Forecasting Asbestos Liability After Recent Bankruptcy Decisions

Forecasting Asbestos Liability After Recent Bankruptcy Decisions How forecasts must adjust for changes in the tort system Frederick C. Dunbar, Paul J. Hinton, and Faten Sabry On May 10, 2006, Owens Corning announced that it will establish a $5.12 billion asbestos trust for the benefit of Owens Corning and Fibreboard asbestos claimants 1 and give the bank creditors full recovery, amounting to approximately $2.276 billion in cash, including interest calculated as of March 31, 2006. 2 Owens Corning asbestos claimants will get about a third of their estimate of the liabilities, 3 in part reflecting the outcome of one of the few truly contested estimation hearings in the more than 10 years since National Gypsum and Celotex. 4 In the Owens Corning s (OC) estimation hearing opinion, Judge Fullam reasoned that historical trends in filings and settlement costs are not deterministic of future claim liability, but rather that adjustments should be made to historical values to account for probable changes. 5 However, in developing its opinion following the Federal Mogul hearing, 6 the Court found the record before us does not supply the factual support to intelligently quantify [the effect of probable changes]. 7 The Court s $9 billion estimate of Federal Mogul s asbestos liability stands in contrast with the $5.1 billion commitment made by Owens Corning to resolve its asbestos liabilities. Relative to each company s historical claims experience, the Federal Mogul estimate is dramatically higher. 8 For companies in the bankruptcy process, the decision that history needs to be adjusted before forecasting future liabilities is a significant departure from the status quo before the OC decision. This raises the question: How should a company modify its existing asbestos forecasting methods to take into account the changes taking place in the tort system? How Markets Work SM

We describe below how modifications can be made to account for recent changes in the asbestos litigation environment. These changes include: tort reform in a number of key states, Third Circuit decisions limiting the moral hazard aspects of asbestos defendant bankruptcy, and changes in state court procedures limiting unimpaired claims. However, the most dramatic event did not occur in an asbestos context, but rather in the form of a recent decision made by Judge Janis Graham Jack in the Silica Multi-District Litigation (MDL), which attacked unfounded diagnoses of disease by the same doctors used by the asbestos plaintiffs bar. The Effect of the Fullam Factors Past is Not Prologue Judge Fullam ruled, in the Owens Corning case, that estimates should measure the amount [pending and future asbestos claimants] had a legitimate right to expect as compensation for their injuries [ ] as of the petition date. 9 According to Judge Fullam, that bankruptcy law requires that claim estimates are based on the value of claims in the tort system ( tort system values ) not under the procedures adopted by a post-bankruptcy trust ( trust values ) that could introduce new standards of compensability. 10 He explained that state law governed the standards of compensability by which the future asbestos claims should be valued and that his Court did not have the authority to alter the prevailing standards. 11 However, he stated that adjustments should be made to historical values to account for [ ] probable changes [in factors] that the Banks have convincingly demonstrated skewed past results. 12 In other words, past is not prologue: without adjustments to account for probable changes in the tort system, forecasts based on past claims history will overstate asbestos liability. Judge Fullam defined seven factors ( Fullam Factors ) for which adjustments should be made and identified certain methodological approaches to estimation that, in his opinion, will produce more reliable results. 13 Judge Fullam defined his task in the estimation hearing to determine the extent to which adjustments should be made to account for these probable changes, and then to decide how well the expert witnesses [ ] accorded appropriate weight to the various factors. These factors are listed below, with Judge Fullam s comments. Venue shopping. The Judge noted that plaintiffs filed huge number of asbestos lawsuits in selected state jurisdictions (Mississippi, Texas, Southern Illinois) noted for runaway jury verdicts. 14 Mass screenings. Judge Fullam also recognized that labor unions, attorneys and other persons with suspect motives caused large number of people to undergo X-ray examinations (at no cost), thus triggering thousands of claims by persons who had never experienced adverse symptoms. 15 Erroneous X-ray readings by suspect B-readers. In his decision, Judge Fullam concluded that [p]laintiffs invariably selected B-readers who were prone to find asbestosis, whereas defendants tended to choose conservative B-readers. Certain pro-plaintiffs B-readers were so biased that their readings were simply unreliable. 16 2 www.nera.com

