W000413
Monday, November 19, 2001 8:04 PM
Comments on Notice of Inquiry and Advance Notice of Rulemaking
I am attaching comments as General Counsel of Keefe, Bruyette & Woods.
Attachment 1:
Kenneth L. Zwick
Director
Office of Management Programs
Civil Division
U.S. Department of Justice
950 Pennsylvania Avenue
Washington, D.C. 20530
Via e-mail
Dear Mr. Zwick:
I am the General Counsel of Keefe, Bruyette & Woods, Inc., also known as KBW. Our main offices were located on the 88th and 89th floors of Two World Trade Center in New York. KBW is a full service broker dealer that, prior to September 11, 2001, had approximately 175 employees in New York and an additional 50 employees in six smaller satellite offices throughout the country.
KBW lost 67 employees in the terrorist attack. Before the airplane crashed into Two World Trade Center, approximately 40 employees who had been in the office had left the building. No KBW employees on the 88th and 89th floors at the time of this second crash survived. At this time, only eight of the KBW victims have been found and positively identified.
Of these victims, 33 were married and 28 had children. In some cases, victims also provide some or all of the support to their parents or other family members. There were also some employees who were engaged to be married. Ages of victims ranged from 23 years old to 77 years old. Seventeen were in their 20's; thirty-one were in their 30's; thirteen were in their 40's; four were in their 50's; one was in their 60's; and one was in their 70's. The victim's annual compensation ranged from the low five figures into seven figures. The job descriptions of our victims covered the full range of employees, from Chairman to receptionist. Except for those lost, only one KBW employee was physically injured in the immediate aftermath of the attack.
Since the September 11 attacks, KBW has been communicating with every single victim family through a "Shepard's Program." Each victim's family has been assigned to a surviving KBW employee. The KBW employee serves as a communication link to the family. Through this program, KBW has become aware of the broad spectrum of concerns and difficulties being faced by those close to the victims. A significant concern for most families is how to deal with the economic impact of losing a key earner in the family.
The clear intent of the Congress in adopting the September 11th Victim Compensation Fund of 2001 (the "Fund" or the "Victims Compensation Fund") is to address, in a full, fair and prompt manner, the consequences that will be faced by persons injured and killed in the attacks and their families. As part of the "Air Transportation Safety and System Stabilization Act" (the "Act") this Fund is intended to provide a meaningful alternative for all such victims to litigation of tort claims against the airlines and others.
The limitations on liability contained in Section 408 of the Act were clearly designed to limit the attractiveness of conventional litigation against the airlines. The recent extension in the bills passed by the House and Senate of the limitations on liability to other potential defendants makes conventional recovery for losses through litigation an even more unattractive alternative for victims and their families. It would be compounding a tragedy for these persons if, in light of these unprecedented limitations on liability, the Victims Compensation Fund is not administered in a manner designed to afford a fair award of benefits to compensate for losses suffered by these persons.
We strongly believe that in order to accomplish this goal, any regulations implemented under the Act and the administration of the Fund by the Special Master must fairly compensate for the losses faced at all age, job description or compensation levels. There should be no arbitrary limitations or assumptions that would limit the ability of claimants to present all appropriate evidence to establish economic and non-economic loss. If this is not done, the Fund will then only be fair to the limited number of persons whose claims will be small enough that they may feel fairly treated. It will also, under such a scenario, become an inadequate refuge for those so desperate for a "quick" payout, regardless of the fairness, that they will end up being short-changed for their true losses. Others will face the choice of inadequate awards under the Fund or pursue protracted litigation where damages are limited to insurance coverage the defendant had in place, even if inadequate.
We believe many victims and their families would embrace a fair and simple claims process that would provide economic security, allowing them to move on with their lives. For many of these persons, submission of claims solely on paper, without hearings, may be appropriate. Some families, either because they believe they will receive a higher amount by submitting substantial expert and other testimony at a hearing before the Special Master or in conventional litigation, will not take advantage of such a streamlined process.
