James Hardie confirms asbestos fund may fall short
Building materials company James Hardie has confirmed that its asbestos fund is facing a shortfall within three years.
The company says the Asbestos Injuries Compensation Fund (AICF) board has advised it that it is foreseeable that it will have a shortfall in funding to pay out claims by 2017.
The fund's prediction of a shortfall is based on an annual actuarial report by accounting firm KPMG, which earlier this year revealed a higher-than-expected number of mesothelioma claims, and thus raised its forecasts for cases of this asbestos-related cancer.
As mesothelioma often affects younger people than many other asbestos-related diseases and is an aggressive, difficult to treat cancer, the compensation amounts for each case tend to be much higher than for other asbestos-related diseases.
That saw KPMG increase its forecast of the total amount of compensation that the AICF may be liable for to $1.87 billion.
In response, the AICF is seeking discussions with James Hardie and the New South Wales Government (a party to the original compensation agreement) about setting up an approved payment scheme (APS).
Such a scheme would mean compensation would be paid in instalments over a specified period rather than as a lump sum.
The fund is planning to seek New South Wales Supreme Court approval to establish an APS for the payment of claims from July 1 2015.
'Death by a thousand instalments'
However, Barry Robson from victim support group the Asbestos Diseases Foundation of Australia says it will oppose the AICF's application.
"Victims and their families will not cop death by a thousand instalments from Hardie," he told The World Today.
"When people are diagnosed, from diagnosis to death is, on average, 155 days. They need that money straight away."
The AICF is also likely to be forced to draw on a loan facility provided by the New South Wales Government; the fund can currently access up to $214 million of what was set up as a potential $320 million facility.
The amount the AICF can access is limited by the potential proceeds of insurance recoveries that the fund may be able to make, currently $214 million, but projected to fall to $183 million by 2017.
The fund says KPMG estimates that it can continue to pay asbestos claims in lump sums if the New South Wales Government agrees to drop the insurance cap on the loan facility, allowing the AICF to access up to the entire $320 million.
The fund has previously drawn on the facility, and repaid $51.6 million to the New South Wales Government in July this year.
The AICF also points out that it pays interest on money borrowed under the loan arrangement.
'Victims should come first'
However, South Australian independent Senator Nick Xenophon says Australian taxpayers should not be on the line for James Hardie's liabilities, saying that Hardie can clearly afford to put more money into the fund given the almost $600 million in payments it has made to shareholders in the past two years.
"Now that they've bounced back they need to fork out from their very healthy profits rather than having taxpayers foot the bill," he said in a statement last week.
That is a view shared by Barry Robson.
"They could have put that into the fund, but they didn't. They decided to give that out in bonuses and dividends to shareholders. The fund should come first. The victims should come first," he argued.
James Hardie says it will continue to comply with its obligation to contribute up to 35 per cent of its free cash flow into the fund each year, saying it has already paid out $1 billion towards asbestos compensation, research and education since 2001.