Over-payment to unimpaired claims. Judge Fullam acknowledged that juries have awarded damages to asbestos claimants even if they have never shown any evidence of adverse symptoms. Defendants have been forced to settle these cases in order to avoid defense costs. Group lawsuits. Judge Fullam also recognized the bundling phenomenon in the asbestos litigation. Bundling occurs when plaintiffs attorneys file a case with a large number of claimants, some of whom have malignant disease but most claims with minimal or no symptoms of illness. The presence of the malignant claims leads to higher verdicts or settlement values for the unimpaired claims. 17 Global settlements. Judge Fullam noted that the Banks assert that the global settlements negotiated in the National Settlement Program ( NSP ) tended to over-value the less meritorious cases (and perhaps, to encourage law firms efforts to recruit more claimants). 18 Punitive damages. In his decision, Judge Fullam noted that as a practical matter, it is unlikely that in today s tort system, punitive damages would be allowed in any substantial amount, in most jurisdictions, to deter tortuous conduct which ended more than twenty years ago. 19 Judge Fullam ultimately arrived at an asbestos liability estimate for Owens Corning of $7 billion by choosing a value somewhere between the two estimates he found most persuasive. These estimates included the $6.5 billion, presented by the debtors expert as well as the $8.12 billion, presented by the future asbestos claimants committee s expert. He stated that both have attempted, and largely succeeded, in adjusting historical figures to reflect changed circumstances, but he did not indicate whether and to what extent they had accounted for each of his seven factors. Indeed, later as pointed out by Judge Rodriguez in the Federal Mogul opinion, [t]he Memorandum and Order, however, does not give a roadmap to its $7 billion dollar figure; this, despite the enormous variations in the four estimates provided, $2-$11 billion dollars. 20 Recent Changes in the Tort System That Affect Future Filings and Settlements Major changes to the tort system, which are related to Fullam s seven factors, have been taking place during recent years. In response to an overburdened system, courts and state legislatures have been reducing the procedural advantages to plaintiffs by removing both unimpaired claimants and the ability to shop for venues from mass torts. These responses have taken two forms: legislative tort reforms and judicial reforms. Over the past few years, a number of favorable institutional changes may have begun to turn the tide of asbestos litigation within the US. Bankruptcy trusts have enacted or have proposed to enact more stringent criteria. State and federal courts have begun to create inactive dockets that stay payment of claims if and until a compensable injury arises. www.nera.com 3

Such reforms have recently extended outside the asbestos arena, with a clamp down on the medical profession specifically. In late 2002, for example, a federal judge dismissed 78 plaintiffs from a class action involving the diet drug Fen-Phen because suspect doctors supported the claims of those plaintiffs. This decision could provide another step towards ending unfounded claims. Venue Reform A large proportion of all claims are filed by non-residents in states that have favorable procedural rules. To address the problem of venue shopping, several states have enacted laws to restrict the ability of nonresidents to file claims. In 2002, Mississippi passed a venue reform law which requires at least one of the plaintiffs in the case to reside in-state. In 2004, both West Virginia and Mississippi passed even more stringent venue laws requiring that each plaintiff establish proper venue independently. 21 According to data from the Manville trust, only 40% of Mississippi claims were once filed by residents. Other states that enacted venue reform laws include Texas in 2003 and Florida in 2005. 22 Unimpaired Filings In 2004-05, four key states Ohio, Texas, Florida, and Georgia changed their laws regarding unimpaired claims. In June 2004, Ohio passed a law that prohibited unimpaired individuals from filing any asbestos or a silica related claims. All claims now have to provide medical proof of impairment. condition in the absence of a prima-facie showing, in the manner described in division (A) of section 2307.93 of the Revised Code, that the exposed person has a physical impairment, that the physical impairment is a result of a medical condition, and that the person s exposure to asbestos is a substantial contributing factor to the medical condition. That prima-facie showing shall include all of the following minimum requirements: 23 Exposure to asbestos is a substantial contributing factor to medical condition Detailed occupational and exposure history Detailed medical and smoking history Permanent respiratory impairment rating of at least Class 2, and either: asbestosis or pleural thickening, plus forced vital capacity below lower limit of normal and FEV1/FVC at or above lower limit of normal, total lung capacity below lower limit of normal, or chest x-ray showing small, irregular opacities (s,t) graded at least 2/1 by a certified B-reader chest x-ray graded only 1/0, plus forced vital capacity below lower limit of normal and FEV1/FVC above lower limit of normal, and total lung capacity below lower limit of normal. Similar laws became effective in Texas on September 1, 2005, in Georgia on April 12, 2005 and in Florida on July 1, 2005. Ohio law states that [no] person shall bring or maintain a tort action alleging an asbestos claim based on a nonmalignant 4 www.nera.com

