
hairdryers; 
* Automobile brake pads and linings, clutch facings, and gaskets. 

Source: Environmental Protection Agency. 

[End of figure] 

As asbestos became increasingly linked as the cause of certain 
diseases, plaintiffs began bringing asbestos-related personal injury 
claims against asbestos product manufacturers as well as purchasers of 
asbestos products, insurers, and businesses that used asbestos or 
asbestos-containing products. With the Occupational Safety and Health 
Act (OSHA) of 1970, the federal government imposed regulations 
governing workplace safety including standards related to reducing 
occupational asbestos exposure.[Footnote 11] In 1973, the U.S. Court 
of Appeals for the Fifth Circuit issued the first appellate opinion 
upholding a product-liability judgment against a manufacturer of 
asbestos-containing products in Borel v. Fibreboard, finding that the 
asbestos manufacturers were liable to workers injured as a result of 
exposure to their asbestos-containing products.[Footnote 12] In the 
course of the first successful personal injury lawsuits against 
asbestos manufacturers, plaintiffs' attorneys introduced evidence that 
these manufacturers had known but concealed information about the 
dangers of asbestos exposure or that such dangers were reasonably 
foreseeable. 

Section 524(g) and the Establishment of Personal Injury Trusts: 

Asbestos personal injury trusts, established in accordance with the 
federal bankruptcy code, implement compensation plans that, in 
general, recognize and protect the interests of present and future 
claimants, prioritize more seriously ill claimants, and establish 
processes for resolving disputes between the claimants and the trusts. 
A 1994 amendment to § 524 of the federal bankruptcy code in effect 
codified an approach for addressing a debtor company's asbestos-
related liabilities while eliminating the possibility of that company 
being found liable for future asbestos-related personal injury 
claims.[Footnote 13] Pursuant to § 524(g) debtor companies that face 
asbestos-related liability and file for bankruptcy under Chapter 11 
may establish an asbestos personal injury trust that, by way of a 
channeling injunction, assumes the asbestos-related liabilities of the 
debtor company that will compensate present and future asbestos 
claimants. Filing for bankruptcy halts all civil lawsuits and other 
actions against the debtor company for the duration of the bankruptcy 
process and establishing an asbestos personal injury trust as part of 
the company's reorganization and in accordance with § 524(g) 
bankruptcy affords the debtor company an opportunity to transfer all 
future asbestos-related liabilities to the trust, thereby limiting the 
debtor company's asbestos-related liabilities.[Footnote 14] The goal 
of the trusts is to compensate present and future claimants, equitably 
and outside the court system, by managing the debtor company's assets 
assumed by the trust as part of the bankruptcy reorganization. Figure 
2 provides a timeline of events surrounding the establishment of 
asbestos trusts. 

Figure 2: Timeline of Events Surrounding the Establishment of Asbestos 
Trusts: 

[Refer to PDF for image: timeline] 

1960-1969: 
Federal courts begin hearing asbestos-related personal injury claims. 

1970-1979: 
Occupational Safety and Health Act (OSHA); 
U.S. peak of asbestos consumption; 
U.S. Court of Appeals for the Fifth Circuit issues its opinion in 
Borel v. Fibreboard; 
First company files abestos-related bankruptcy. 

1980-1989 (4 trusts): 
First trust established. 

1990-1999 (10 trusts): 
Bankruptcy Reform Act amends Section 524. 

2000-2009 (43 trusts): 

2010-2011 (3 trusts): 

Source: GAO analysis. 

[End of figure] 

To resolve their asbestos liabilities while at the same time 
continuing with general business operations, companies may seek to 
reorganize their debts by filing for bankruptcy under Chapter 11 and 
in accordance with § 524(g) of the federal bankruptcy code. In 
accordance with these provisions, a debtor company, creditors (that 
is, parties with claims against the debtor, including asbestos 
claimants), and as appropriate, other interested parties, such as 
insurance companies that may have issued liability insurance policies 
to the debtor company, will develop and propose a plan of 
reorganization. The plan will provide for the establishment of an 
asbestos personal injury trust to assume the asbestos-related 
liabilities of the debtor company and compensate present and future 
claimants for harm caused by exposure to asbestos. The plan of 
reorganization must then be confirmed by the U.S. Bankruptcy Court and 
affirmed by the U.S. District Court of jurisdiction.[Footnote 15] Once 
the reorganization plan is confirmed and the trust established, all 
asbestos personal injury claims originally intended for the debtor 
company must go through the trust. See figure 3 for the Chapter 11 
bankruptcy process through which asbestos bankruptcy trusts are 
created. 

Figure 3: Chapter 11 Bankruptcy Process through Which Asbestos 
Bankruptcy Trusts Are Created: 

[Refer to PDF for image: illustration] 

1. Asbestos personal injury claims. 

2. Company receives claims. 

3. Company files Chapter 11 bankruptcy. 

4. Automatic stay against additional claims. 

5. Creditor committees form (including asbestos claimants committee). 

6. Creditor and debtor propose reorganization plan. 

7. Plan of reorganization confirmed by the bankruptcy court or 
district court and channeling injunction issued. 

8. Reorganized company continues operation. 

9. Assets/liabilities to asbestos trust. 

10. Asbestos trust created. 

11. Asbestos personal injury claims: directed to Asbestos trust. 

Sources: GAO analysis of U.S. Bankruptcy Code; and Art Explosion 
(photos). 

[End of figure] 

When a company files a petition for bankruptcy under Chapter 11 with 
the U.S. bankruptcy court of appropriate jurisdiction, that court will 
preside over the debtor company's reorganization. Concurrently, United 
States Trustees or, where applicable, Bankruptcy Administrators, have 
responsibility for supervising or overseeing the administration of 
bankruptcy cases.[Footnote 16] Although the role of the U.S. Trustees 
will vary depending on the circumstances of a petition, in general, 
they will monitor the debtor company's business operations, including 
a review of monthly operating reports or other financial information 
and the debtor company's progress in filing and confirming its 
reorganization plan. When a plan of reorganization involves a debtor 
company facing asbestos-related liability and provides for the 
establishment of a trust in accordance with § 524(g), the U.S. 
Trustees will generally ensure compliance with applicable provisions 
of the federal bankruptcy code but will not focus on issues specific 
to the operations of the trust, such as provisions negotiated by the 
debtor company, asbestos claimants, other creditors, and interested 
parties. 

After the reorganization plan is filed with the bankruptcy court, the 
bankruptcy judge verifies that it complies with Chapter 11 of the 
bankruptcy code. If the plan involves the establishment of an asbestos 
personal injury trust, the bankruptcy court and U.S. District Court 
will also ensure compliance with § 524(g) before confirming, or 
affirming confirmation of the debtor company's plan of reorganization 
and issuing the channeling injunction. Upon confirmation of the 
reorganization plan, the role of the bankruptcy courts and U.S. 
Trustees is significantly reduced, in particular, with respect to an 
asbestos personal injury trust established pursuant to the plan. 
Postconfirmation, neither the courts nor the U.S. Trustees have any 
specific statutory or other requirements to oversee a trust's 
administration. The bankruptcy court, however, ordinarily maintains 
limited postconfirmation jurisdiction over the trust, including 
receipt of annual financial reports filed by a trust, which are 
usually filed with the court in accordance with a trust's 
reorganization plan or trust agreement. See figure 4 for an overview 
of the U.S. bankruptcy system. 

Figure 4: Overview of the U.S. Bankruptcy System: 

[Refer to PDF for image: illustration] 

Judicial branch: 

Judicial Conference of the United States: 
* Judiciary’s principal policymaking body. 

Administrative Office of the United States Courts: 
* Provides administrative, legal, financial, management, program, and 
technology services to the judiciary. 

United States District Courts: 
* Trial courts of the federal court system covering 94 federal 
judicial districts. 

United States Bankruptcy Courts: 
* Unit of the District Court that adjudicates bankruptcy cases within 
each federal judicial district. 

Bankruptcy Administrators: 
* Oversees bankruptcy cases in North Carolina and Alabama; 
* Parallel program to U.S. Trustees. 

Executive branch: 

Department of Justice: 

Executive Office for U.S. Trustees: 
* Provide policy and legal guidance to 21 regional U.S. Trustees. 

U.S. Trustees: 
* Oversees bankruptcy cases filed in region. 

Source: GAO analysis; clipart photo Flickr. 

