NERA Analysis Cited In Congressional Budget Office Confirmation Of Original FAIR Act Claims Cost Estimate
4 January 2006
NEW YORK -- Following a detailed analysis, the Congressional Budget Office has concluded that a Bates White report projecting substantially higher potential costs of claims against a proposed national asbestos trust fund contains no new information that would cause the CBO to revise its own cost estimate. Experts from NERA Economic Consulting provided the CBO with details of their evaluation of the Bates White report, and testified during a related Senate hearing in November 2005.
The proposed Fairness in Asbestos Injury Resolution (FAIR) Act, or S. 852, would establish a $140 billion trust fund to compensate victims of asbestos exposure and, in theory, end hundreds of thousands of asbestos injury lawsuits. In its cost estimate for that legislation, the CBO estimated that the value of valid claims against the fund would total between $120 billion and $150 billion. However, a report by Bates White suggested that the cost of claims could be much greater, between $300 billion and $695 billion.
US Senators Arlen Specter, Patrick J. Leahy, and Dianne Feinstein asked the CBO to evaluate the Bates White projection and to determine whether it provided a basis for the CBO to modify its original conclusions. After discussing the report with its authors, as well as a number of other experts with varying views on the asbestos legislation -- including experts from NERA Economic Consulting -- the CBO reaffirmed its original findings.
In reaffirming its findings, the CBO noted that one of the Bates White report's flaws was that it may have overestimated the incidence of "pleural abnormalities," one of the conditions that claimants with lung or other cancers must exhibit under S. 852 to qualify for compensation. The CBO referenced as supporting evidence NERA's evaluation of the studies cited by Bates White in creating its estimate. NERA concluded that the Bates White report overstated the incidence of pleural abnormalities by at least half. One likely reason for the inaccuracy was that some of the studies measured the incidence of pleural abnormalities based on their presence in only one lung, whereas eligibility under the bill would require the presence of such abnormalities in both lungs. The CBO also echoed two other themes of NERA's Senate testimony "that a significant percentage of potential claimants might be unable to demonstrate a sufficient [...] exposure to asbestos" and that "financial incentives for attorneys to assist claimants would be weaker [under the bill]."
On 17 November 2005, NERA Senior Vice President Dr. Denise Neumann Martin presented testimony at a US Senate hearing to discuss the Bates White report. Dr. Neumann Martin testified that there is no reason to expect a massive surge in lung and other cancer claims that would bankrupt the trust fund as predicted by Bates White. Her testimony criticized the Bates White estimate, noting that Bates White's approach more than doubles the population of workers estimated to have been exposed to asbestos. She also pointed out that the Bates White study overestimates future cancer cases by failing to adjust for the exposure requirements mandated by the FAIR Act and also assumes that 100 percent of those eligible will sue. NERA Vice Presidents Paul Hinton, Dr. Ron Miller, and Dr. Faten Sabry, and Special Consultant Dr. Wouter Vergote also contributed to the testimony.
The proposed $140 billion fund was approved by the Senate Judiciary committee in May 2005 and is intended to end litigation that already has forced 77 companies into bankruptcy. The FAIR Act will be one of the first legislative issues considered by the Senate in 2006.
Please direct inquiries to:
Denise Martin
NERA Senior Vice President
+1 212 345 5296
About NERA
NERA Economic Consulting is an international firm of economists who understand how markets work. We provide economic analysis and advice to corporations, governments, law firms, regulatory agencies, trade associations, and international agencies. Our global team of more than 500 professionals operates in 20 offices across North and South America, Europe, Asia, and Australia.
NERA provides practical economic advice related to highly complex business and legal issues arising from competition, regulation, public policy, strategy, finance, and litigation. Our 45 years of experience creating strategies, studies, reports, expert testimony, and policy recommendations reflects our specialization in industrial and financial economics. Because of our commitment to deliver unbiased findings, we are widely recognized for our independence. Our clients come to us expecting integrity; they understand this sometimes calls for their willingness to listen to unexpected or even unwelcome news.
NERA Economic Consulting (www.nera.com), founded in 1961 as National Economic Research Associates, is a subsidiary of the Mercer Specialty Consulting Group, an MMC company.