Judicial Reforms Deferred Dockets for Unimpaired Claims There have been various judicial decisions aiming to handle the problem of unimpaired claims. In 2002, Judge Freedman established a deferred docked for claims that were unable to provide medical proof in New York County. Judge Freedman ruled, To protect the interests of the significantly impaired, the first in, first out system of docket management ( FIFO ) heretofore used in the New York City Asbestos Litigation ( NYCAL ), as set forth in the Amended Case Management Order (the CMO ) dated September 20, 1996, amended as of July 23, 2001, and as further amended to date, shall be modified to establish (1) a Deferred Docket of claimants with minimal or no impairment, (2) an Active Docket for clustering and trying cases of significantly impaired claimants who are ineligible for the Accelerated Trial Clusters under the CMO, and (3) a procedure for transferring cases from the Deferred Docket to the Active Docket. 24 A similar set up of inactive docket or pleural registry has been set-up in states such as Illinois in 1991, Maryland in 1992, and Washington in 2004. 25 Allowing Discovery on Claimants in the Silica MDL On June 30, 2005, Judge Jack lifted the stay on discovery and ordered all plaintiffs in the silica MDL to submit sworn fact sheets within 60 days of his order. 26 Ordering Diagnosing Doctors to Stand a Daubert Hearing During the Spring of 2005, Judge Jack, in the Silica MDL, conducted Daubert hearings/court depositions of the doctors and screening facilities put forth by the plaintiffs as experts. The doctors in question were the same doctors that frequently appear as experts in asbestos litigation, many of whom were cited in the Manville medical audit or the Gitlin study as having high failure rates. The hearings culminated in a June 30, 2005 decision issued by Judge Jack. With regard to the challenged doctors, in her decision, Judge Jack wrote: Looking no further than the first criterion [sufficient exposure], virtually all of the diagnoses fail to satisfy the minimum medically acceptable criteria for the diagnosis of silicosis, and therefore, the testimony of the challenged doctors cannot be admissible under standards set by Rule 702 and Daubert. 27 Adjustments of Estimation Methods to Reflect Changes in the Litigation Environment Historical settlements provide a starting point for estimating future claim values. In general, the level of the settlements reflects the economic loss (including the value of pain and suffering) to the claimant as a result of exposure to the defendant s product. However, when settlements are determined in an environment with trial docket and other tort system pressures, and these pressures are expected to be relieved in the future, historical claim values must be adjusted to reflect the effect of changing conditions. www.nera.com 5

Tort Reforms The first six Fullam factors relate to nonmalignant claims without proof of impairment. Empirical analysis of effects of these reforms provides a basis for adjusted forecasts for future asbestos claim liabilities. There are statistical models that can estimate with precision the effect of introducing tougher procedural standards on the likely number and value of future claims. NERA used regression models to analyze the impact of state tort reform on filings in different states in the US during the period from 1991 to 2002. 28 We found that high tort filings cause reform, which then causes filings to decline. These models can then be used to make adjustments to forecasts of future claims. Reforms were classified into the following categories: Caps on non-economic damage awards. Damages for non-economic losses are for pain and suffering, emotional distress, loss of consortium or companionship, and other intangible injuries. Limits on punitive damages awards. While punitive damages awards are not common, their perceived frequency and size have grown in recent years. There are 33 states that have reformed their punitive damages laws. Limits on joint-and-several liability. Joint-and-several liability means that any of the multiple co-defendants can be deemed responsible for all of a victim s damages. Only seven states have banned the application of the doctrine, but 42 states limit its application in some manner. Sanctions on frivolous suits or defenses. Federal Rule of Civil Procedure 11 allows a court to impose sanctions when a groundless lawsuit is filed. Similar rules have been adopted recently in three states, e.g., Texas SB 31, 1995. Changes to the collateral source rule. The collateral source rule states that plaintiffs losses are not to be offset by insurance proceeds from other sources, based on the theory that the plaintiff pays for the insurance and should receive the benefit. According to the American Tort Reform Association, 35% of total payments to medical malpractice claimants are for expenses already paid from other sources. The collateral source rule has been modified or abolished by 23 states; the efforts of two states to reform the rule were struck down as unconstitutional. Venue reform. Venue or forum shopping has been a fact of life in asbestos and pharmaceutical litigation. Mississippi s reform in 2002 limits jurisdiction of civil actions to the county where the defendant resides or the county where the alleged act occurred. See Mississippi H.B. 19 (Special Session), 2002. Venue reform also occurred in one other state, Texas, in the late 1990s. 6 www.nera.com