[End of figure] 

Organization and Administration of Trusts: 

For a debtor company to obtain the benefit of § 524(g) of the 
bankruptcy code the trust established as part of the company's plan 
for reorganization must operate through mechanisms that provide a 
reasonable assurance that the trust will increase in value, and be in 
a financial position to pay present and future demands that involve 
similar claims in substantially the same manner.[Footnote 17] As part 
of the bankruptcy reorganization process, the creditors and the debtor 
establish the trust's administrative functions, amounts of 
compensation claimants may receive, and processes that determine 
whether a claimant is entitled to compensation. These are established 
and described in a trust's TA and TDP. The TA is the instrument that 
creates a trust and that describes the trust's purpose, acknowledges 
the transfer and acceptance of assets from the debtor company in 
exchange for assuming the debtor's liability, and describes key actors 
in the trust's administration. The TDP contains the processes that 
govern the review, valuing, and payment of asbestos-related personal 
injury claims.[Footnote 18] Among other things, the TDP coordinates 
claim processing, assigns payment values for various asbestos-related 
diseases, sets medical criteria for the different diseases, prescribes 
procedures for reviewing the claims, and establishes a dispute 
resolution process. These provisions function to ensure that all 
claimants, both current and future, receive equitable compensation for 
their asbestos-related injuries. 

The asbestos trusts are privately managed and are generally comprised 
of at least one or more trustees, a trust advisory committee (TAC), 
and a future claimants' representative (FCR). Trustees manage the 
daily operations of the trusts, including managing the trusts' 
investments, hiring and supervising support staff and advisers, filing 
taxes, and submitting annual reports to the bankruptcy court, as 
required by the trusts' TA. The trustees are to manage the trust for 
the sole benefit of the present and future claimant beneficiaries, who 
are represented by the TAC and the FCR, respectively. The TAC, a group 
established by the TA, and the FCR, a position statutorily required by 
§ 524(g), both advise the trustees on and must generally consent to 
significant changes in trust administration and the implementation of 
the TDP.[Footnote 19] 

Although 60 companies subject to asbestos-related liabilities have 
filed for bankruptcy under Chapter 11 and established asbestos 
bankruptcy trusts in accordance with § 524(g), asbestos claimants can 
also seek compensation from potentially liable solvent companies (that 
is, a company that has not declared bankruptcy) through the tort 
system. In such instances, trust compensation as well as a claimant's 
occupational exposure and medical evidence submitted to trusts may be 
taken into consideration. RAND's Institute for Civil Justice released 
a report in August 2011 addressing the potential effects of asbestos 
bankruptcy trusts on compensation in the tort system[Footnote 20] At 
issue in the report is how the tort system takes into consideration 
compensation paid by trusts and the time at which a plaintiff must 
disclose trust submissions, focusing on selected states' practices and 
liability regimes. The report also examines how the establishment of 
the trusts potentially affects total plaintiff compensation and 
payments by the solvent defendants. 

Asbestos Trusts Have Paid at Least $17 Billion in Claims and Are 
Administered in Accordance with Trust Distribution Procedures: 

Asbestos Bankruptcy Trust Payments: 

Since the establishment of the first trust in 1988 through 2010, 
available data indicate that asbestos trusts have paid about 3.3 
million claims valued at about $17.5 billion. Trusts typically report 
the number of claims paid and the value of these claims in annual 
reports submitted to the bankruptcy court, which are generally 
available to the public. In 2010, the RAND Corporation reported that 
from 1988 through 2008, trusts paid about 2.4 million claims totaling 
$10.9 billion with about 575,000 claims totaling $3.3 billion in 2008. 
[Footnote 21] We reviewed available 2009 and 2010 annual financial 
reports and found that these trusts paid approximately 443,000 
additional claims totaling $3.6 billion in 2009 and approximately 
461,000 more claims totaling $3 billion in 2010. The number and value 
of claims paid presented above provides a conservative estimate of 
total trust payments since 1988. RAND Corporation reported that its 
data provide the lower bounds because data on the number and value of 
claims paid are incomplete for some trusts' payments prior to 2006. 
Although we were able to collect 47 (84 percent) of the 56 trusts' 
annual reports for 2009 and 47 (81 percent) of the 58 trusts' annual 
reports for 2010, some trusts' annual reports may not be publicly or 
readily available. Four of the trusts did not have 2009 annual reports 
because the trusts were newly established or were established in 2010 
or 2011. Two of these trusts also did not have 2010 annual reports 
available because the trusts were newly established or were 
established in 2011. In addition, annual reports may have been filed 
under seal with the Bankruptcy Court for reasons deemed appropriate by 
the court, according to U.S. Bankruptcy Court judges we interviewed. 

Asbestos Trusts Assess and Pay Claims in Accordance with Trust 
Distribution Procedures: 

Each asbestos trust has a TDP that governs the administration of the 
trust and establishes the process for assessing and paying claims. 
Claims that meet the criteria documented in the TDP are paid as a 
percentage of the scheduled value specified in the TDP as discussed 
below. TDPs may also include a claim payment ratio provision that 
specifies the amount of payments that the trust may allocate for the 
most serious claims (malignancies, serious asbestosis) versus the less 
serious claims each year. Such provisions serve to prioritize the more 
serious claims to ensure that less serious claims do not absorb the 
bulk of available assets each year simply because there are more of 
them.[Footnote 22] The ratio is different in each trust, but trusts 
may allocate 80 percent or more of their available assets to the more 
serious claims. 

Trusts typically offer claimants two options for claim review, either 
expedited review or individual review. Under expedited review, claims 
that meet the medical and exposure criteria for the alleged disease 
(referred to as the disease level) are to be assigned a scheduled 
value for the disease. The trusts seek to achieve relative equity 
among claimants by establishing these scheduled values. A claim that 
meets the criteria documented in the TDP typically includes a 
completed claim form with documented evidence of exposure to asbestos 
products. Such evidence of exposure may consist of the claimant's work 
history, Social Security records, invoices, employer records, or 
deposition testimony of the claimant or coworkers taken in asbestos 
litigation. The claimant, or attorney acting on the claimant's behalf, 
also submits medical reports or records sufficient to support a 
diagnosis for the specific disease being claimed or, if applicable, a 
copy of a death certificate.[Footnote 23] As an alternative to 
expedited review, individual review provides a claimant the 
opportunity to receive individual consideration of his or her medical 
condition and of the claim's value. Some categories of disease may be 
compensated only through individual review (i.e., lung cancer without 
underlying asbestosis). In the individual review process, the trust 
may be able to take into account factors relevant to the individual 
claimant (dependents, pain and suffering, for example) and factors 
relevant to the litigation posture of the claim were it to have been 
pursued in the tort system (such as the jurisdiction and the track 
record of the law firm representing the claimant). Payment for an 
individual review claim can be higher or lower than a claim in the 
expedited process. In general, under either expedited or individual 
review process, claims are paid according to a first-in, first-out 
(FIFO) rule, processing each claim based on the date the claim was 
filed. Based on our review of 52 of 60 TDPs and our interviews with 
officials from 11 trusts, the process for assessing and paying claims 
typically follows the process shown in figure 5. 

Figure 5: Asbestos Trust Claim Process: 

[Refer to PDF for image: illustration] 

Intake: 

1. Claimant submits claim and supporting documents electronically or 
manually. 

2. Claim enters trust’s claims processing system in expedited or 
individual queue, and is assigned a place in the order received (FIFO 
queue). 

Evaluation/quality assurance: 

3. Claim is reviewed by trustee and claims processing center or 
outsourced to claims processing facility. 

4. Is claim deficient? 
If yes: Deficient claims are returned to claimant for additional 
evidence or information; 
If no: continue to next step. 

5. Approved claims may undergo a quality assurance review. 

6. Trust sends claimant an offer and release. 

Offer acceptance and payment: 

7. Does claimant accept offer? 
If yes: go to #11; 
If no, go to next step. 

8. Alternative dispute resolution/Arbitration. 

9. Does claimant accept offer? 
If yes: go to #11; 
If no, go to next step. 

10. Claimant may choose to file a lawsuit against the trust. 

11. Claim is paid in accordance with established payment percentages 
of the claim’s liquidated value set forth in the TDP. 

Source: GAO analysis of asbestos trust claim process. 

[End of figure] 

Intake of claims. Based on our review of 52 of 60 TDPs and interviews 
with 11 trusts, claims and supporting documents are filed 
electronically or manually. Upon review of a claim and supporting 
documents, the trust's claim processing facility begins the review 
process in accordance with the method selected by the claimant. A 
claimant chooses the expedited or individual review process, both of 
which are separately processed through the FIFO queue. Two to 3 
percent of claims are processed through the individual review process, 
while most claims flow through the expedited claims queue. Claims 
processed through the expedited review claims queue are paid the 
scheduled values for disease level as set forth in the TDP. 

