Docstoc

Beaumont Insurance Claim Lawyer - PowerPoint

Document Sample
Beaumont Insurance Claim Lawyer - PowerPoint Powered By Docstoc
					Casualty Actuarial Society
Seminar on Reinsurance
Concurrent Session: Current Events
Changes in Asbestos Liability




June 15-16, 2000
Jennifer L. Biggs, FCAS, MAAA
Tillinghast – Towers Perrin
Asbestos Liability

 Asbestos is not a done deal

 Filings are continuing
 Unanticipated changes will affect insurer and reinsurer
  liabilities




                                                            2
Asbestos Liability

 Some History…

 What‘s Happening Today?
 General Observations in the U.S.
 Around the World




                                     3
What is Asbestos?

 Naturally occurring fibrous mineral with a crystalline
  structure, containing long chains of silicon and oxygen
   flexible
   strong
   durable
   fire resistant
   separable into filaments




                                                            4
Types of asbestos

 Six types
   amphibole types
     actinolite
     amosite (brown asbestos)
     anthophylite
     crocidolite (blue asbestos)
     tremolite
   serpentine fiber
     chrysotile (white asbestos)
 Chrysotile: 90% of asbestos production; 95% of
  asbestos in place in U.S. buildings; thought to be less
  dangerous than amphibole types.
                                                            5
Products containing asbestos

 Used historically in a wide variety of products, including:
   yarn, thread, felt, rope packing, flame resistant cloth
   steam gaskets and packings, plain and corrugated
      paper, rollboard, millboard, high temperature insulation,
      movie props
     World War II Ship Building
     molded brake linings, brake blocks, filler in plastics,
      flooring, pottery, insulated wire, pipe covering
     brake shoes, clutch facings, cement, plaster, stucco,
      shingles, siding, tile, sewer pipes, blocks
     corrugated roofing, roof sheathing, roofing cement
     boiler insulation; insulation of walls, floors, mattresses
     paints, varnishes, filter fibers, filter pads
                                                                   6
Asbestos Usage:

 Peak of ~1 million tons of asbestos used in the U.S. in 1973

 Exposure and use limits not established in the U.S. until the
  creation of OSHA in 1970
 EPA issued ban on most forms of asbestos in 1989

 Asbestos is still used today in several products, including:
   U.S. Navy submarines
   chlorine production
   Space shuttle
   jointing and gaskets; asphalt coats and sealants
   some paper, plastics, cement piping, roofing and shingles




                                                                  7
Cause of Disease

 Occupational Exposure

 Recognized as a cause of disease since 1920s;
  universally accepted since 1930s
 Long latency: 10-25 years or more


 Typical American breathes ~1 million fibers per year
  via natural and man-made sources




                                                         8
Types of Diseases

 Plueral plaques

 Asbestosis
 Lung & other cancers
 Mesothelioma




                         9
Initial Litigation

 First suit filed in Beaumont, TX in 1966

 Lawyer won $79,000 in second case in 1969
 Landmark case: Borel v. Fibreboard filed 1970;
   decided 1973
 March 1980 TX jury awarded $2.6M to widow of
   insulation worker
 By October 1981 evident that U.S. Courts maximizing
   insurance coverage for asbestos producers
 By 1982, producers began declaring bankruptcy



                                                        10
Bankruptcies / Limited Trusts / Other Settlements
   More than 15 asbestos defendants now bankrupt
   National Gypsum filed bankruptcy in 1993
     expecting $2.3B in claims
     trust funded with only $138M from National Gypsum and $380M from
       insurers
   $4.5B Dow Corning bankruptcy plan approved 12/1999 (SBI)
   Babcock & Wilcox filed bankruptcy 2/22/2000
     due to demands for higher settlements in asbestos claims
     45,000 claims pending

   Owens Corning established National Settlement Program (NSP) in 12/1998
     resolved 90% of pending claims (176,000); average $4,600 per claim
     established fixed payments for future claims without litigation
     private agreement between OCF and plaintiffs counsel (~100 firms)
      requires no court approval
     plaintiffs lawyers promise to hold off on filing new claims until 2001 (catch
      up on backlog)
                                                                                  11
Wellington Agreement

