Potential claims from asbestos, pollution and tobacco will continue to challenge the insurance industry in coming years, panelists told the Casualty Actuarial Society annual meeting in Washington, D.C.
After stabilizing in the early 1990s, asbestos-related claims have surged according to Jennifer L. Biggs, consulting actuary, Tillinghast-Towers Perrin.
“In the late 1990s, filings have gone crazy,” she said at the mid-November conference. Ultimately, the industry loss from asbestos in the United States could easily exceed $40 billion, said Biggs.
Average annual claim filings handled by the Center for Claims Resolution rose from more than 20,000 per year in 1991-1993 to about 60,000 in 1998-1999, Biggs said. She also observed that the cost of asbestos to defendants, their insurers and reinsurers has increased.
In recent years, there has been an increase in claim filings and bankruptcies, higher settlement amounts and a larger number of defendants. In addition, some initial blocks of settlements have been rolled forward for higher amounts and some agreements have been rescinded, she said.
Among the factors behind the increase in filings are the impact of tort reform accelerating the time frame for filings and aggressive plaintiff attorneys, many of which specialize in asbestos litigation.
She also pointed out that the number of defendants is increasing from approximately 300 in the 1980s to several thousand today. “The defendant list continues to expand since asbestos was used in a variety of products, including yarn and thread, brake linings, roofing materials and paints,” she said.
Many defendants are seeking additional coverage from their insurance carriers, sometimes asking for the rescission of previous settlement amounts. In looking for new sources of coverage, some defendants are attempting to have their traditional products liability coverage under the Commercial General Liability policy reclassified as a non-products coverage, Biggs said.
“Now, traditional product liability defendants with insulation activities that have exhausted or nearly exhausted their products coverage are attempting to obtain additional insurance coverage by reclassifying claims that were previously paid under the products limits as premises/operations,” she said. “If reclassification is successful, it results in the reinstatement of previously exhausted products limits and provides additional limits under premises/operations coverage, which generally does not have an aggregate limit.”
Reviewing tobacco litigation, history, Phillip D. Miller, consulting actuary, Tillinghast-Towers Perrin, noted that between 1954 and 1983, 300 tobacco litigation cases were filed with no sustained verdicts or paid indemnity. However, during the 1990s, more than 1,500 suits were filed, with 1,225 pending as of the end of 1999.
“Will the next wave of suits be a tidal wave?” Miller asked, pointing out that there have been several recent plaintiff verdicts, although most cases continue to be won by defendants. “No individual smoker case with a sustained verdict has been sustained on appeal – yet.”
He said that, to date, insurer involvement in tobacco litigation has been limited with insurers denying that coverage exists. Potential coverage issues identified by insurers and others include specific tobacco exclusions, pollution exclusions, the definition of occurrence, late notice and coverage triggers.
Miller pointed out that the Liggett Group had filed suit seeking a declaratory judgment against 33 insurers seeking coverage for defense costs and payments from primary, excess and umbrella and advertising liability policies from 1970 through 1979.
“Except for Liggett, there has been no propensity to file claim notices or initiate similar actions by other tobacco companies,” he said. However, Miller cautioned that shareholder pressure, the outcome of the Liggett suit and significant plaintiff verdicts sustained on appeal could dramatically change the tobacco litigation environment for insurers. “It ain’t over ’til it’s over,” Miller concluded.
Barbara K. Murray, assistant vice president, Argonaut Insurance Co., observed that tobacco exposures also include manufacturers of filters and papers. She explained that developing a coverage chart and determining financial exposures is a valuable tool in mega-tort cases where numerous carriers, reinsurers and coverage are involved.
In developing the direct coverage chart, an insurer should begin by identifying their own policies and then the policies issued by others, including the insured, primary carriers and past defense sharing agreements.
“It’s also important to identify coverage gaps and overlaps and shared layers,” Murray said. “Then, paint the picture.” Similarly, when creating a reinsurance coverage chart, the insurer should identify all treaties that are potentially applicable as well as facultative certificates insuring the account.
Also, potential retrocessional exposures need to be found. Murray further advised that carriers should “use your claims runs, cedents, brokers and an analysis of your contracts.” In determining direct potential exposures, losses and potential losses should be identified ad quantified.
To accomplish this, carriers should obtain a corporate genealogy and be knowledgeable of the business insured. “Know who you insured and when you did it and when you picked up any subs,” she said.
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