Because of these potentially different approaches, we believe that the regulations should envision a bifurcated claims process. In one, a simplified claim process, although a pure "formula" may not be possible, the end result of filing a claim should be fairly obvious. Even such an approach would have to allow for presentation by the claimant, and take account of, individual special circumstances. For example, at KBW, equity ownership represented a significant economic benefit for employee shareholders. It would be unfair if a simplified process did not allow for some "proof" of economic loss associated with current and potential future equity ownership. This simplified claims process is more fully discussed below under Topic #4.
In a second, more complex claims process, the regulations would provide for an evidentiary and hearing process which is much like the damages phase of a conventional tort case. Obviously, if neither of these alternatives is acceptable, a victim's representative may pursue conventional litigation, cognizant of the limitations on liability and venue contained in Section 408 of the Air Transportation Safety and System Stabilization Act.
The remainder of this comment letter will address certain specific questions raised in Notice of Inquiry and Advance Notice of Rule Making (the "Notice of Rulemaking") of the Department of Justice published on November 5, 2001. The underlined captions below refer to captions where specific issues have been raised in the Notice of Rule Making.
General approach to regulations that must be promulgated by December 21, 2001.
f) Issues relating to the rules to be promulgated by December 21, 2001.
Scope of Regulations. In light of the extensive waiver of rights for those who make claims under the Victims Compensation Fund, we believe the rules adopted should be extremely comprehensive. If rules are vague or incomplete, many potential claimants may delay filing claims. This may also encourage claimants to pursue conventional litigation, which is clearly not the intent of the Act. In addition, such an incomplete set of rules may leave open important threshold questions for potential claimants. For example, potential claimants will need clear guidance on the scope and application of the definition of collateral source in assessing whether to seek benefits under the Act. Charities, employers, and other potential sources of support to victims will also benefit from clarity on this point in making gifts and structuring survivors benefits. This is discussed in greater detail under Topic #6, below.
The Act appears to provide for claims to be made solely by the victim or the victims representative. However, the Act appears to call for reduction of awards to reflect collateral sources properly paid to persons other than a victim or their estate. This opens the question of whether the personal representative or victim should also allege ancillary claims, such as family claims, against the Fund. If only victim and estate claims are permitted, the litigation waiver should only apply to the victim or victim's estate. If family claims, such as, loss of consortium, loss of parental guidance and comfort or intentional infliction of emotional distress, are allowed, the waiver of rights to pursue civil litigation may also cover these persons. There should be no doubt as to the scope of potential claims and the extent of the waiver.
Topics #1 & 2: The forms to be used in submitting claims under this program and the information to be included on the claims form.
Consistent with the bifurcated approach discussed above, a simplified application form should be made available for the simple claims process. This form should be available for any size of benefit claim and should not be limited to claims below a maximum dollar amount. Even large claims may be efficiently handled through a fair simplified application process.
Even such a simple claims form will require fairly detailed information (some of which may best be provided in the form of attachments). Some of the most important information would include the following:
* Personal information about the victim
* A description of injuries, if the victim has been injured (which may be in the form of medical records and receipts) or a statement that the victim has died (along with a copy of the Death Certificate)
* Information establishing the legal right of a claimant to act as the personal representative of the victim (which could be a state guardianship order or appointment as an administrator or executor for a decedent)
* Information that establishes the presence of the victim at the sight of the attack (which may be similar to the information required for issuance of a death certificate-such as a certificate from the next of kin and from an employer) including their likely specific location in the area of the attack.
* An employment and compensation history and job description of the victim (either through copies of W-2's, tax returns or letters from employers)
* Information documenting other specific actual or potential economic or other non-economic loss suffered by the victim
* Information about persons who may have an interest in the benefits paid to the victim, including family members, other dependents, and known creditors or others with legal claims against the victim (this information should be used as the basis for some mailing of a notice to such interested parties, similar to the process used in administering a probate proceeding)
It may be that even for such a simplified claims process, the information may be supplied in a series of steps. After the initial filing of this form, there should be a procedure to allow the claimant to provide additional written information and to provide information to further explain or clarify certain statements or claims. Because this is an entirely new process and because of the complete destruction in the terrorist attacks, which may have resulted in destruction of critical information, and the related emotional toll on potential claimants, we believe there should be a liberal opportunity to complete the filing and to correct mistakes in a filing. In light of the requirement that claimants waive rights to civil litigation, such waivers should not be effective until the form is fully filed and all appropriate information has been submitted and the form is accepted as complete for filing by the Special Master.