 Signed 6/19/1985 after 3 years of negotiation by 34 former asbestos
   producers and 16 insurers
 Established Asbestos Claims Facility (ACF)
    private, non-profit corporation funded through insurance proceeds
    provide efficient, equitable, predictable alternative to the tort system to
     file and evaluate asbestos-related bodily injury claims
    reduce legal expenses
    settled insurance coverage disputes
    cost-share formula based on each producer‘s previous litigation
     experience
 Wellington agreement benefits primary insurers more than reinsurers




                                                                              12
Center for Claims Resolution (CCR)

 Withdrawal from ACF triggered by disagreements
  regarding allocation of claims
   emergence of new defendants
 Establish CCR 10/1988 with more flexible allocation
  formula and more aggressive settlement philosophy;
  votes weighted based on share of liability
 CCR members are defendants only (no insurers)
 Like the ACF, the CCR provided claims handling
  services, systems support, allocates costs for
  settlement and bills insurers


                                                        13
Georgine v. Amchem v. Admiral

 CCR Futures Deal
    proposed settlement to Georgine case
    $1.3B settlement regarding worldwide exposure of 20 companies
    allows opt-outs

 Dismissed 6/27/1997
    absentee interests (i.e., future claimants) inadequately represented
    fails to satisfy requirement of adequacy of representation by named
     plaintiffs
    resulted in flood of new claims against CCR companies
 Court calls for legislative solution
    Ginsburg: ―… a nationwide administrative claims processing regime
      would provide the most secure, fair, and efficient means of
      compensating victims of asbestos exposure… Congress, however,
      has not adopted such a solution.‖

                                                                       14
Fibreboard
   Ahearn; Ortiz v. Fibreboard
   1993: $1.535B settlement of 186,000 pending plus future asbestos personal injury claims
    against Fibreboard
   1993: Trilateral Agreement - $2B back-up plan funded by insurers in case global settlement
    not approved
     CNA: Continental Casualty
     Chubb: Pacific Indemnity
   Fifth Circuit and Court of Appeals approved class certification on a ―limited fund‖ rationale
   Settlement ultimately rejected
     excluded some potential plaintiffs
     fairness of distribution
     conflicting interest of class
     court should have given more consideration to Fibreboard‘s financial condition
          ability to pay
          potential insurance funds
   Dismissal places new restrictions on limited-fund class actions; expected to result in more
    bankruptcies
   Court again calls to Congress for a solution


                                                                                                    15
Proposed Legislation
   Establish Asbestos Resolution Corp.
     pros: unclog court system, expedite process, more victims get
       compensation quickly, weed out bogus claims (plaintiffs not sick, or illness
       not caused by asbestos), eliminate state statute of limitations, 25% cap on
       fees to plaintiff‘s lawyers, set up ―Office of Asbestos Compensation‖ for out
       of court settlements
     cons: unreasonable medical criteria deny thousands from making claims,
       unfairly caps damage amounts, actually takes longer than court system to
       compensate, can‘t collect punitive damages
   House and Senate bills: Fairness in Compensation Act
     HR1283 approved by House Judiciary Committee by 18-15 vote on
       3/16/2000.
     S758 (introduced March 1999) currently in Senate Judiciary Committee
     Supported by ―Coalition for Asbestos Resolution‖ led by GAF Corp.
        GAF spent >$7.1M paying >35 lobbyists since 1997
        Opposed by the White House, Association of Trial Lawyers of America,
           AFL-CIO, Owens Corning

                                                                                 16
Lawyers‘ Activities

 Asbestos specialty firms

 Canvassing unions; surge of non-malignant claims
 Routinely bundle severe claims with non-malignant claims for settlement
 New Claims
    Household exposure claims
    Second Injury Claims
    Medical Monitoring Claims




