Lifting the litigation: As more companies go bankrupt, reform of the asbestos compensation system is urgently needed. (Litigation Insight: Property/Casualty).

As of March 2003, more than 60 companies had been pushed into bankruptcy by hundreds of thousands of asbestos claims, the majority filed on behalf of workers who were exposed to asbestos, but are not sick and may never be. Some 8,400 companies have had claims filed against them. Between 52,000 and 60,000 jobs were lost as a result of these bankruptcies. Congressional hearings on a bill to create fairness out of the asbestos litigation mess has made clear that the situation is rapidly spiraling downwards.

Insurers have long warned that a crisis of massive proportions is unfolding. Now, after strenuous public education efforts, there is the best opportunity in years to get legislation enacted that would, among other things, allow only those who are actually ill to sue. Those who are not yet impaired would retain the right to sue if and when they became sick.

In order for people to understand why reform is so urgently needed, they need to know that up to 90% of workers for whom claims have been filed are presently unimpaired. They are often recruited by aggressive law firms that organize mass medical screenings around the country and file suit against any company ever involved with products containing asbestos.

It is understandable that workers who have been exposed to asbestos and are attracted by trial-lawyer advertising might see this as a way to make a little extra money. In fact, they often receive a few hundred dollars from one or more defendants--of course, after the lawyers have taken their share, which typically is between 25% and 50%. Sadly, these workers then forfeit their rights to real compensation if they become seriously ill in the future. Meanwhile, the defendants' funds are being depleted by unimpaired claimants and many seriously disabled workers are receiving only a portion of the compensation to which they are entitled.

So far, there has been at least one asbestos-related bankruptcy in almost every state. In Pennsylvania, there have been 12 and in Illinois and New Jersey, five. These numbers could soar since perhaps as little as a quarter of the estimated eventual costs of asbestos claims have been paid.

The economic hardship caused by a bankruptcy goes far beyond the company's home town. For every 10 initial jobs lost, about eight more are lost at firms that were dependent on the bankrupt company's business, and then spending drops in the local communities where the company's facilities were located.

The lives of the families of laid-off workers are disrupted, sometimes shattered. Many people who worked for companies that made or used asbestos products, typically blue-collar workers, will never regain the same level of income they once had and they may remain unemployed a long time. A large portion of the bankrupted firms had operations in small communities where employment opportunities are often limited.

Moreover, in various ways, we all foot the bill for asbestos liabilities. Wherever a large employer lays off workers, real estate values fall as people affected move out. Local governments suffer declines in revenues. Shareholders who have invested in companies facing large payments see the value of their investments drop. About $80 billion in taxpayer monies will be spent on unemployment insurance benefits and additional amounts on retraining as a result.

Today, support for changing the asbestos compensation system comes not only from a broad coalition of businesses but also, for the first time, from the American Bar Association. With the courts clogged by suits filed on behalf of unimpaired workers, attorneys who represent seriously ill claimants say some will die before they get their day in court. Others are denied fair compensation because an increasing number of defendants can only afford to pay a percentage of the value of claims against them.

One encouraging sign is that intensive efforts to raise public awareness of the deteriorating asbestos situation are paying off. While changing things is always much harder than resisting change, there is a growing consensus that we have no alternative.

America's clear national interest lies in making sure funds are available for those who become sick, lifting the cloud of litigation from scores of now-healthy American companies, and removing serious threat to communities, small businesses and employees--especially at a rime when we cannot afford to be inflicting needless damage on our troubled economy.

Gordon Stewart, a Best's Review columnist, is president of the Insurance Information Institute, New York. He can be reached at [e-mail].