A claimant may elect to have a claim undergo the individual review 
process for purposes of determining whether the liquidated value 
exceeds the TDP's scheduled value, or if the claim does not meet the 
presumptive medical criteria for any of the disease levels in the TDP. 
A claimant can demonstrate exposure to an asbestos-related product in 
a variety of ways. For example, an asbestos claimant diagnosed with 
mesothelioma or asbestos lung cancer and who is receiving chemotherapy 
could be a male age 60 or older who has worked for construction 
companies at numerous work sites and shipyards where he was exposed to 
various asbestos-containing products for an extended period of time. 
This claimant files claims with several trusts where the now 
reorganized companies' products or operations are identified at those 
specific work sites. For occupational exposure evidence, the claimant 
may provide a trust with Social Security records in support of the 
claim to document where the claimant was employed at the time of 
exposure. The record may indicate that the claimant was employed by a 
specific company that was known to have used asbestos products; 
however, there may not be a direct link between the claimant's 
exposure to the product at the company. Under these circumstances, 
trusts may solicit work histories from the claimant's company in 
support of the claim. However, it is possible that accurate work 
records may not exist due to, for example, the passing of a 
substantial amount of time between exposure and the date a claim is 
filed, and the trust, therefore, may have to rely on depositions from 
other parties or even professional judgment that considers all 
available information. 

Evaluation of claims. The process for evaluating claims varies across 
trusts. Seven of the eight large trusts we interviewed told us they 
rely on claims processing companies to assess claims against the 
criteria outlined in the trusts' TDPs. Officials we interviewed at 9 
of the 11 trusts said they have internal claims reviewers to determine 
whether the claimant's medical and exposure evidence satisfies the 
requirements outlined in the TDP. If a trust has any concerns about a 
claim, the trust may request the claimant provide additional 
documentation, such as other independent medical records. Officials we 
interviewed at 5 of the11 trusts told us they also track public 
information and court filings to determine if questions are raised in 
the tort system about the authenticity of information and claims filed 
by a particular lawyer or claimant. In cases where questions are 
raised about the validity of claims from particular individuals, 
trusts officials stated that they will further inspect such claims. 

Payment process. If a trust determines that a claim meets the criteria 
documented in the TDP, the trust is to make the claimant an offer 
based on a percentage of the scheduled disease value specified in the 
TDP.[Footnote 24] Most trusts cannot pay the full value of a claim and 
still maintain sufficient assets to compensate all present and future 
claimants. As a result, trusts determine a payment percentage, a 
fraction of the full value that can be paid to present claimants and 
still maintain sufficient assets for future claims. Payment 
percentages vary across trusts and TDPs we reviewed specify a range of 
payment percentages from 1.1 percent to 100 percent for certain 
diseases, such as mesothelioma or asbestosis. The median payment 
percentage across trusts is 25 percent, according to the 2010 RAND 
Corporation study.[Footnote 25] Periodically, trustees will calculate 
what the trust can afford to pay based on the assets it has on hand, 
and what those assets are expected to earn in the future. For example, 
a trust with a scheduled disease value of $100,000 for a specific 
disease type, such as mesothelioma or asbestosis, that applies a 
payment percentage of 44 percent would pay a claimant $44,000. In 
arriving at a payment percentage, the trustees, the TAC, and FCR 
review the trust's claim statistics and compare those to the original 
forecasts made of the volume and value of claims at the time the trust 
was created. The trustees review the payment schedule periodically and 
may adjust it, up or down, based on what assets are available to meet 
a trust's present and future liabilities.[Footnote 26] The TAC and FCR 
must generally consent to any changes that are made to the payment 
percentage. If the claimant accepts the trusts' offer, the claim is 
paid. If the claimant rejects the offer, the claimant may enter into 
alternate dispute resolution, as set forth in the TDP. If the issue is 
not resolved through alternate dispute resolution, the claimant may 
file a lawsuit in the tort system against the trust in an appropriate 
court of jurisdiction regarding the amount of compensation offered by 
the trust. 

Figure 6: Key Actors Involved In the Asbestos Bankruptcy Trust Payment 
Process: 

[Refer to PDF for image: illustration] 

Trustee: 
Oversees administration of the trust; 
Responsible for processing and paying claims. 

Trust Advisory Committee: 
Represents interests of present claimants. 

Future claims representative: 
Represents interests of future claimants. 

Trustee has oversight of: 

Claims administration: 
In-house claims processing; 
Outsourced claims processing facility. 

Claims payment. 

Source: GAO analysis of asbestos trust claim process. 

[End of figure] 

Quality Assurance and Audit programs. Fifty (98 percent) of the 52 
TDPs we reviewed contained a provision requiring that the trusts 
conduct a claims audit program. These TDPs provide that the trustees, 
with the consent of the TAC and FCR may develop methods for auditing 
the reliability of medical evidence. While trust processes vary, 
officials we interviewed at all 11 of the trusts stated that they 
incorporate quality assurance measures into their intake, evaluation, 
and payment processes. For example, officials we interviewed at 2 of 
the 11 trusts said they reviewed random and targeted samples of 
processed claims to ensure claims were valid and supported. These 
trusts told us that these audits include reviews of supporting medical 
and work history documentation to determine if they are valid and 
accurate. For example, one trust stated that if they identified claims 
by multiple individuals with the same birth date and same disease 
filed by the same law firm, this would likely trigger follow-up 
procedures to ensure that these individuals actually exist. Another 
trust we contacted reported conducting an external audit with claims 
selected randomly to identify claims that required further review for 
potential fraudulent activities. The objective of the audit was to 
ensure that appropriate amounts of money were paid to the proper 
claimants and medical documentation was valid. As part of the audit, a 
sample of x-rays was sent to an independent doctor who evaluated the x-
rays to determine whether the disease existed based on the evidence 
submitted to the trust. According to the trust, any irregularities 
identified by the audit were addressed and all of the randomly 
selected claims were supported by sufficient medical and exposure 
evidence and found to be processed and paid in accordance with trust 
procedures. 

According to the officials we interviewed at all 11 trusts we 
selected, each trust is committed to ensuring that no fraudulent 
claims are paid by the trust, which aligns with their goals of 
preserving assets for future claimants. Although the possibility 
exists that a claimant could file the same medical evidence and 
altered work histories with different trusts, each trust's focus is to 
ensure that each claim meets the criteria defined in its TDP, meaning 
the claimant has met the requisite medical and exposure histories to 
the satisfaction of the trustees. Of the trust officials that we 
interviewed that conducted audits, none indicated that these audits 
had identified cases of fraud. 

Most Asbestos Trusts Publish Annual Financial Reports Whose Details 
Vary; Parties May Obtain Other Information through Requests or 
Subpoenas: 

Trusts' Annual Financial Reports: 

All of the 44 TAs that we reviewed require that trusts submit annual 
financial reports to the U.S. Bankruptcy Court of jurisdiction. For 
example, one trust requires that the "Trustees shall cause to be 
prepared and filed with the Bankruptcy Court a report containing a 
summary regarding the number and type of claims disposed of during the 
period covered by the financial statements." The TDP, which contains 
the processes that govern claim filing and payment, typically requires 
that the trust make information available to claimants and other 
interested parties on the number and value of claims that have been 
resolved. For example, one trust's TDP requires that the trust "make 
available to claimants and other interested parties, the number of 
claims by disease levels that have been resolved indicating the 
amounts of the awards and the averages of the awards by jurisdiction." 

Each of the 47 trust annual financial reports for 2009 and 2010 that 
we obtained and reviewed included the total amount of payments made by 
the trusts and most included the total number of claims received and 
paid. Table 1 provides a summary of information presented in these 
2009 and 2010 annual reports. 

Table 1: Information Found in Trusts' 2009 and 2010 Annual Reports 
Obtained and Reviewed by GAO: 

Number of reports obtained and reviewed; 
2009 Annual reports: 47 (of 56 trusts); 
2010 Annual reports: 47 (of 58 trusts). 

Reports including claims received; 
2009 Annual reports: 37; 
2010 Annual reports: 35. 

Minimum claims received by a trust[A]; 
2009 Annual reports: 0; 
2010 Annual reports: 0. 

Maximum claims received by a trust; 
2009 Annual reports: Over 800,000; 
2010 Annual reports: Over 160,000. 

Total claims received by trusts; 
2009 Annual reports: 1.6 million; 
2010 Annual reports: 1.3 million. 

Reports including claims paid; 
2009 Annual reports: 42; 
2010 Annual reports: 42. 

Minimum claims paid by a trust; 
2009 Annual reports: 0; 
2010 Annual reports: 0. 

Maximum claims paid by a trust; 
2009 Annual reports: Over 79,000; 
2010 Annual reports: Over 83,000. 

Total claims paid; 
2009 Annual reports: 443,000; 
2010 Annual reports: 461,000. 

Reports including value of claims paid; 
2009 Annual reports: 47; 
2010 Annual reports: 47. 

Minimum value of claims paid by a trust; 
2009 Annual reports: 0; 
2010 Annual reports: 0. 

Maximum value of claims paid by a trust; 
2009 Annual reports: Over $800 million; 
2010 Annual reports: Over $650 million. 

Total value of claims paid by trusts; 
2009 Annual reports: $3.6 billion; 
2010 Annual reports: $2.9 billion. 

Source: GAO analysis of available trusts' annual reports. 