                                                                        17
Texas / Mississippi

 Texas
   Prior to 1997 suits from out of state were limited, with the
    exception of those pertaining to railroads, airlines, and asbestos
   Since 1997, annual number of filings in Texas has declined, but
    not as much as expected
 Mississippi
   offers procedural advantages:
         juries rarely rule against the plaintiff
         defendant doesn‘t have right to perform medical exams
         no provision for class actions, but able to join large groups of
          individuals with very different claims, and settlements of
          individual cases don‘t require approval by a judge and aren‘t
          made part of the public court process
         can add claimants to a suit with no relation to the state, but
          with similar injuries

                                                                             18
Rate of Filing (in 000s)

                           Asbestos Defendant:
            #1      #2      #3           #4      #5     #6
   1991    19.0    13.1                19.9
   1992    19.0    20.0    19.9        29.1
   1993    20.0    26.9    19.6        24.5
   1994    12.0    14.0    24.0        21.7
   1995    15.0    13.0    32.4        23.4
   1996    13.5    28.0    30.9        40.0
   1997     5.0    23.5    27.0        40.8      29.8   30.9
   1998     7.0    80.0    21.0        62.1      24.0   93.5
   1999    12.0    48.0    26.9        51.0      30.7   43.1




                                                               19
  Losses from Note 27
                                                           Adverse Asbestos Development by Year (Net)
                                                                       U.S. P/C Insurers
                                            3,500




                                            3,000




                                            2,500
       Incurred Loss & LAE (In $Millions)




                                            2,000




                                            1,500




                                            1,000




                                             500




                                               0
                                                    1993       1994      1995                   1996   1997   1998
                                                                                Calendar Year

*excludes Fibreboard
                                                                                                                     20
Losses from Note 27
                                            Asbestos Liabilities Current Funding Level
                                                  US Insurance Industry – Net
                                                 Based on Tillinghast Estimates
                                     50.0


                                     45.0                                           43.0
                                                                 40.5

                                     40.0     38.0


                                     35.0
    Asbestos Liability ($Billions)




                                     30.0

                                                                                                 Unfunded
                                     25.0                                                        Recognized


                                     20.0


                                     15.0


                                     10.0


                                      5.0


                                      0.0
                                             Optimistic         Expected          Conservative


                                                                                                            21
Recognition and Disclosure

 Rating Agencies

 Regulators
 SEC
 BODs

 Investment Analysts
 Banks




                             22
        Top Ten Asbestos Reserve Additions — 1998

  Travelers PC Group


Amer Financial Group


       CIGNA Group


   Allianz of America


   Amer Intern Group


   Allstate Ins Group


         CGU Group


GE Global Ins Group


Prudential of Am Grp


 CNA Ins Companies


                        0   50   100                150   200   250
                                       $ Millions
                                                                23
Asbestos reserve development has been somewhat
concentrated
                                                   Cumulative Adverse Asbestos Development
                                                                since 1993 (Net)
                                        12,000




                                        10,000
   Incurred Loss & LAE (In $Millions)




                                         8,000




                                                                                                    Top 20
                                         6,000                                                      All Other
                                                                                                    All Groups




                                         4,000




                                         2,000




                                            0
                                            1994        1995           1996        1997      1998
                                                                   Calendar Year
                                                                                                                24
Asbestos reserves relative to surplus
by size group
           Net Asbestos Reserve as Percentage of Surplus
                Groups with Footnote 26 Disclosures
    7.0%




    6.0%




    5.0%




    4.0%
                                                           Top 20
                                                           All Other
                                                           All Groups
    3.0%




    2.0%




    1.0%




    0.0%
                  1996             1997            1998
                            Calendar Year Ending
                                                               25
Asbestos reserves relative to total reserves
by size group
           Ratio of Net Asbestos Reserves to Total Net Reserves
                    Groups with Footnote 26 Disclosures
    4.5%



    4.0%



    3.5%



    3.0%



    2.5%
                                                                  Top 20
                                                                  All Other
                                                                  All Groups
    2.0%



    1.5%



    1.0%



    0.5%



    0.0%
                    1996             1997            1998
                              Calendar Year Ending
                                                                           26
Asbestos drag on combined ratio by size group
                           Impact on Combined Ratios
             Ratio of Net Asbestos Incurred to Net Earned Premium
                      Groups with Footnote 26 Disclosures
      1.4%




