Sponsored by U.S. Senator Jeff Flake (R-AZ), the Furthering Asbestos Claims Transparency (FACT) Act would restore openness to asbestos bankruptcy trusts and protect the ability of future claimants to be fairly compensated by the trusts.

According to former Washington state Attorney General Rob McKenna, the FACT Act would address the inadequate disclosure and transparency in the asbestos trust system. That trust system was created to compensate injured victims but instead resulted in a system that enables claimants to file inconsistent claims among numerous trusts or against trusts and solvent companies in the tort system, said McKenna.

“All this law does is bring sunlight to the process, creates communication between the tort system and the bankruptcy trusts -- and between the trusts themselves,” McKenna told Arizona Business Daily.

McKenna is a recognized leader in the development of data protection and privacy regulation.

Not only would the bill discourage fraud and abuse in the asbestos compensation system; it also would protect asbestos trust claimants’ sensitive personal information and confidential medical records from disclosure and misuse, according to McKenna, who is now a partner in the Seattle office of Orrick, Herrington and Sutcliffe LLP, where he is co-head of the firm's Public Policy Group.

“There really is no issue in regard to identity theft … and no risk that people’s confidentiality would be compromised because confidential medical records would not be allowed to be disclosed,” McKenna said. “Bankruptcy courts already have a great deal of authority to protect sensitive information of all types and those rules would continue to be in place.”

Currently, the U.S. Senate Judiciary Committee is considering S. 357, its own version of the FACT Act, which would amend federal bankruptcy law to require transparency and oversight of the asbestos trusts that have been created to compensate claimants who seek recovery for asbestos-related damages. A related bill, H.R. 1927, passed the House in January.

During a Feb. 3 Senate Judiciary Committee hearing, McKenna told congressional members that all state attorneys general also recognize the controversy surrounding asbestos litigation and the asbestos trusts that have been established to speed relief to victims of asbestos exposure.

“Asbestos is a dangerous product that has harmed many people,” McKenna said. “Companies with actual liability should be held accountable. Courts in both the tort system and bankruptcy system have worked hard to strike the appropriate balance between expeditiously compensating injured individuals who have filed claims and protecting future claimants’ interests by safeguarding the asbestos trusts from inappropriate claims.”

At the same time, he stated, the attorneys general have a strong interest in maintaining the public’s confidence in the judicial process concerning asbestos -- in the protection of both current and future asbestos trust beneficiaries.

“Given the disturbing findings to date by several federal bankruptcy courts concerning misrepresentations in claims made on asbestos trusts, the public has a right to know how far and how deep these problems may or may not extend, and the courts need to know more about claims filed in other forums by the claimants who come before them,” McKenna said.

He explained that committee members wanted to understand more about how the bankruptcy trust claims process works. They wanted to understand how it differs from the tort litigation process and what the problem is with the system's lack of transparency that results in fraud and misrepresentations in a large number of claims that are filed with the bankruptcy trusts.

“They wanted to know what the burdens would be on claimants, the people who are filing claims with the bankruptcy trusts as a result of the FACT Act,” McKenna said. “The answer to that is none. There is no additional burden.”

That’s because what the act would require is greater transparency in the claims process. Bankruptcy trusts would be required to put up the basic information on a claims file on a secure website, for instance, which would be available to the bankruptcy judges and other parties to view.

“That raises the question about if there is any risk to claimants and their personal information and the answer to that is also no because the information that would be put up by the courts and made available to all the parties would be much less than what’s made available in the tort system,” McKenna said.