[A] According to the annual reports for those trusts that reported 0 
claims received and 0 claims paid, the trusts did not accept claims 
because the trusts are in the process of organizing (if newly 
established), have pending litigation, have no funds available to pay 
claims, or have pending assets in the form of unliquidated insurance 
assets. 

[End of table] 

Of the annual reports we reviewed, one trust reported information on 
the amount paid to each individual and listed these individuals' 
names. According to officials from this trust, they included 
individual's names to reduce the number of external requests for 
claimant payment information and, therefore, reduce the trust's 
operating expenses associated with addressing such requests. 

Trusts that submitted annual reports for 2009 and 2010 may summarize 
claims paid according to whether the claim is for a malignant or 
nonmalignant disease, by the state (or country) from which the claim 
was filed, or by whether the claim was a prebankruptcy filing or filed 
after the trust's establishment. The annual reports may also include 
information about the trusts' other activities, including names of 
trust administrators, records of administrator meetings, changes in 
the payment percentage, and updates on resolved and ongoing litigation 
involving the trust or the debtor companies' insurers. 

Trust Information May Also Be Obtained through Requests or Subpoenas 
in Some Cases: 

Outside of the TAs, TDPs, and publicly available annual financial 
reports, additional information related to trusts or claimants may be 
obtained through direct requests to the trust or by way of court- 
ordered subpoenas. When asbestos-related litigation makes its way into 
the tort system, such as when a party brings suit against a solvent 
company, the court may require that a claimant or trust share 
information about an individual's exposure to asbestos, work history, 
or other evidence submitted to the trusts either at its own initiative 
or at the request of one of the parties through discovery. Discovery 
is the pretrial phase of a lawsuit during which the parties seek 
production of information related to the litigation or that may be 
"reasonably calculated to lead to admissible evidence."[Footnote 27] 
In asbestos cases, exposure and work history may be sought as evidence 
in determining a particular defendant's liability for the exposure or 
a plaintiff's exposure history, among other things. While discovery is 
governed in each jurisdiction by judicially adopted or statutorily 
mandated rules (for example, discovery in federal civil matters is 
generally governed by Rule 26 of the Federal Rules of Civil 
Procedure), discovery is generally limited to nonprivileged materials 
and matters relevant to the subject involved in the case. Typically, 
materials and information disclosed in the course of settlement 
negotiations is recognized as not discoverable. Sixty-five percent of 
the trust distribution procedures that we reviewed specifically state 
that claimant information submitted to the trust for purposes of 
obtaining compensation is confidential and should be treated as a 
settlement negotiation. Depositions, requests for document production 
and review, and subpoenas are the commonly used techniques to compel 
production of discoverable material. Judges may require that a 
claimant or trust disclose trust claim forms during the discovery 
phase, which may include statements of work history, asbestos 
exposure, and medical diagnosis, for claims previously submitted to 
trusts. 

Whether claim forms and payments should be discoverable has been a 
subject of dispute during the discovery phase of asbestos-related 
litigation. The disagreement centers around whether claim forms and 
the subsequent claim evaluation fall under the privileged material 
exemptions to general discovery rules. Similar to the Federal Rules of 
Civil Procedure, state civil procedure rules generally protect the 
confidentiality of settlement negotiations, and settlement agreements 
are generally not admissible into evidence at trial. The trusts and 
claimant representatives have argued that trusts should be treated as 
any other settling party while defendant solvent companies and 
insurers have argued that the trusts' claims processing is 
nonadversarial and, therefore, should not be treated as a settlement 
negotiation or agreement. 

Within the tort system, if a claim proceeds to trial and results in a 
verdict for the claimant, the liability of each defendant is 
established in accordance with applicable state law.[Footnote 28] The 
court, however, may adjust any amounts awarded by way of a verdict to 
account for compensation that the claimant has already received from 
trusts or through settlements with other parties. Efforts to offset 
amounts awarded by verdict with an amount received from trusts 
constitute a method for managing contributions from multiple 
defendants and accounting for other sources of compensation related to 
the harm deemed to have been inflicted. State courts generally require 
that the liable defendant (or defendants) be given credit for 
compensation the plaintiff has already received (for example, as a 
claimant to a trust), which may have the effect of reducing the amount 
a plaintiff will receive from a particular defendant. In such 
instances, a court will generally require, if it had not done so 
earlier in the proceedings, that the plaintiff disclose any 
compensation actually received for the harm, including payments from 
trusts. However, if a plaintiff had not filed any claims with trusts 
prior to or during the trial, then there would be no claims 
information available to potentially offset an amount awarded by 
verdict. Following a verdict, a prevailing plaintiff would generally 
not be precluded from subsequently filing claims for compensation to 
those trusts to which the harm is attributable. In addition, a solvent 
company found liable for damages in the court system could file an 
indirect claim with a trust seeking compensation for that trust's (or, 
the debtor company's) contribution to the underlying harm suffered by 
the plaintiff.[Footnote 29] 

Asbestos trusts typically protect the confidentiality of claimants' 
submissions to the trust in accordance with the trust's TDP, unless 
specifically given permission by the claimant or subpoenaed by a court 
of jurisdiction. Thirty-three (65 percent) of the 52 TDPs we reviewed 
included sections related to protecting the confidentiality of 
claimants' information and these sections often state that the trusts 
will only disclose information to outside parties with permission of 
the claimant or in response to a valid subpoena. For example, one 
trust's TDP states that the trust "will preserve the confidentiality 
of such claimant submissions, and shall disclose the contents thereof 
only, with the permission of the holder… to such other persons as 
authorized by the holder… or in response to a valid subpoena." 
However, of the 52 TDPs that we reviewed, 18 did not include a 
confidentiality statement. 

According to trust officials with whom we spoke, if served with a 
subpoena requesting disclosure of an individual claimant's 
information, the trust may consider whether the subpoena is valid 
before identifying whether or not the subpoenaed claim or information 
exists. For example, the trust may consider whether the court issuing 
the subpoena has jurisdiction. If the claim or information exists, the 
trust notifies the claimant (or his or her representative) of the 
subpoena and the claimant (or his or her representative) may file an 
objection or motion to quash (or void) the subpoena. If no objection 
or motion to quash the subpoena is filed, the trust will generally 
produce the subpoenaed information or claim file but may exclude any 
confidential settlement, payment, or nonpertinent medical information. 
According to trust officials we interviewed, subpoenas typically 
request disclosure of an individual claimant's information for use 
during either the pre-trial discovery or post-trial setoff processes. 
However, in other circumstances, solvent companies, debtor companies 
that are attempting to reorganize under Chapter 11, or insurance 
carriers may attempt to have a trust's entire claimant database 
subpoenaed. In such instances, the breadth of such a demand for 
disclosure may prompt a trust to challenge the subpoena. 

Views Differ on Whether Additional Claimant Information Should Be Made 
Available; Recent Efforts to Change the Trust System: 

Stakeholder Views: 

Stakeholders, including plaintiff and defense attorneys, trustees, and 
other interested parties expressed differing views on the extent to 
which additional individual claimant information should be made 
available to outside parties. Those who oppose additional disclosure 
of individual claimant information note that parties in the tort 
system are not required to disclose settlement negotiation or 
agreement information outside of the subpoena process. For example, 
during the expert panel discussions at a conference on asbestos 
bankruptcy proceedings and trust operations, three plaintiff attorneys 
stated that all potentially relevant information about an individual's 
exposure to asbestos, work history, or other evidence submitted to the 
trusts may be available through the pretrial discovery process, during 
which time a subpoena may have been used to obtain the information. 
The three plaintiff attorneys who gave presentations at the conference 
and who we interviewed emphasized that the trusts are analogous to any 
other settling party and related negotiations and payments are 
privileged. Also, as part of its 2011 study, RAND Corporation 
interviewed 11 asbestos plaintiff attorneys, 20 defense attorneys, and 
6 trust officials and asked them their views of the disclosure of 
individuals' personal information submitted to trusts.[Footnote 30] 
The plaintiff attorneys interviewed in the RAND study stated that all 
of the potentially relevant information in the trusts' possession is 
available to the defense through pretrial discovery and emphasized 
that the trusts are analogous to any other settling party and related 
negotiations and payments are privileged. 

Moreover, officials we interviewed from all 11 trusts and the trust 
attorneys that RAND Corporation interviewed emphasized that trusts are 
bound to keep the claim forms and settlement amounts with individual 
claimants confidential for two primary reasons.[Footnote 31] First, 
the TDPs generally require the confidentiality of claimant information 
and, second, trust attorneys and trust officials maintain that 
requests for information impose substantial costs. Such costs may 
include the legal fees associated with their duty to preserve the 
confidentiality of claim forms as well as the costs of finding, 
producing, and reviewing the information sought in a valid discovery 
request. According to officials for 2 of the 11 trusts whom we 
interviewed, paying these costs would deplete trust assets, which 
exist solely for the purpose of compensating asbestos claimants. For 
example, officials for one of the trusts we interviewed said the trust 
incurred $1 million in attorneys' fees over a request to disclose 
every document on every claimant, as the trust attorneys had to review 
each document to delete confidential information not germane to the 
subpoena. 