It would be unnecessary to have claimants who wish to offer substantial testimony or evidence and obtain a hearing to have to provide substantial details of their claim in an initial filing. For this more complex process, the Department should provide a different form that will effectively commence the claims process, recognizing that greater detail will be submitted in further submissions and hearing testimony. There should be uniform rules of evidence adopted, including rights to subpoena witnesses and rules of conduct for document subpoenas and depositions. Since this will be a complex procedure, the Special Master and the claimant should have the right to waive specific deadlines to allow for the proper productions and the preparation of expert reports and testimony.
Recognizing that this is a new program, and that such claimants may subsequently elect to pursue the simplified claims process, or pursue litigation, the waiver of the right to pursue civil litigation under the more complex process should not be deemed effective until some designated time after the initial filing.
Topic #4: Procedures to assist an individual in filing and pursuing claims under this title.
There are a variety of issues common to nearly all claims. Many of these are similar to the type of statistical or actuarial data and assumptions often used in mass tort cases. Until there is widespread dissemination of the amount of a number of awards from the Fund, there could be great uncertainty among claimants as to what they may expect. This may convince claimants to either wait until others have been "guinea pigs" or that, in making any claim, they must provide extensive proof of all potentially relevant data and assumptions.
The Department should consider engaging experts who can prepare a variety of models and assumptions on which the Department will rely in handling of the claims process. Such data should be published along with some explanation of how it will be applied by the Special Master in the claims process.
The models and assumptions should cover issues such as life expectancy, number of productive working years in comparable jobs in relevant industries, anticipated inflation and discount rates, reasonable expectations as to compensation growth and industry and economic cycle statistics. Assumptions used in establishing awards related to the pain and suffering of a deceased victim should also be published. Victims and personal representatives may rely on such assumptions or may, in written submissions or by oral testimony, present additional information in the nature of expert data. Unless it is appropriate for the Special Master to take into account additional or contrary proof on such issues presented by a claimant, such published assumptions should be binding upon the Special Master.
Limitations on Fees of Attorneys and Others. Given the importance to victims and their families of the end result of making a claim, it is highly likely that even those willing to file under a simplified procedure for written submissions will use the services of an attorney or other outside claims assistance. It is nearly certain that those using a complex claims process will use an attorney and other advisors. While certain organizations have pledged to provide pro bono services to assist in making claims, many individuals will want to engage advisors who may charge a fee. Limiting fees may prevent claimants from obtaining the advice they may feel is best.
To the extent not already covered by existing laws, improper solicitations of potential claimants should be prohibited. "Cold call" solicitations of victims or their families should be discouraged.
Topic #5: Claimant Eligibility
Definition of Physical Harm and Immediate Aftermath. In defining both "physical harm" and "immediate aftermath" we believe certain types of claims, such as those made by persons who were not present at the time of attack or during any subsequent structural failure, should be excluded from the Victims Fund process. Under such a limitation, it should be made clear if rescue and recovery workers who arrived at the scene after the actual attacks or structural collapse would be allowed as claimants under the Fund.
There is a need to limit the scope of potential claimants under the Fund. If this is not done, the process may be overrun by claims with a far less clear connection to the terrorist attack. For example, residents of apartments in lower Manhattan making claims based on environmental damage related to ongoing fire condition or asbestos contamination have the option to pursue conventional tort claims and should not be claimants against the Victims Compensation Fund. Unfortunately, with the continuing goal of Congress to limit potential defendant liability, it may be that these victims will not ultimately receive fair treatment in the courts.
The New York City Coroner's office has already established the type of proof necessary to issue a death certificate for victims. Such a level of proof should be sufficient for the Special Master to prove that the victim was in such a circle of imminent physical danger. This would require an affidavit from the next of kin and the employer. Other information, such as letters from persons who saw a victim in the building, or who spoke with or received an email from the victim at the time, may help verify these affidavits and may provide more specific information on the location of the victim in the area of attack. In lieu of such affidavits, the death certificate itself may establish presence at the site during the attack or immediate aftermath.