      1.2%




      1.0%




      0.8%
                                                                    Top 20
                                                                    All Other
                                                                    All Groups
      0.6%




      0.4%




      0.2%




      0.0%
                         1996            1997            1998
                                  Calendar Year Ending

                                                                                 27
What‘s Happening Today?

 Continued emergence of peripheral defendants

 Roll-forward of initial coverage blocks
 Products reclassification




                                                 28
Products Reclassification

 Asbestos claims have traditionally been filed under the
  products coverage of CGL policies
   some property damage: concentrated for a few
     manufacturers
   some premises: Tillinghast‘s ―Tier 4‖ defendants
 Two courts have ruled that non-products unaggregated
  GL coverage applies to claims against insulation
  contractors
 Now, traditional products defendants with insulation
  activities that have exhausted products coverage are
  attempting to obtain additional insurance coverage by
  reclassifying claims that were previously paid under
  products limits as premises/operations.
                                                            29
Products Reclassification

 If reclassification successful
   reinstate portion of previously exhausted products
    limits
   make available premises/operations coverage
 Limits on premises/operations coverage?
   Premises/operations coverage generally doesn‘t
    have aggregate limit
   may reflect aggregate limit if subject to Wellington




                                                           30
Asbestos Problem/Potential Solutions

Asbestos Problem for Insurers
 large underlying cost

 many exposed policies

 judicial climate favoring plaintiffs



Potential Solutions
 Reinsurance Placements
    T&N

 Restructuring
    Equitas
    CIGNA
                                         31
Quotes from Clients

 ―The claims are continuing‖

 ―Claim filings have remained steady; we expected a decrease by
   now.‖
 ―Asbestos is the energizer bunny of toxic torts; it keeps going and
   going and going...‖
 ―We are seeing operations claims from new defendants
   (contractors, distributors)‖
 We‘ve been approached by producers seeking finite cover. The
   cover might be a positive influence on financial analyst opinions
   … The defendants must anticipate that filings will continue … A
   small number of deals are being done.‖
 ―Asbestos litigation is a profit-driven industry.‖
 ―Don‘t think of them as lawyers, think of them as venture
   capitalists.‖
                                                                       32
Asbestos around the World

              Largest Producers, 1996                                         Largest Consumers, 1994
                  (in metric tons)                                                 (in metric tons)


                                                            Russia & other former Soviet
    Russia                                        720,000                                                 700,000
                                                                      republics


   Canada                               521,000                                   China         220,000



    China               250,000                                                   Brazil       190,000



 Kazakstan            225,000                                                  Thailand       164,000



     Brazil        170,000                                                         India    123,000



                   165,000                                                 South Korea     85,000
Zimbabw e


                                                                                    Iran   65,000




                                                                                                            33
Asbestos around the World

 World production has declined significantly since 1973
   1973 approximately 5.1 million metric tons
   1996 approximately 2.3 million metric tons

 In past two decades, consumption has increased
  dramatically in many developing countries
                      Consumption
                     (in metric tons)

                   1970             1994   Growth
      Thailand    21,000         164,000    781%
      India       51,000         123,000    241%




                                                       34
Asbestos in Developing Countries
   Consumption has increased but safety precautions have not been
    implemented.
   Why the increase?
     low cost
     high quality
     immediate health benefits for the consumer
     suited to the economics of poor countries

   Why the lack of safety precautions?
     Lack of awareness
     apathetic governments
   Implications:
     According to epidemiologist Julian Peto, the surge in use ―will result in
       several million cancer deaths over the next 30 years‖
     By comparison, over past 30 years USA has had 171,500 premature
       asbestos-related cancer deaths


                                                                                  35
Asbestos in Europe

 European Union banned amphibole types of asbestos
  in 1991. Chrysotile banned 9/27/99; to be fully
  implemented by 1/1/2005.
 Belgium — claims filed under workers compensation
  system
 France — asbestos use prohibited effective 1/1/1997
 Italy — asbestos use prohibited in 1992
   claims to be paid by The Italian National Security
     (INAIL), employers (compulsory EL coverage), and
     insurers
 Netherlands — 1997/1998 creation of the Institute for
  Asbestosis
                                                          36
Current Events: Asbestos Liability

 Changes in Asbestos Liability: Have recent court
  decisions and procedural changes altered the number
  and type of claims, as well as the way in which they
  are presented to insurers and reinsurers?