In contrast to the plaintiffs' attorneys and trust officials, an 
association representing the business community's views that we 
interviewed, along with three defense attorneys who were presenters at 
the conference on asbestos bankruptcy proceedings and trust 
operations, and the defense attorneys that RAND Corporation 
interviewed, stated that more claimant information should be 
available. For example, defense attorneys have argued that trust 
submission forms, which could include claimant medical history and 
asbestos exposure and payment information, should be made available 
because the increase of information on claimant filings and 
compensation may decrease the asbestos-related litigation burden on 
the remaining solvent defendants by demonstrating that the trusts have 
increased claimants' overall compensation beyond the amount justified 
in relation to the harm caused. These defense attorneys also argue 
that a lack of transparency could enable plaintiffs to file 
contradictory claims to different trusts while also pursuing recovery 
through the tort system.[Footnote 32] One of the two researchers and 
one of the two law professors with whom we spoke also expressed a need 
to increase transparency out of similar concerns for claimants' 
misrepresenting their exposure histories to trusts or in the tort 
system. 

Recent Proposals and Actions Related to Asbestos Trusts and the 
Disclosure of Claimant Information: 

In recent years, there have been various proposals to address the 
disclosure of claimant information in the possession of trusts and the 
means for compensating persons with conditions attributed to asbestos 
exposure. One proposal, made by an expert in administrative 
alternatives to mass tort litigation and asbestos litigation in 2006, 
for example, would have created a federal depository to review 
asbestos bankruptcy trust claims for any inconsistencies to ensure 
that claims filed across trusts were valid. A 2010 proposal by the 
Institute for Legal Reform (ILR), an affiliate of the U.S. Chamber of 
Commerce that represents the business community, is aimed at imposing 
reporting requirements on asbestos bankruptcy trusts to report 
claimant-related information to increase transparency.[Footnote 33] 
Specifically, the proposal would require asbestos trusts to file 
publicly available quarterly reports. Reports submitted under this 
proposal would need to describe each demand for payment the trust 
received during the reporting period, including an individual's 
asbestos exposure history, as well as each amount paid for demands 
during the report period, but would not include confidential medical 
records or claimant Social Security numbers. The ILR believes that a 
lack of transparency presently undermines the intent of § 524(g) to 
the extent that contradictory claims are depleting trust assets to the 
detriment of valid future claimants. According to the ILR, to restore 
oversight, either the U.S. Trustees program needs statutory authority 
to directly oversee the administration of the trusts or all of the 
stakeholders, such as solvent defendants and other trusts, should have 
access to claimant work history and exposure information to monitor 
for inconsistent or fraudulent claims. The Committee on Rules of 
Practice and Procedure of the Judicial Conference of the United 
States, Advisory Committee on Bankruptcy Rules (Advisory Committee), 
anticipates considering the proposal at its fall 2011 meeting. 
[Footnote 34] 

The Advisory Committee's Subcommittee on Business Issues preliminarily 
identified several issues it would consider before recommending action 
on the ILR proposal. The issues raised primarily focus on whether the 
courts have authority to prescribe such a rule, whether implementation 
of the proposed rule falls within the scope of bankruptcy 
jurisdiction, and whether the ILR proposal demonstrated a sufficient 
need for the reporting and disclosure provisions it advocates. With 
respect to the courts' authority to prescribe such a rule, the 
subcommittee opined that imposing discovery and other disclosure 
requirements for purposes of matters "outside the contours of a 
bankruptcy case," such as tort and other nonbankruptcy suits, might 
exceed the courts' authority to prescribe rules involving practice and 
procedure in bankruptcy cases.[Footnote 35] With respect to the 
bankruptcy court's jurisdiction, the subcommittee acknowledged that 
while its jurisdiction does not cease upon the confirmation of a plan 
of reorganization, it does decrease at that point. It further 
acknowledged that while in instances where a confirmed plan 
establishes a trust pursuant to § 524(g), and the bankruptcy court 
continues to exercise jurisdiction to receive annual reports and other 
information from the trustees, the extent of this postconfirmation 
exercise of jurisdiction remains unsettled. The rule proposed by ILR 
would operate postconfirmation and, as such, the reporting and 
disclosure obligations the rule would impose may not appropriately 
fall within the bankruptcy court's jurisdiction. With respect to the 
reporting and disclosure obligations the proposed rule would impose, 
the subcommittee primarily addressed two points. First, it suggested 
that quarterly reporting requirements would not necessarily achieve 
the purpose of ensuring the integrity of the trust payment system by 
rooting out improper claim payments, and acknowledged that one person 
seeking and receiving payments from several trusts does not itself 
reveal impropriety. Second, the subcommittee opined that the 
bankruptcy court may not need the information at the level of detail 
proposed by the rule, in particular as it relates to enabling 
defendants in tort actions to offset against a judgment any amounts 
the plaintiff has already been paid for the same injury. The 
subcommittee also opined, however, that if discovery tools in tort 
litigation have proven to be ineffective and that trusts should be 
providing more information than they currently are, a legislative 
solution, such as an amendment to § 524(g) that imposes additional 
requirements on trusts created under that provision may be 
appropriate. The Judicial Conference plans to give the ILR suggestion 
further consideration after hearing responses from interested parties 
in the fall of 2011. 

Various legislative proposals have sought to address the means for 
compensating persons with diseases or conditions attributed to 
asbestos exposure. Such proposals have sought to establish more fair 
and efficient processes for resolving asbestos injury claims, ensuring 
the availability of compensation for all present and future claimants, 
providing compensation commensurate with the degree of injury 
suffered, relieving federal and state courts of the burden of asbestos-
related litigation, and better ensuring the availability of scarce 
resources for legitimate claimants. Most proposals involved 
consolidating responsibility for the receipt, evaluation, and payment 
of claims into a single office, while also proposing the establishment 
of a single fund, sustained by contributions of asbestos defendants, 
insurers, and other responsible parties, from which valid claims would 
be paid. The proposals would further have established the processes 
and procedures of such offices as the exclusive remedy for asbestos 
claims and generally would have barred the pursuit of asbestos-related 
claims in federal or state courts. More recent proposals, such as the 
Fairness in Asbestos Injury Resolution Act of 2005, referred to as the 
FAIR Act, would have potentially affected the viability of asbestos 
personal injury trusts by requiring, among other things, that trusts 
deposit a portion of their assets into the fund established under that 
proposed act. The current regime for addressing the liability of 
asbestos defendants--primarily, asbestos personal injury trusts and 
the tort system--remains. For a summary of proposed federal 
legislation addressing compensation for asbestos-related harms and 
death, see appendix I. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to the Department of Justice (DOJ), 
Administrative Office of the U.S. Courts, and the Federal Judicial 
Center for official review and comment. None of these agencies 
provided comments on this report. DOJ and the Administrative Office of 
the U.S. Courts provided technical clarifications, which we 
incorporated where appropriate. 

As agreed with your office, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies to the 
Administrative Office of the U.S. Courts, Federal Judicial Center, 
Department of Justice, and interested congressional committees. In 
addition, the report will be available at no charge on the GAO Web 
site at [hyperlink, http://www.gao.gov]. 

If you or your staff have any questions concerning this report or wish 
to discuss the matter further, please contact me at (202) 512-8757, or 
jenkinswo@gao.gov. Contact points for our Offices of Congressional 
Relations and Public Affairs may be found on the last page of this 
report. Key contributors to this report are listed in appendix II. 

Sincerely yours, 

Signed by: 

William O. Jenkins, Director: 
Homeland Security and Justice Issues: 

[End of section] 

Appendix I: Select Federal Legislative Proposals Addressing 
Compensation for Asbestos-Related Harms or Death: 

Proposed legislation: Asbestosis and Mesothelioma Benefits Act; 
Citation: H.R. 6906, 93rd Cong. (1st Sess. 1973); 
Brief synopsis of select provisions: With respect to claims for 
benefits filed before December 31, 1974, would authorize the Secretary 
of Health, Education, and Welfare to promulgate regulations to provide 
compensation, in conjunction with state worker's compensation laws, 
where an asbestos worker is disabled or deceased due to asbestosis or 
mesothelioma. Such regulations would ensure consideration of all 
relevant evidence, including workers' exposure to asbestos and 
relevant medical tests. With respect to claims for benefits filed 
after December 31, 1974, the proposed act would authorize the 
Secretary of Labor to promulgate regulations to provide compensation 
where an asbestos worker is disabled or deceased due to asbestosis or 
mesothelioma, but only if applicable state workers' compensation laws 
do not provide adequate coverage. The Secretary would list in the 
Federal Register those state workers' compensation laws that do not 
provide adequate coverage as a basis for awarding compensation. 

