Betting Against the Asbestos Bill

USG's willingness to cough up $4 billion to settle victims' claims underscores the poor chances for passage of the Senate's mammoth legislation

As the Senate prepares for a marathon debate over an industry-paid $140 billion fund to compensate victims of asbestos exposure, at least one big corporation with hundreds of millions of dollars at stake is casting a vote of no confidence in the bill.

On Jan. 27, USG (USG ) is expected to announce a $4 billion deal to settle victims' claims that some of its products caused cancer or other lung-scarring diseases, say several sources familiar with the deal. The settlement amount equals 10 times what USG would have to pay into the trust fund under consideration in Congress. USG executives did not return a phone call late on Jan. 26 for comment.

"UNTENABLE" SITUATION. Its announcement of a settlement just two weeks before the Senate is set to take up the legislation, suggests that USG is betting the $140 billion fund lacks enough support for passage, asbestos litigation experts say. And it has probably made the right choice: After three years of negotiations among industry players, insurers, workers, and victims' lawyers, the asbestos trust fund, led by Senate Judiciary Chairman Arlen Specter (R-Pa.), has grown into a mammoth and complex piece of legislation that would financially penalize insurers and small companies with limited legal liability while giving a handful of large manufacturers, such as USG, a huge break.

In recent months, onetime supporters of the legislation, including the American Insurance Assn., have withdrawn their support. In a Jan. 20 letter to Senate Majority Leader Bill Frist (R-Tenn.), AIA President Marc Racicot said the trust fund would leave insurers with "an even more untenable, expensive situation than that posed by the current, highly dysfunctional litigation system." Debate on the legislation is set to begin Feb. 6, but fiscal conservatives, led by Senator Judd Gregg (R-N.H.), are expected to make quick work of it with a procedural vote that would kill the bill on the grounds that it violates budget rules.

Asbestos fibers are linked to mesothelioma, an especially acute form of lung cancer, as well as other respiratory illnesses. Hundreds of thousands of claims logged in the last 35 years have clogged courtrooms and pushed more than 70 companies into bankruptcy. In 1999, the U.S. Supreme Court called on Congress to fix what Justice David Souter called an "elephantine mass" of litigation clogging U.S. courts.

AN UNFAIR SHARE? Under the Senate bill, asbestos victims would give up their right to sue, then get a fixed amount according to the severity of their illness. But the fund, which would receive financing from asbestos defendant companies and their insurers, has come under fire on several fronts.

Small companies claim they'll have to bear an unfair share of the fund's costs. Companies that already have settled their asbestos liability with multibillion-dollar trust funds would have to turn that money over to the global fund, a requirement they intend to challenge in the courts as unconstitutional, should the bill pass. And if the fund runs out of money, as some predict, asbestos claims would revert back to the courts, leaving companies exposed to further liability.

In settling its asbestos claims, USG joins a growing list of corporations that have settled asbestos liability even as the global trust fund moves through the Senate. On Jan. 18, a U.S. District Court judge for the Eastern District of Louisiana approved a $1.4 billion asbestos settlement by McDermott International (MDR ). And in February, 2005, Halliburton (HAL ) reached a $4.3 billion settlement with asbestos victims.

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Woellert is a correspondent in BusinessWeek's Washington bureau

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