NERA collected data on the dates of enactment of the various types of tort reforms in 29 states during the period 1991 to 2002. We used regression analysis to analyze the relationship between the tort filings in state courts per 100,000 people as a function of the various types of reforms. NERA found that the past frequency of tort filings in a given state has a highly significant and positive impact on predicting whether a state would enact tort reform legislation. States with relatively high litigation levels are more likely to enact tort reform. For example, if a state s filing increased by 60%, then it becomes 37% more likely that this state will enact tort reform. This is consistent with the observation that states such as Texas and Mississippi have been recent candidates for tort reform. NERA also found that, once enacted, certain types of tort reform decrease the number of filings in that state by a statistically significant amount. Moreover, tort reform does not cause an immediate decline in the volume of filings. Instead, on average, filings do not decline until two years after passage. The effect of the decline, however, is persistent. The three types of reform that have the most significant negative impact on filings are: restricting joint -and- several liability, venue shopping, and application of the collateral source rule. The estimated impact of each of these reforms varies somewhat, depending on certain technical adjustments made to the regression analysis. However, some results are substantial. For example, the average effect of each of these reforms individually is a 20% decline in filings, although each reform does not have equal impact. Venue reform has the largest impact, causing approximately a 25% reduction in filings. If a state were to pass all three reforms, the models show that filings would be cut in half. Even relative to the historic range of errors involved in claims forecasting, these are significant declines in the filing rate. In states where tort reform has occurred recently, using historic rates of filings will cause over-prediction of future claims. Moreover, even if there is not yet tort reform in high volume states, our results show that the high volume of filings can be expected to self-correct in the long run. Temporary Surges in Filings The choice of the calibration period is a critical assumption in any forecast, as it is the basis of calculating filing rates. The filing rate should be computed for the most recent years, but the filings in these years should not be affected by special events that may alter the timing or the level of filings. In one such case, Owens Corning faced a significant increase in filing from 1998 to 1999 after the announcement of the National Settlement Program (NSP). Analysis showed that this increase in filings is not permanent. In estimating Owens Corning s future liabilities, all experts with the exception of Dr. Peterson made an adjustment to account for the temporary increase in filings. The Effect of Age on Filing and Settlement Values Statistical analysis of filing trends and settlements by disease has shown that the filing rates decline by age as do indemnity values. Judge Fullam ruled that age-adjusted propensity to sue and age-adjusted average values should be used to reflect changes that would be expected in the tort system over time. www.nera.com 7

Effect of Punitive Damages on Settlement Values Another adjustment considered by the Court in the OC matter was to remove from average settlement values the effect of historical punitive awards and trial verdicts. The experts used average dollars during the period of 1996 to 2000 in order to value the pending and future claims. Two of the experts for the claimants and futures committees used the average dollars of closed claims. Both the banks and the debtor s experts used the average dollars of paid claims after removing trial verdicts and adjusting for the impact of punitive damages. During the hearing, the debtors expert reported his forecast estimates after adding back punitive damages and trial verdicts. Ultimately, the Court s $7 billion estimate was based on values that did not make the adjustment to remove the effect of punitive damages. Conclusion Judge Fullam ruled that history is no longer prologue in estimating future asbestos liabilities and that adjustments need to be made accordingly. The Court did not provide guidance as to the magnitude of the adjustments that should be made, except to say that there is no guarantee that the effects of factors that have skewed historical tort values would be eliminated. Experts would consider the impact of the Fullam Factors on their forecasting methodologies and provide an empirical basis for changes in the tort system their estimations. A lesson from the Federal Mogul estimation hearing is that credible empirical support is needed to account for changes in the litigation environment in estimating future liabilities. 8 www.nera.com