Proposed legislation: Asbestos Health Hazards Compensation Act of 1981; 
Citation: S. 1643, 97th Cong. (1st Sess. 1981); 
Brief synopsis of select provisions: Recognizing that all parties 
directly or indirectly responsible for the occurrence of occupational 
asbestos diseases, including the federal government and the asbestos 
industry, should participate in the compensation for workers injured 
as a result of exposure to asbestos, would establish minimum standards 
under which state and federal workers' compensation laws will provide 
prompt, adequate, exclusive, and equitable compensation for 
occupational diseases or death resulting form exposure to asbestos. 
Among other provisions, the Secretary of Labor would prescribe, by 
regulation, minimum standards for determining if a worker's disability 
or death is due to asbestos-related disease would entitle a worker to 
compensation from his or her employer should a state or federal 
workers' compensation law be insufficient, and, if sufficient, 
benefits under a state or federal workers' compensation law would be 
the exclusive remedy against the employer, or any subsidiaries, 
predecessors, affiliates, or successors, among others. 

Proposed legislation: Asbestos Health Hazards Compensation Act; 
Citation: H.R. 5224, 97th Cong. (1st Sess. 1981); 
Brief synopsis of select provisions: Would authorize the Secretary of 
Labor, in accordance with regulations promulgated pursuant to this 
authority, to direct responsible parties (including entities engaged 
in the manufacture, import, and distribution of asbestos) to make 
payment of benefits with respect to persons suffering a disability or 
who have died as a result of asbestos-related diseases before January 
1, 1983. It would further establish an Asbestos Health Hazards 
Compensation Fund, sustained and developed with contributions from 
responsible parties, from which all valid claims for benefits would be 
paid. The fund would be directed by a board composed of 
representatives of responsible parties and affected persons, among 
others, that would be responsible for determining the validity of 
claims prior to authorizing disbursement and making investments on 
behalf of the fund, among other things. 

Proposed legislation: Occupational Health Hazards Compensation Act of 
1982; 
Citation: H.R. 5735, 97th Cong. (2d Sess. 1982); 
Brief synopsis of select provisions: Would authorize compensation for 
death or disability if a claimant established that exposure to 
asbestos (or uranium ore) during the course of employment caused the 
resulting condition and if compensation had not been otherwise awarded 
under other workers' compensation laws. It would provide that an order 
awarding or denying compensation be filed with the Department of 
Labor's Office of Workers' Compensation Programs, the applicable state 
workers' compensation agency and insurance commissioner, and that 
notice be provided to the claimant, responsible employer, and that 
employer's insurance carrier. It would require that all employers be 
responsible for payment of compensation to their employees by 
maintaining sufficient insurance or by furnishing proof to the 
Secretary of Labor of their financial ability to pay such 
compensation. In the event a responsible employer cannot be 
identified, it would provide for the payment of benefits out of an 
Asbestos Compensation Excess Liability Fund sustained with 
contributions of manufacturers and importers of asbestos and asbestos-
containing products. Compensation to which a claimant is entitled 
under this proposed act is a claimant's exclusive remedy; 
entities contributing to the fund must continue to satisfy its 
obligations to maintain the liability protections under the proposed 
act. 

Proposed legislation: Occupational Disease Compensation Act of 1983; 
Citation: H.R. 3175, 98th Cong. (1st Sess. 1983); 
Brief synopsis of select provisions: With the purpose of establishing 
a rational, effective workers' compensation law that provides prompt, 
adequate, and equitable compensation for workers disabled or deceased 
due to workplace exposure to toxic substances, including asbestos, and 
providing a mechanism for reducing related litigation, would establish 
a Toxic Substance Employee Compensation Insurance Pool from which all 
compensation for claims filed under this proposed law would be paid. 
All employers or toxic substance market participants, as determined by 
the Secretary of Labor, that participate as covered contributors of 
the pool would get the benefit of the proposed act's limited liability 
provisions (that is, compensation under the proposed act would be a 
claimant's exclusive remedy) provided they establish that they have 
sufficient insurance to meet their obligations to the pool. 

Proposed legislation: Asbestos Workers' Recovery Act; 
Citation: H.R. 1626, 99th Cong. (2d Sess. 1986); 
Brief synopsis of select provisions: Recognizing the number of 
asbestos-related lawsuits, their potential impacts on the courts, 
economy, and victims, and that then-existing programs do not 
adequately address circumstances, would propose a federal mechanism by 
which all involved parties would, to the extent commensurate with 
their contribution to a persons disability or death caused by 
occupational exposure to asbestos, share the costs of compensation. 
Before filing a claim for supplemental benefits under this proposed 
act, an application for workers' compensation must have been filed. 
The Secretary of Health and Human Services, in evaluating a claim for 
supplemental benefits, would rely exclusively (except where not 
possible) on the determination of the applicable workers' compensation 
program concerning the nature and extent of the claimants condition, 
the extent to which an asbestos-related disease caused the condition, 
and whether exposure to asbestos in the course of employment caused 
the condition. It would create a National Medical Panel on Asbestos-
Related Diseases within the Department of Health and Human Services 
to, among other things, promulgate a list of diseases caused by 
occupational exposure to asbestos. It would also impose an annual 
assessment on asbestos defendants and insurers of asbestos defendants' 
policies, and would have accounted for companies filing for 
bankruptcy, including reorganization under Chapter 11 of the federal 
bankruptcy code. Amounts assessed, as well as federal appropriations 
and other sources would sustain an Asbestos-Related Disease Trust 
Fund, with the Secretary of the Treasury (or a designee) serving as 
managing trustee, and an Asbestos-Related Disease Trust Fund 
Conservation Committee would, among other responsibilities, review 
claims. Contributors to the fund would be protected from further 
liability due to occupational exposure to asbestos, except for 
liability under workers' compensation laws. 

Proposed legislation: Fairness in Asbestos Compensation Act of 1999; 
Citation: S. 758 106th Cong. (1st Sess. 1999); 
Brief synopsis of select provisions: Acknowledging, among other 
things, that asbestos litigation had already lead to the bankruptcy of 
more than 15 companies, representing a "great majority" of the former 
asbestos industry, it would establish an Asbestos Resolution 
Corporation, provide for the appointment of a Medical Advisory Board, 
establish criteria for how a claimant may demonstrate medical 
eligibility, and establish an alternative dispute resolution process 
to ensure prompt, efficient, fair, and inexpensive resolution of 
claims. Under the process proposed, a claimant would provide the 
corporation with contacts for all entities allegedly responsible for 
the asbestos-related injury, as well as the basis for the allegations 
(e.g., dates, locations, nature and frequency of exposure). The 
corporation notifies all named parties and allows for a period of 
reasonable discovery. If the parties do not settle, a mediator is 
appointed and both parties are expected to make good faith offers of 
settlement. If settlements are not reached, the claimant may pursue 
arbitration or file a civil action (though a civil action may only be 
filed if the procedures proposed by this act are followed and a 
release from mediation is obtained). Costs for these processes would 
be allocated among all named parties (i.e., the parties alleged to 
have caused the harm) and would be deposited into an Asbestos 
Resolution Corporation Trust Fund managed by the Secretary of the 
Treasury. This proposed act would not apply to existing trusts, though 
a trust would be able to voluntarily, albeit irrevocably, subject 
itself to the act. 

Proposed legislation: Asbestos Compensation Act of 2000; 
Citation: H.R. 1283, 106th Cong. (2d Sess. 2000); 
Brief synopsis of select provisions: Would establish within the 
Department of Justice an Office of Asbestos Compensation to exercise 
exclusive jurisdiction (except for claims brought under any workers' 
compensation laws or veterans' benefits program) to determine if a 
claimant is entitled to compensation and the amount of compensation. 
It would further require the appointment of a medical director to 
manage the medical review process and to determine if a claimant meets 
medical or testing eligibility requirements, establish within the 
office an Asbestos Compensation Fund managed by a trustee and 
initially funded through appropriations but sustained through 
offsetting collections of cost and penalties paid to it, among other 
sources, establish an Office of Administrative Law Judges to expedite 
administrative adjudication of asbestos claims, and establish an 
Advisory Committee to periodically evaluate the medical eligibility 
criteria. Medically eligible claimants would name defendants who, 
after receiving notice, must provide claimant with a good faith 
settlement offer, after which the trustee would make an offer of 
compensation to the claimant. If the claimant were to accept any of 
defendants' offers of settlement, the trustee's offer would be reduced 
accordingly; if the claimant accepts the trustee's offer, the trustee 
would then either accept the defendant(s) offer or decide to prosecute 
the claims; if claimant rejects all offers it may elect for 
administrative adjudication or may opt out of settlement proceedings 
and file suit against the defendant(s) in any state or federal court 
of competent jurisdiction. The office would further collect data on 
products, settlements, judgments, and awards in connection with 
asbestos claims, make such data publicly available, and exercise 
subpoena authority. 

