Thu May 6, 2004 09:23 PM E

By Susan Cornwell

WASHINGTON (Reuters) - Talks aimed at creating a national fund to compensate U.S. asbestos victims have ended after no agreement was reached, a source familiar with the discussions said on Thursday.

"The talks are over, they couldn't reach agreement," the source, who asked not to be named, said of the sessions between business, labor and insurance representatives. The meetings had been mediated by a federal appeals judge, Edward Becker.

Senate Republican Leader Bill Frist and Senate Democratic Leader Tom Daschle had launched the talks on April 26 after Democrats blocked a Republican bill creating a privately financed asbestos fund of up to $124 billion.

Democrats complained the Republican bill did not offer enough money for victims, who would lose their right to sue under the proposal. The Democrats' allies in the labor movement and among plaintiffs attorneys opposed the bill.

Frist indicated the current set of negotiations were over. Asked outside the Senate chamber if the asbestos talks mediated by Judge Becker had ended, Frist said: "The first phase is over."

But the Tennessee Republican did not rule out going back to the issue at some point, saying lawmakers were not giving up on legislation to curb asbestos litigation. Republicans complain it has clogged courts and driven dozens of companies into bankruptcy.

Asbestos was widely used for fireproofing and insulation until the 1970s. Scientists say inhaled fibers are linked to cancer and other diseases.

Companies have paid an estimated $70 billion on some 730,000 asbestos personal injury claims, making it the most expensive type of litigation in U.S. history, according to the RAND Institute for Civil Justice.

The talks mediated by Becker brought together asbestos defendants and insurers, who were expected to finance the proposed asbestos compensation fund. They also included labor officials from the AFL-CIO, who were concerned that the victims, many of them workers exposed to asbestos on the job, should be fairly compensated.

Becker had them all meet together for some sessions, and he also met with participants separately in a sort of shuttle diplomacy between rooms on Capitol Hill.

But no progress emerged. The source familiar with the talks said that asbestos defendants had offered a few billion dollars more, suggesting an overall fund size of around $128 billion

Labor officials, meanwhile, indicated an asbestos fund of at least $134 billion would be needed to pay claims, as well as an additional $15 billion contingency fund, the source said.

The participants disagreed on how many claims they could expect in the future, how much the different kinds of asbestos-related diseases should be compensated, and how the financial burden of the fund should be distributed between asbestos defendant companies and insurers.

Nor could they agree on when the money was needed. Labor officials told other negotiators that as much as $60 billion would be needed within five years to pay asbestos claims.

The talks suffered a public blow when the company expected to make the biggest contribution to the fund, auto parts maker Federal-Mogul, announced last week that it could not afford it, and asked that its $2.2 billion contribution be reduced.

Frist got involved in trying to get an asbestos bill last year after a proposal by Utah Republican Sen. Orrin Hatch stalled in the Senate.

Providing for an asbestos compensation fund of up to $153 billion, the Hatch bill was passed by the Judiciary Committee on a near party-line vote, but then began to lose support from Republicans while failing to attract many Democrats.