Written Testimony before the Senate Judiciary Committee

March 4, 2003

Chairman Hatch and other members of this committee, thank you for the opportunity to address you regarding the important issue of asbestos litigation.

My name is Daniel Clifton and I am the Executive Director of the American Shareholders Association (ASA), a non-partisan, not-for-profit organization dedicated to educating U.S. investors on legislation affecting stockholders. With 52 percent of American households owning stock either directly or indirectly, the new investor majority in America extends far beyond suburbia and the obviously wealthy and is now present in neighborhoods all across America. Furthermore, a recent poll conducted for the Democratic Leadership Council found that more voters are investors (66%) than actually hold jobs (53%).

Given this significant rise in investors, many public policy issues debated in Congress have a significant impact on working American families and their investments. Accordingly, today I submit my comments to you with serious concerns regarding asbestos litigation and its impact on individuals, American workers, and shareholders.

To fully understand the problem it is important to understand that prior to 1982 asbestos litigation cases involved individuals who became profoundly sick and the companies being sued concealed the evidence that led to workers illnesses. The nature of the lawsuits significantly changed following a series of state court decisions that held companies liable regardless of whether the companies understood the dangers of asbestos.

The court decisions set the stage for explosive growth in asbestos lawsuits, especially for firms that used asbestos in their final product. No longer is the sick person being compensated for concealed evidence at the corporate level. Rather, productive companies that have done nothing wrong are compensating non-ill individuals. The system has become so perverse that non-ill individuals are being paid, while sick individuals are not. This has led to more than 60 companies becoming bankrupt due to asbestos litigation. Moreover, this number does not include other companies, which have experienced financial shocks as a result of litigation but did not declare bankruptcy.

The financial shock imposed by asbestos litigation has severely restricted the country's economic growth. All told, recent estimates suggest direct costs associated with asbestos related bankruptcies total between $325 million and $625 million. This additional financial burden has reallocated capital from investment on capital goods to less productive activities such as legal, accounting, and other transactions associated with bankruptcy.

The shift in capital allocation has dried up money for investment in plants and equipment, which is the key to increasing economic growth by enhancing the productivity of workers. Enhanced productivity increases the wages of workers and lowers the prices of goods for consumers. Moreover, stockholders benefit from increased profits.

Yet, the asbestos litigation has drained efficient companies capital needed to make the investments that increase economic growth. The result is fewer jobs in the economy, lower wages for workers, higher prices for consumers, greater risk to workers retirement security, and depleted stock portfolios.

These facts are confirmed by a recent study conducted by Sebago Associates for the American Insurance Association. The Impact of Asbestos Liabilities on Workers in Bankrupt Firms found that asbestos related bankruptcies has led to the loss of 52,000 to 60,000 jobs in the economy. Thus, the average worker with a 401 (k) plan at a bankrupt firm lost roughly 25 percent of their retirement plan, or an average of $8,300, due to asbestos related litigation.

Additionally, investors that made investment decisions based on the economic value of a company have been robbed by the dramatic rise in frivolous asbestos litigation. On the surface, companies that generated a return on investment for its shareholders were viewed as good investments. However, the explosion of lawsuits and the resulting financial shock has destroyed the stock value of companies and thus the investments made by shareholders.

The importance of this issue cannot be understated. As asbestos litigation places good performing, efficient companies into bankruptcy, a devaluing of companies stock occurs, which decreases the value of shareholders portfolios. Essentially, a death spiral begins in which the cost of capital for the company significantly increases and at the same time shareholders have less money to make investments.

The two factors combined make it significantly harder for companies to pull out of bankruptcy, which leads to fewer jobs, less income growth, higher prices, and ULTIMATELY A LOWER STANDARD OF LIVING FOR ALL AMERICANS.

Clearly, reform is needed and it is needed right now. The United State Supreme Court has confirmed this fact as well. Juries should be able to award money to those who are legitimate victims, but reform is needed to keep money out of the hands the people that have imposed a significant deadweight loss on the American economy, workers, consumers, and shareholders. As such, American Shareholders Association supports four criteria to remedy this problem:

Lawsuits must be filed in states where the plaintiff resides or where the injury occurred.

Require individual trials that will focus on the facts of each specific case, not consolidated cases.

Establish objective medical criteria to determine asbestos-related injury.

Loosen statue of limitation restrictions so non-sick claimants do not prematurely rush to file suits.

These four criteria are common sense reforms that will significantly enhance the nation's economic growth, while improving workers job and retirement security. All told enactment of these reforms will increase the standard of living for all Americans.

On behalf of American Shareholders Association, I urge the Senate Judiciary Committee to enact these common sense reforms.

Thank you.