Proposed legislation: To amend the Internal Revenue Code of 1986 to 
provide relief for payment of asbestos-related claims; 
Citation: H.R. 1412, 107th Cong. (1st Sess. 2001); 
Brief synopsis of select provisions: Would amend the Internal Revenue 
Code to, among other things, provide that any settlement fund 
established for the principal purpose of resolving and satisfying 
present and future claims relating to asbestos would not be taxed. 

Proposed legislation: Asbestos Claims Criteria and Compensation Act of 
2003; 
Citation: S. 413, 108th Cong. (1st Sess. 2003); 
Brief synopsis of select provisions: Recognizing, among other things, 
that asbestos exposure has created a flood of litigation "targeting 
approximately 8,400 defendant companies" and articulating its purpose 
to give priority to asbestos claimants who demonstrate actual physical 
harm or illness caused by asbestos, fully preserve the rights of 
claimants exposed to asbestos but who will pursue compensation in the 
future, enhance the ability of the federal and state judicial systems 
to supervise and control asbestos litigation and asbestos-related 
bankruptcy proceedings, and preserve scarce resources, the proposed 
act would prohibit a person from bringing or maintaining a civil 
action absent a prima facie showing of physical impairment due to a 
medical condition for which asbestos exposure was a substantial 
contributing factor, and would set forth minimum requirements for 
making such a prima facie showing. 

Proposed legislation: Fairness in Asbestos Injury Resolution (FAIR) 
Act of 2003; 
Citation: S. 1125, 108th Cong. (1st Sess. 2003); 
Brief synopsis of select provisions: Would create a privately funded, 
publicly administered Asbestos Injury Claims Resolution Fund to 
provide the necessary resources for a fair and efficient system to 
resolve asbestos injury claims by providing compensation to legitimate 
present and future claimants, to provide compensation based on the 
severity of the injury, and to relieve federal and state courts of the 
burden of asbestos litigation. Would establish within the Court of 
Federal Claims an Office of Special Asbestos Masters to provide fair 
compensation in a nonadversarial manner to persons whose health has 
been adversely affected by asbestos exposure, and a process by which 
persons suffering from an eligible disease or condition may file a 
claim with the Court. The proposed act would establish the requisite 
medical and exposure evidence, as well as asbestos-disease levels. 
Claimants who meet established requirements would be entitled to an 
award as determined by the prescribed benefits table, which sets forth 
a scheduled value for asbestos-related conditions and diseases. The 
fund would be administered by an administrator (appointed by the 
President) through an Office of Asbestos Injury Claims Resolution and 
would be sustained via assessments from defendant participants (as 
determined by the fund administrator) as well as amounts paid to the 
fund by insurer participants, as determined by an Asbestos Insurers 
Commission. The proposed act would impose criminal sanctions on 
parties who knowingly and willfully submit false information or 
otherwise make attempts to defraud the process and it would prohibit 
asbestos claims from being pursued in any federal or state court. The 
proposed act would further impact a debtor company's attempt to 
reorganize under Chapter 11 of the federal bankruptcy code and 
establish a trust under § 524(g) of the code and it would require that 
any trusts established under § 524(g) assign a portion of its corpus 
to the fund. 

Proposed legislation: Fairness in Asbestos Injury Resolution (FAIR) 
Act of 2004; 
Citation: S. 2290, 108th Cong. (2d Sess. 2004); 
Brief synopsis of select provisions: Would establish an Office of 
Asbestos Disease Compensation within the Department of Labor to 
provide timely, fair compensation, in amounts and under terms 
specified in the proposed act, on a no-fault basis and non-adversarial 
manner, to individuals whose health has been adversely affected by 
exposure to asbestos. The office would be headed by an administrator 
responsible for, among other things, promulgating regulations and 
procedures for processing claims, and operating an Asbestos Injury 
Claims Resolution Fund, sustained with contributions from defendant 
and insurer participants as described in the proposed act. The 
administrator would establish an Advisory Committee on Asbestos 
Disease Compensation to advise the administrator on claim filings and 
processing procedures, and authorizes a Medical Advisory Committee to 
provide expert advice on medical issues. The proposed act sets out 
medial criteria, means for weighing occupational exposure, and 
requisite medical and exposure evidence. Claimants who meet all 
applicable criteria would be entitled to an award, the amount 
determined pursuant to the prescribed benefits table (basically, a 
schedule of disease values) along with a structured payment schedule. 
Criminal sanctions could be imposed for knowing and willful attempts 
to defraud. The proposed act would further impact a debtor company's 
attempt to reorganize under Chapter 11 of the federal bankruptcy code 
and establish a trust under § 524(g) of the code, and it would require 
that any trusts established under § 524(g) assign a portion of its 
corpus to the fund. 

Proposed legislation: Asbestos Compensation Fairness Act of 2005; 
Citation: H.R. 1957, 109th Cong. (1st Sess. 2005); 
Brief synopsis of select provisions: With a purpose to give priority 
to claimants who demonstrate actual physical harm or illness caused by 
exposure to asbestos or silica, fully preserve the rights of future 
claimants, enhance the ability of state and federal judicial systems 
to supervise and control asbestos and silica litigation and asbestos-
related bankruptcy proceedings, and to conserve scarce recourses, the 
proposed act would require that a person bringing or maintaining a 
civil action make a prima facie showing of physical impairment 
resulting from a medical condition of which exposure to asbestos was a 
substantial contributing factor, with minimum requirements for making 
such a prima facie showing set forth in the proposed act. It would 
establish the federal district courts as having jurisdiction over 
asbestos and silica claims and would authorize courts to consolidate 
for trial any number and type of asbestos and silica claims with 
consent of all parties, but absent consent would authorize the 
consolidation of claims relating to the same exposed person and 
members of his or her family. It would further establish plaintiffs' 
burden of proof, hold a defendant liable only for that portion of a 
judgment that corresponds to that defendant's percentage of liability 
(regardless of whether all or other parties were involved in the 
case), and established separate liability provisions for sellers, 
renters, lessors, and premises owners (i.e., distinguishing them from 
manufacturers). 

Proposed legislation: Fairness in Asbestos Injury Resolution Act of 
2005; 
Citation: S. 852, 109th Cong. (2d Sess. 2006); 
Brief synopsis of select provisions: Would establish an Office of 
Asbestos Disease Compensation within the Department of Labor to 
provide timely, fair compensation, in amounts and under terms 
specified in the proposed act, on a no-fault basis and nonadversarial 
manner, to individuals whose health has been adversely affected by 
exposure to asbestos. The office would be headed by an administrator 
responsible for, among other things, promulgating regulations and 
procedures for processing claims, and operating an Asbestos Injury 
Claims Resolution Fund, sustained with contributions from defendant 
and insurer participants as described in the proposed act. The 
administrator would establish an Advisory Committee on Asbestos 
Disease Compensation to advise the administrator on claim filings and 
processing procedures, and authorizes a Medical Advisory Committee to 
provide expert advice on medical issues. The proposed act sets out 
medial criteria, means for weighing occupational exposure, and 
requisite medical and exposure evidence. Claimants who meet all 
applicable criteria would be entitled to an award, the amount 
determined pursuant to the prescribed Benefits Table (basically, a 
schedule of disease values) along with a structured payment schedule. 
Criminal sanctions could be imposed for knowing and willful attempts 
to defraud. The proposed act would further impact a debtor company's 
attempt to reorganize under Chapter 11 of the federal bankruptcy code 
and establish a trust under § 524(g) of the code, and it would require 
that any trusts established under § 524(g) assign a portion of its 
corpus to the Fund. The remedies provided under this proposed act 
would be the exclusive remedy available for asbestos claims and, 
generally, would bar the pursuit of all asbestos claims in federal or 
state courts. 

Source: GAO analysis of proposed legislation. 

[End of table] 

[End of section] 

Appendix II: Contact and Staff Acknowledgments: 

GAO Contact: 

William O. Jenkins, Jr., (202) 512-8777 or jenkinswo@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Chris Currie, Assistant 
Director, and Gary M. Malavenda Analyst-in-Charge, led the development 
of this report. Elizabeth Dunn, Octavia Parks, and Corinne Robertson 
made significant contributions. David Alexander assisted with the 
design and methodology. Tom Lombardi provided legal counsel. Jason 
Kelly, Lara Miklozek, and Robert Robinson provided technical support. 

[End of section] 

Footnotes: 

[1] A tort is a civil wrong that results in an injury or harm and that 
is recognized by law as grounds for a lawsuit by the injured party; a 
mass tort is one that injures many people. The primary aim of tort law 
has been described as providing relief for the damages incurred and 
deterring others from committing the same harms. For purposes of this 
report, "malignant diseases" refer to those involving mesothelioma, 
lung cancer or other cancer while "nonmalignant diseases" refer to 
asbestosis and pleural diseases. 