                                                         37
Bibliography
A.M. Best Note 27 Data

Alleman, James E. and Mossman, Brooke T., ―Asbestos Revisited,‖ Scientific American, July 1997, p. 70.

―As the Asbestos Crumbles,‖ Hofstra Law Review, Summer, 1992, 20 Hofstra L. Rev. 1139.
Borel v. Fibreboard, United States Court of Appeals for the Fifth Circuit, No. 72-1492, September 10, 1973.
Bouska, Amy S. and Cross, Susan L., ―A Mass Tort or a Mass of Torts?‖ Emphasis, 1997/3, p. 10.
Bouska, Amy S. and Miller, Philip D., ―The ‗Loser‘ – and Still Champion?‖ Emphasis, 1999/2, p. 2.

Broderick, Kathryn P., Kay, Kenneth R., and Stirn, James R., ―A Bad Deal for Reinsurers,‖ Best‘s Review, January 1989, p. 42.
Bryant, Arthur H. and Bueckner, Leslie A., ―Commentary,‖ Mealey‘s Litigation Report: Asbestos, 7/16/99, Vol. 14, #12, p. 32.
Cauchon, Dennis, ―The Asbestos Epidemic (4 Part Series), USA Today, February 9, 1999.
Cauchon, Dennis, ―The Asbestos Epidemic (4 Part Series), USA Today, February 11, 1999.
Centola, Gary D., ―Commentary,‖ Mealey‘s Litigation Report: Asbestos, 8/6/99, Vol. 14, #13, p. 39.

Chalasani, Radhika, ―The Asbestos Epidemic (4 Part Series), USA Today, February 8, 1999.
Cross, Susan L. and Doucette, John P., ―Measurement of Asbestos Bodily Injury Liabilities,‖ Proceedings of the Casualty
Actuarial Society, 1997, Vol. LXXXIV, p. 187.
―Despite State Tort Reform, Asbestos Litigation Thrives,‖ Texas Journal, October 27, 1999.
Dew, Ted, ―Will Lead Poison U.S. Insurers,‖ Emphasis, 1997/2, p. 10.




                                                                                                                           38
Bibliography
http://congress.nw.dc.us/cqi-bin/thomassearch.pl?dir=congressorg2&term=asbestos

Labaton, Stephen, ―How a Company Lets Its Cash Talk,‖ The New York Times/Money & Business, October 17, 1999.

Mealey‘s Litigation Report: Asbestos
 7/7/1997, Vol. 12, #1

 5/1/1998, Vol. 13, #7, p. 12.

 5/7/1999, Vol. 14, #7, p. 23.

 8/6/1999, Vol. 14, #13, p. 33.

 3/17/2000, Vol.15, #4, p. 6.

 5/5/2000, Vol. 15, #7, p. 14.

 and various other volumes

Morello, Carol, ―The Asbestos Epidemic (4 Part Series), USA Today, February 10, 1999.

Ortiz v. Fibreboard, United States Supreme Court No. 97-1704, Decided June 23, 1999.
Vandehei, Jim, ―Asbestos – Claims Bill Battle Heats Up with Attack on GOP Legislative Backers,‖ The Wall Street Journal,
February 22, 2000, p. B32.
Warren, Susan, ―Asbestos Suits Target Makers of Wine, Cars, Soups, Soaps,‖ The Wall Street Journal, April 12, 2000.
Werder, Jr., Richard I., ―Commentary,‖ Mealey‘s Litigation Report: Asbestos, 9/3/99, Vol. 14, #15, p. 30.




                                                                                                                           39

				
DOCUMENT INFO
Description: Beaumont Insurance Claim Lawyer document sample