This is the second of a two-part series on the effect of asbestos and asbestosis on the insurance industry:

The tables soon turned for the workers affected by asbestosis. The first asbestos liability suit was finally won in 1973. In Borel vs. Fireboard, the Fifth US Circuit Court of Appeals ruled an asbestos manufacturer has a duty to warn insulation workers of the hazards of asbestos, making it the first case to extend strict liability for the failure to warn users of a product's possible hazards. It was because of this new tort law that the floodgates were opened so that employees could sue their employers for negligence and failure to provide a safe work environment.

For years after the first asbestos liability case victory, Manville and Raybestos-Manhattan and other asbestos providers argued that they did not know about the dangers of asbestos. They argued they only became aware of the dangers in the early 1960s when tests conducted by Dr. Selikoff, director of Mt. Sinai School of Medicine's Environmental Sciences Laboratory, in New York City showed without a shadow of a doubt that industrial exposure to asbestosis was extremely hazardous.

Plaintiffs attorneys soon discovered documents which showed that not only were Manville Corporation, Raybestos-Manhattan and other asbestos providers fully aware of the deadly effects of continued and repeated exposure to asbestos but that they were instrumental in covering up those effects for some forty years. When this evidence was presented in court, juries took pleasure in granting huge awards to plaintiffs. In 1981, in Keene Corp. vs. Insurance Co. of North America, a federal appeals court ruled that there is a triple trigger of coverage for asbestos-related diseases, greatly expanding policyholders' ability to tap multiple policies for long tail claims. Triple Trigger theory means policies, which were available when the plaintiff was first exposed to the disease could be impacted as well as those policies that were available when the disease manifests and becomes a full-blown disease. This effectively means that even if an insurer's policy came into effect after the disease was first diagnosed in a worker, that policy would still have to pay for the employees' exposure to asbestosis. This landmark case paved the way for the longest running tort liability case in history and is still unfolding today. Asbestos liability could potentially bankrupt many of the larger insurance companies and has bankrupted several large asbestos manufacturers and service providers already.

According to a recent study conducted by consultants Tillinghast-Towers Perrin about the reappearance of asbestosis, “statements to individuals exposed to asbestos in the US and related expenses will ultimately reach $200 billion”. Insurance companies will pay approximately 30 percent of the amount and the asbestos defendants (i.e. those who manufactured and distributed it and those who owned the buildings that contained it) will pay approximately 39 percent.

Equitas, the Lloyds Runoff Company (refer to Column dated March 11, 2002 for details), is concerned about the unexpected rise in the number of new claims and in the amounts paid out to claimants by Lloyd's policyholders. It was the massive exposures to asbestos claims in the 1990s that nearly caused the demise of Lloyds until Equitas was formed to deal with the old liabilities.

A.M. Best Co recently announced that the property and casualty industry is likely to incur upwards of $65 billion in net asbestos losses. Best also believes that the industry is under funded by approximately $33 billion for asbestos claims which is maybe why Equitas is very worried about the resurgence of these claims.

According to the Insurance Journal, the resurgence of asbestosis claims has been attributed to:

The acceleration of the number of asbestos defendant bankruptcies;

Spreading of asbestos-related litigation to peripheral defendants, reopening (in some cases) previously exhausted product liability limits, as policyholders seek to reclassify older claims under the non-products portion of their general liability policies; and

The recent peaking of more serious asbestos-linked illnesses, resulting in higher medical costs.

To illustrate how significant the court awards have been for recent asbestosis related incidents, listed below are some of the awards:

Honeywell International as the owner of Allied Signal and its Bendix division was recently ordered to pay $53.5 million to the family of Stephen Brown, who died form an asbestos related illness.

McDermott Corporation, a worldwide energy services company, was successful in having a Louisiana court throw out the case by London underwriters who wanted to annul an agreement acknowledging coverage for McDermott's subsidiary, Babcock & Wilcox's asbestos exposure so that they could make way for a new agreement. The court ruled against the underwriters saying the underwriters were contractually liable to cover the asbestos claims as they had originally agreed they would. A major setback for the London market, hence the reopening of old cases.

In early December, a Texas jury handed down four verdicts against Halliburton totalling $152 million

To escape the vast and almost limitless verdicts that courts are now handing down for asbestosis, according to data compiled by the Rand Institute for Civil Justice, 41 companies have filed for bankruptcy including W.R. Grace, Babcock & Wilcox, Armstrong World Industries, GAF, Owens-Corning, Kaiser Aluminium Corp. and Pittsburgh Corning. These companies are using the shield of filing for Chapter 11 to stem what they believe is an uncontrollable flood of asbestos claims. Once they file for bankruptcy, all litigation against them ceases immediately. As a matter of fact W.R. Grace's chairman stated Grace filed for bankruptcy because it was the only way the company would be able to “achieve predictability and fairness in the claims settlement process”.

According to Business Insurance, insurers have already paid out some $21.6 billion in claims. Luckily many of the Bermuda insurance companies have escaped the growing asbestosis problem that plagues the global insurance industry because many of them incorporated after the effects of asbestosis were already known and hence had an asbestos exclusion written into their policy language. Therefore, many of Bermuda's insurance companies can go forward without the resurgence in old liabilities of asbestosis hampering their results. But based on the staggering numbers emerging for the asbestosis problem, one can see why many of the older insurance companies around the world are quite nervous.

Cathy Duffy is a Chartered Property Casualty Underwriter (CPCU) and is now a freelance writer. She is a former executive of Zurich Global Energy and has 15 years experience in the insurance industry. She writes on insurance issues in The Royal Gazette every Monday. Feedback: crduffycwbda.bm