[2] Mesothelioma is a cancer of the mesothelium, a protective membrane 
that covers the internal organs. Mesothelioma is the most severe 
disease category recognized by asbestos trusts. 

[3] RAND Corporation, Asbestos Litigation, RAND Institute for Civil 
Justice, MG-162 (2005) and Bertram Price and Adam Ware, Mesothelioma 
Trends in the United States: An Update Based on Surveillance, 
Epidemiology, and End Results Data for 1973 and 2003, volume 159, 
number 2 (2004). 

[4] See 11 U.S.C. § 362. 

[5] See 11 U.S.C. §§ 1101-46 (Chapter 11, Reorganization); 11 U.S.C. § 
524(g) (allowing for the issuance of an injunction against future 
claims of liability for asbestos-related injuries against the debtor 
company if the confirmed plan for reorganization establishes a trust 
that assumes the liabilities of the debtor). 

[6] PACER is an electronic public access service that allows users to 
obtain case and docket information from federal appellate, district, 
and bankruptcy courts, and the PACER Case Locator via the Internet. 

[7] We did not obtain 9 trusts' 2009 annual financial reports and 11 
trusts' 2010 annual financial reports. These annual financial reports 
may not be readily available because trusts' may file reports under 
seal to the Bankruptcy Court to protect the interests and 
competitiveness of the reorganized company and, thus, are not publicly 
available, according to U.S. Bankruptcy Court judges we interviewed. 
Four of the trusts did not have 2009 annual reports because the trusts 
were newly established or were established in 2010 or 2011 and, thus, 
the trust population in 2009 totaled 56. Two of these trusts also did 
not have 2010 annual reports available because the trusts were newly 
established or were established in 2011 and, thus, the trust 
population in 2010 totaled 58. 

[8] Discovery" may be described as the pretrial phase of a lawsuit 
during which the relevant parties seek production of information that 
relates to the litigation or that may be reasonably calculated to lead 
to the discovery of admissible evidence. Rules of practice and 
procedure generally govern the scope of discovery within each 
jurisdiction. See, e.g., Fed. R. Civ. P. 26. 

[9] RAND Corporation, Asbestos Bankruptcy Trusts: An Overview of Trust 
Structure and Activity with Detailed Reports on the Largest Trusts, 
RAND Institute for Civil Justice, TR-872-ICJ (2010). 

[10] RAND Corporation, Asbestos Bankruptcy Trusts and Tort 
Compensation, RAND Institute for Civil Justice, MG-1104 (2011). 

[11] See, e.g., 29 C.F.R. §§ 1910.1001 (addressing occupational 
exposure to asbestos in all industries covered by OSHA, except as 
otherwise provided); 1915.1001 (regulating asbestos exposure in 
shipyard employment work); and 1926.1101 (regulating asbestos exposure 
in construction work). 

[12] Borel v. Fibreboard Paper Products Corp., 493 F.2d 1076 (5th Cir. 
1973). 

[13] See Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 111, 
108 Stat. 4106, 4113-17. More specifically, the 1994 amendment adding 
subsection (g) to § 524, in effect, codified the approach utilized in 
the Johns-Manville Corporation's bankruptcy. In that in case, Johns- 
Manville filed for bankruptcy under Chapter 11 and, in accordance with 
its confirmed plan of reorganization, the company's asbestos-related 
liabilities were channeled to the Manville Personal Injury Settlement 
Trust by way of a court-imposed injunction, thus becoming the first 
asbestos trust responsible for processing and paying present and 
future asbestos personal injury claims. Lingering concerns as to 
whether the injunction issued as part of this plan could withstand all 
challenges underscored the 1994 amendment modeled after this approach. 

[14] See 11 U.S.C. § 362 (providing for a stay of actions commenced 
against a debtor); 11 U.S.C. §§ 1101-46 (Chapter 11, Reorganization); 
and 11 U.S.C. § 524(g) (allowing for the issuance of an injunction 
against future claims of liability for asbestos-related injuries 
against the debtor company if the confirmed plan for reorganization 
establishes a trust that assumes the liabilities of the debtor). 

[15] In some instances the U.S. District Court, and not the Bankruptcy 
Court, may confirm a plan of reorganization. 

[16] The U.S. Trustee Program, a component of the Department of 
Justice, administers bankruptcy cases in 88 of the 94 judicial 
districts in 48 states. Bankruptcy Administrators, part of the 
Administrative Office for U.S. Courts, operate in the remaining 6 
districts, located in Alabama and North Carolina. For purposes of this 
report, references to the U.S. Trustees include both the U.S. Trustees 
and the Bankruptcy Administrators. 

[17] See 11 U.S.C. § 524(g)(2)(B)(ii)(V). 

[18] Some trusts refer to these as the Claims Resolution Procedures. 

[19] 11 U.S.C. § 524(g)(4)(B)(i) (requiring the court to appoint a 
legal representative for the purpose of protecting the rights of 
persons that might subsequently assert demands against the debtor 
company for asbestos-related injuries). 

[20] RAND Corporation, Asbestos Bankruptcy Trusts and Tort 
Compensation, RAND Institute for Civil Justice, MG-1104 (2011). 

[21] RAND Corporation, Asbestos Bankruptcy Trusts: An Overview of 
Trust Structure and Activity with Detailed Reports on the Largest 
Trusts, RAND Institute for Civil Justice, TR-872-ICJ (2010). 

[22] TDP's will also generally provide for a limit on the amount of 
payments a trust will make each year, referred to as the "maximum 
annual payment." In the event payment of a claim would cause a trust 
to exceed the maximum annual payment threshold, that claim shall 
generally be carried over into the next year. 

[23] Claims may be filed on behalf of deceased claimants. 

[24] The payment percentage is a percentage applied to the value that 
a trust assigns to a disease to determine the amount that will be 
actually paid to the claimant. Payment percentages are initially set 
during trust formation but may be changed by the trustee or trustees 
with the consent of the trust advisory committee and the future 
claimants' representative. Payment percentages are used as a means to 
preserve trust assets to pay future unknown claims. 

[25] RAND Corporation, Asbestos Bankruptcy Trusts: An Overview of 
Trust Structure and Activity with Detailed Reports on the Largest 
Trusts, RAND Institute for Civil Justice, TR-872-ICJ (2010). 

[26] If the payment percentage is increased, the trust will generally 
make supplemental payments to all claimants who previously liquidated 
their claims against the trust and received payments based on a lower 
payment percentage, as set forth in each trust's TDP. 

[27] See, e.g., Fed R. Civil P. 26(b)(1). 

[28] For example, in a state that applies a "joint and several 
liability" standard for awarding damages, each party found liable to a 
plaintiff is individually responsible for the entire amount awarded, 
but may have a right of contribution and indemnity from nonpaying 
parties. In a state that applies a "several liability" standard, a 
party found liable is only responsible for its share of the damages, 
as determined in trial. The 2011 RAND study on asbestos bankruptcy 
trust and tort compensation discusses the liability regimes of 
California, Illinois, New York, Pennsylvania, Texas, and West Virginia. 

[29] In general, an indirect claimant is one who seeks reimbursement 
or compensation from a trust because it has compensated a potential 
claimant of the trust in another forum. Examples of indirect claimants 
include insurance providers, solvent companies, and other trusts. 

[30] RAND Corporation, Asbestos Bankruptcy Trusts and Tort 
Compensation, RAND Institute for Civil Justice, MG-1104 (2011). 

[31] One of the 11 trusts discloses a list of individual claimant 
information along with disease category, amounts, and corresponding 
date of payments in its annual report. 

[32] See, e.g., Kananian v. Lorillard Tobacco Company, No. CV 442750 
(Ohio Cuyahoga County Com. Pl. Jan. 18, 2007) (concluding that 
attorneys representing a mesothelioma victim's estate simultaneously 
filed claims with numerous asbestos trusts that contradicted similar 
claims made in the tort system thereby precluding them from practicing 
before the court but not dismissing the lawsuit as the court found 
neither the plaintiff's estate nor its current counsel culpable). 

[33] According to its website, the U.S. Chamber Institute for Legal 
Reform (ILR) is a "national campaign representing the nation's 
business community, with the critical mission of making America's 
legal system simpler, fairer, and faster to everyone." 

[34] The Judicial Conference serves as the principal policy making 
body concerned with the administration of the U.S. Courts. The 
Judicial Conference also supervises the Director of the Administrative 
Office of the U.S. Courts in the performance of his or her duties as 
the administrative officer of the courts of the United States. 

[35] See 28 U.S.C. § 2075 (empowering the Supreme Court of the United 
States "to prescribe by general rules, the forms of process, writs, 
pleadings, and motions, and the practice and procedure in cases under 
[the Federal bankruptcy code]," but that "such rules shall not 
abridge, enlarge, or modify any substantive right"). 

[End of section] 

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