We need a no-fault asbestos claim scheme

In brief - Current legal system not ideal for dealing with asbestos claims

Various initiatives have highlighted the need to guard against unwitting exposure to asbestos but more thought needs to be given to how best to compensate those already affected. The current legal system, which requires asbestos victims to prove their claims through adversarial court processes, is not the best way to deliver compensation.

Proving negligence can be difficult and defendant may not be solvent

Compensation to sufferers of asbestos disease usually results from an allocation of liability based on the negligence of employers, product suppliers or occupiers of sites where asbestos has been used. When the asbestos exposure takes place decades ago, being able to attribute fault based on negligence is often difficult.

One plaintiffs' lawyer recently described the process as piecing together a jigsaw. If negligence can be proved, then provided the defendant or its insurer is still solvent, compensation follows. Where fault cannot be shown, the sufferer of the disease can remain uncompensated.

Sufferers from asbestos-related diseases not treated equally

There is an element of luck in the system. One sufferer will be able to point precisely to his or her exposure and recover compensation. Someone unwittingly exposed may not be able to do so. The pain and suffering of each will be comparable, but one will recover damages and the other will not.

In a December 2011 High Court decision Justice Heydon noted that the problems associated with asbestos exposure were likely to persist for decades. He said: "Perhaps a social-medical problem of this size requires a legislative solution."

No-fault compensation scheme preferable to current system

After working in this area for defendants in the litigation for over 15 years, I believe that the appropriate way to ensure the just, quick and cheap resolution of asbestos-related claims is a no-fault compensation scheme to be administered in conjunction with existing mechanisms such as the federal Comcare scheme or the Dust Diseases Board of New South Wales.

Funding of payments under the system could be pooled and drawn (perhaps in annual payments like the current James Hardie arrangement) from the reserves of insurers, companies and government authorities - all of whom are required to estimate and provide for the long term financial impact of asbestos claims.

A central compensating authority would take responsibility for making appropriate payment once qualifying criteria had been met: exposure to asbestos and a resulting illness. Payment would be on a no-fault basis.

Compensating sufferers preferable to paying lawyers

Adopting a no-fault approach to compensation would streamline the payment process to those suffering illness. This is vital – the life expectancy of a sufferer of mesothelioma is often only months. Common law adjudication is time, resource and cost heavy. Those resources and costs are better used to pay claimants rather than lawyers.

Possibility that legal and transaction costs are being underestimated

In December 2008 the New South Wales government released an Issues Paper, Review of the Dust Diseases Claims Resolution Process, dealing with the operation of the system for dealing with asbestos claims in that state. The paper showed that up to 16.3 per cent of all costs associated with the resolution of claims were legal and transaction costs.

Costs vary between states, but the NSW government paper appears to be the only public data on the issue of compensation and legal costs in Australian asbestos claims.

And it may be that the transaction costs are being underestimated. A March 2011 case in the Dust Diseases Tribunal of NSW (the special court which handles asbestos cases in that state) disclosed that 35 per cent of one plaintiff’s settlement ended up being diverted to his own legal costs and disbursements and refunds. No account was made in that case to the costs incurred by the defendant.

Finite pool of funds for compensating asbestos claimants

Asbestos compensation comes from a finite pool. To avoid the possibility that future claimants might be left without payment (as is occurring in the United States because of a substantial number of asbestos-related bankruptcies), consideration should be given to whether a system of adversarial justice in the courts is the best method for delivering compensation.

All stakeholders have much to gain by ensuring that as great a proportion of asbestos related costs as possible goes directly to claimants. Let’s hope the worthy aim of preventing disease in the future does not divert attention from improving delivery of compensation to those who do, tragically, fall ill.

An earlier version of this article was first published in January 2013 in the Australian Financial Review.