About the Authors Dr. Frederick Dunbar Senior Vice President Dr. Frederick Dunbar has directed numerous projects at NERA in the economics of antitrust, trade regulation, and risk management, including mass torts and claims estimation, securities and valuation, transportation, and natural resource economics. His risk management, mass torts, and claims estimation projects include estimation of future claims for product liability mass torts such as asbestos and breast implants; estimation of future claims in consumer class actions; design of claims strategy and claims handling procedures; testimony on claims forecasts in bankruptcy court, fraudulent conveyance, and other mass torts litigation; and estimates of settlement value of shareholder class actions. Dr. Faten Sabry NERA Vice President Dr. Faten Sabry has managed and directed projects in matters related to product liability/mass torts, complex damages disputes, securities, and international trade. This work has included both advisory consulting engagements and litigation support in cases that have culminated in trials, bankruptcy hearings, or regulatory proceedings. Dr. Sabry s product liability projects included estimating future liabilities related to asbestos, silica, welding rods, drugs, and other mass torts, as well as estimating recall costs of building products and insurance allocation. Phone: +1 212 345 3285 faten.sabry@nera.com Phone: +1 212 345 5378 fred.dunbar@nera.com Mr. Paul Hinton NERA Vice President Paul Hinton works on a wide range of advisory, litigation support, and testifying engagements. Mr. Hinton currently works primarily on securities, product liability, and complex commercial cases. He has testified in federal court, at deposition, and before a legislative committee. In product liability cases, Mr. Hinton has estimated the value of future personal injury claims associated with silicone breast implants, asbestos, building defects, and pharmaceuticals. He has provided product liability valuation analysis in connection with corporate risk management, bankruptcy estimation, insurance coverage disputes, fraudulent conveyance actions, corporate litigation, and policy analysis. Phone: +1 212 345 5360 paul.hinton@nera.com www.nera.com 9

Notes 1. The Owens Corning asbestos claimants will recover $3.552 billion and Fibreborad asbestos claimants $1.573 billion assuming that the FAIR Act is not enacted and excluding warrants. Owens Corning Reaches Agreement with Creditors, PR Newswire, May 10, 2006. 2. The Banks benefited from the reversal of the Delaware District Court s order substantively consolidating Owens Corning with subsidiaries that had provided loan guarantees worth $1.6 billion. In Re. Owens Corning, No. 04-4080, 2005 WL1939796 (3d. Cir. Aug. 15, 2005); Memorandum and Order Concerning Substantive Consolidation, In Re. Owens Corning, Nos. 00-3837 to 3854 (JPF), October 5, 2004. 3. Under the proposed plan Owens Corning asbestos claimants would recover $3.552 billion compared with the Bankruptcy court s estimate of $7 billion. However, this recovery represents about a third of the $11.1 billion liability estimate presented by Dr. Peterson, the expert for the Asbestos Claimants Committee, at the Bankruptcy estimation hearing. 4. As is typically the case, the asbestos tort claimants representative s estimate of asbestos liabilities was well beyond the equity of the debtor, leaving hundreds of millions of dollars of unsecured creditors claims impaired. Insurers were expected to fund a large portion of a post bankruptcy trust for current and future asbestos claimants and the other creditors faced the prospect of little or no recovery. Obviously, the more the court decided to award to asbestos claimants, the lower the recovery of the other creditors and the greater the demands made of the insurers. With so much at stake, turning on the size of the court s asbestos liability estimate, the stage was set for a hotly contested estimation hearing. 5. Owens Corning v. Credit Suisse First Boston, 322 B.R. 719 (D.Del.2005) ( March 31, 2005, Memorandum and Order ). 6. There were two expert opinions on the value of future asbestos claims presented during the hearing. The Official Committee of Asbestos Claimants, and Eric D. Green, as the legal representative for the future asbestos-related personal injury claimants put forward Dr, Peterson. The Asbestos Property Damage Committee put forward Dr. Cantor. 7. In re Federal-Mogul Global Inc., et al. v. Asbestos Property Damage Committee, 330 B.R. 133, Bankruptcy No. 01-10578(RTL), Civil Action No. 05-59(JHR), ( Sept.13, 2005, Opinion ). 8. The Bankruptcy Court s estimate of Owens Corning s asbestos liability of $7 billion is about two-thirds of the $11.1 billion liability estimated by the claimants expert Dr. Peterson. In the Federal Mogul case, the court essentially adopted Dr. Peterson s estimate of $9 billion (a value between Dr. Peterson s No Increasing estimate of $8.2 billion and his Increasing estimate of $11.1 billion). 9. March 31, 2005, Memorandum and Order, p.4. 10. Judge Fullam rejected the argument, made by the banks, that the amount asbestos claimants legitimately had a right to expect was the value of asbestos liabilities in a post-bankruptcy trust. Judge Fullam cited Raleigh v. Illinois Dep t of Revenue stating because state law governs the substance of [bankruptcy] claims tort system values (absent the bankruptcy) and not post-bankruptcy trust values must be used to estimate the value of asbestos personal injury claims. 11. [T]his court does not have the authority to alter state law, and therefore cannot establish mandatory standards of compensability, I believe it is permissible to take into account the general realization of asbestos litigators that inadequately supported diagnoses of asbestosis will be unlikely to establish compensability and that significant monetary awards will be unlikely in the absence of some proof of actual impairment. March 31, 2005, Memorandum and Order, p.9. 12. March 31, 2005, Memorandum and Order, p.5. 13. Judge Fullam ruled that age adjusted propensity to sue and age adjusted average values should be used to reflect changes that would be expected in the tort system over time. He also ruled that estimates produced for the purpose of reporting to the SEC did not provide a reliable estimate of the value of asbestos creditors claims in a bankruptcy reorganization. 14. March 31, 2005, Memorandum and Order, p. 6. 15. Ibid. 16. Ibid. 17. Ibid. 18. Ibid. 19. March 31, 2005, Memorandum and Order, p. 6. Judge Fullam also explained that historical tort values must be adjusted for the effect of punitive damages on settlement values because if punitive damages are recoverable at all, they must be accorded lower priority than claims for compensatory damages. He went on the write as a practical matter, it seems highly doubtful that, in today s tort system, punitive damages would be allowed in any substantial amount, in most jurisdictions, to deter tortuous conduct which ended more than twenty years ago. (p.8). 10 www.nera.com