Definition of Personal Representative. Generally, if ancillary family claims are not allowed, an injured victim who is competent to make a claim should be the only party permitted to make such a claim under the Act. If, however, ancillary claims are allowed to be included, such persons should be notified that they have a right to join in such a claims process. For a surviving victim not competent to make an individual claim, a properly appointed guardian under state law should be the personal representative. For deceased victims, their personal representative should be the same as the administrator or executor under the intestacy or probate process, since these persons legally represent the victim's estate. Since New York and other states have adopted streamlined death certificate and probate processes, the appointment of such a representative should not be an undue burden. In order to limit fraudulent claims, any claims made by persons other than the victim, the victim's next of kin or the state appointed guardian, executor or administrator of the victim should be reviewed extremely carefully.
Topic #6: Nature and Amount of Compensation.
In addition to publishing certain assumptions and models that may be relied upon by the Special Master, it would be advisable to publish statistics of actual awards in a manner that can assist in preparation of future claims. Obviously the privacy and security of recipients of awards under the Fund must be protected.
Collateral Sources. We believe that an overly broad definition of collateral sources is likely to force potential claimants to pursue conventional tort claims and avoid the Victims Compensation Fund. The definition of Collateral Source should be consistent with the application of similar concepts as applied in conventional tort cases.
The Act has a substantial inconsistency between the definition of "Collateral Source" in Section 402 (4) and the impact of collateral sources on the decision process of the Special Master, as set forth in Section 405 (b)(6).
Section 402 (4) provides:
The term " collateral source" means all collateral sources, including life insurance, pension funds, death benefit programs, and payments by Federal, State or local governments related to the terrorist-related aircraft crashes of September 11, 2001 (emphasis supplied).
Section 405 (b)(6) provides:
The Special Master shall reduce the amount of compensation determined under paragraph (1)(B)(ii) by the amount of the collateral source compensation the claimant has received or is entitled to receive as a result of the terrorist related aircraft crashes of September 11, 2001(emphasis supplied).
If the allowable claims of a personal representative or injured victim do not include family claims of other relatives, a narrow reading of the operation of Section 405 (b)(6) to reduce an award solely by amounts payable to the victim or their estate by reason of such person's death or injury would be appropriate. Such a reading would exclude from collateral sources used to reduce benefit awards amounts paid to beneficiaries of insurance policies, pension funds, IRA accounts and other similar items, other than those paid directly to the victim or the victim's estate. Such a treatment would be generally consistent with state tort laws. On the other hand, if ancillary family claims are allowed, it may be proper to include in collateral source payments certain payments made or to be made to family members.
The definition in Section 402 is very inclusive. However, we believe that the inclusion of items which were already assets owned by the victim prior to the attack in collateral sources is not appropriate. For example, vested interests in pension funds and IRA or 401(K) accounts; the cash surrender value of whole or universal life policies (as opposed to term policies); and interests in deferred compensation plans are really assets owned by the victim before the terrorist related attack. To include these in collateral source items would be to penalize the victims who saved and built their assets while benefiting victims who made fewer efforts to save and build their assets. Such "owned" assets can easily be distinguished from term life insurance payments; disability insurance payments, survivor's benefit payments; and payments made under various government programs such as Social Security, Workman's Compensation, and Crime Victims Board payments.
While an argument could be made that payments from various charities are collateral sources, there is no "entitlement" to such amounts and, accordingly, the language of Section 405(b)(6) would appear to support exclusion of such amounts. Similarly, outright gifts from family, friends or employers, do not represent an "entitlement" and should be excluded from collateral sources. Including such items in the definition of collateral sources will either reduce the interest of various persons in helping victims and their families or will cause such persons to wait until claims have been awarded under the Victims Compensation Fund before making such gifts. If the Department is not prepared to completely exclude such gifts from collateral source treatment, at a minimum, gifts for certain purposes, such as payment of health insurance premiums, tuition or other education assistance and housing and other "emergency" expenses should be excluded.
I appreciate the opportunity to provide these comments to the Department of Justice. While I recognize the difficulties in drafting regulations to implement the September 11 Victims Compensation Fund of 2001, a fair simplified process will benefit many victims and families consistent with the purposes of the Act.
Very truly yours,
Keefe, Bruyette & Woods, Inc.
New York, New York