Blow for British insurers after warning that US asbestos claims could spiral to $600bn

A fund designed to compensate asbestos victims could balloon to almost $600bn (£338bn), a new report has warned.

A Bill is currently going through the US Congress. Known as the Fairness in Asbestos Injury Resolution Act, it aims to set up a pool from which compensation will be paid to employees who have suffered from asbestos-related diseases. Should the Bill pass, Equitas - the company set up to cover Lloyd's of London's near-overwhelming asbestos and environment liabilities from pre-1992 - will face the biggest charge in the UK, although Royal & SunAlliance (RSA) is also likely to be billed for it.

Original estimates, from the Congressional Budget Office, set the fund at $140bn. The plan is that it will be contributed to by companies, insurers and bankruptcy trusts, as well as the US government itself. But research by economic consultants Bates White last week claimed that the $140bn figure was a gross underestimation.

It argued that the fund could face claims of between $301bn and $561bn as people traditionally barred from launching asbestos lawsuits through the courts apply for entitlements. The firm said the Congressional Budget Office had not taken into account the fact that entitlements would now be created for many individuals who were suffering from lung and other cancers but are currently prohibited, for legal reasons, for making claims through the courts.

"This means the fund would be bankrupt and forced to sunset in a few years after its enactment," the firm said. The alternative, should the research be accepted, would be to hike the contributions massively.

From its inception, the Fairness in Asbestos Injury Resolution Act has been contro- versial and the latest research was carried out on behalf of the American Legislative Exchange Council, an association of conservative politicians. Proposals have been repeatedly watered down, and some still believe it may not pass into law. The American Legislative Exchange Council is campaigning for state-level action to deal with asbestos claims, rather than a central fund.

An insider at Equitas - which has paid out more than $7bn in asbestos settlements since 1996 - remained unfazed, however, about the Bates White research. "There's not a hope in hell's chance Congress will pass a bill for a $600bn fund," he said.

RSA declined to comment. However, a source close to the insurer said the size of the fund was not the only problem that needed to be ironed out. "There's still a long way to go - it's all still very much in the preliminary stages. The one big issue is that there's isn't any finality to [the fund]. It's not completely removing the liability, and unless they get an indication of that, then it's not something that RSA, and a lot of insurers, will support."

Asbestos has been a long-running and highly expensive thorn in the side of the insurance industry as it emerged that it is highly toxic with links to cancer and other diseases. Injury claims have been launched in their hundreds of thousands on both sides of the Atlantic, as victims seek compensation, and have brought about the collapse of various companies.

The idea of the fund is to try to cap the exposure and form a central pool, rather than have individual claimants pursuing compensation through the courts.

The Fairness in Asbestos Injury Resolution Act is being sponsored by Republican senator Arlen Specter - hence its nickname the Specter Fund - and the Democrat senator Patrick Leahy.