20. Sept. 13, 2005, Federal Mogul Opinion, p.156. 21. Mississippi HB 19. The MS law became effective in September 2004. 22. American Tort Reform Association, Tort Reform Record (December 31, 2003), available at www.atra.org. 23. Westlaw, Ohio Am Sub H.B. 292 Sec.2307.92 (B), Texas S.B. 15, Georgia HB 416, Florida H.B. 1019. 24. Supreme Court New York, in Re: New York Asbestos Litigation, No. 40000/88. December 19, 2002. 25. Factiva news and state website search. 27. See In Re: Silica Products Liability Litigation, Order No. 29: Addressing Subject-Matter Jurisdiction, Expert Testimony and Sanctions, (hereafter, Order No. 29 ). 28. Frederick C. Dunbar and Faten Sabry, Forecasting Claims in an Era of Tort Reform, Law Journal Newsletters, LJN s Product Liability Law and Strategy, November/December 2004. See also Joan Schmit, Mark J. Browne, and Hane Duck Lee: The Effect of State Tort Reforms on Claim Filings, Risk Management & Insurance Review, Vol. 1, 1997. This article estimated the effects of tort reform using data for the period 1984 to 1990. 26. In the United States District Court for the Southern District of Texas, Corpus Christi Division, In re: Silica Products Liability Litigation, June 30, 2005. About NERA NERA Economic Consulting is an international firm of economists who understand how markets work. We provide economic analysis and advice to corporations, governments, law firms, regulatory agencies, trade associations, and international agencies. Our global team of more than 500 professionals operates in 21 offices across North and South America, Europe, Asia, and Australia. NERA provides practical economic advice related to highly complex business and legal issues arising from competition, regulation, public policy, strategy, finance, and litigation. Our 45 years of experience creating strategies, studies, reports, expert testimony, and policy recommendations reflects our specialization in industrial and financial economics. Because of our commitment to deliver unbiased findings, we are widely recognized for our independence. Our clients come to us expecting integrity; they understand this sometimes calls for their willingness to listen to unexpected or even unwelcome news. NERA Economic Consulting (www.nera.com), founded in 1961 as National Economic Research Associates, is a subsidiary of Mercer Specialty Consulting, an MMC company. Copyright 2006 National Economic Research Associates, Inc. All rights reserved. Printed in the U.S.A. www.nera.com 11