Emerging Exposures

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					Developing Exposures
CAS Seminar on Reinsurance
    Washington, D.C.
      July 12, 2001

      Michael A. Frantz, J.D.
  American Re-Insurance Company
Format of the Presentation

“Identified” Exposures

“Developing” Exposures

Questions and Discussion
                        Identified Exposures

   Asbestos                 Repetitive Stress
   Pollution                HIV/AIDS
   Breast Implants          Fen-Phen
   Sexual Misconduct
Developing Exposures
                    Developing Exposures

   Advertising Injury /       Managed Care
    Intellectual Property      Mold
   Firearms                   MTBE
   Latex Sensitivity          Tobacco
   Lead
        Advertising Injury/Intellectual

   Types of claims include:

       Offenses committed in the course of advertising
       Libel, slander, defamation, violation of privacy,
        piracy, copyright, trademark, tradedress, style
        of doing business or patent infringement
       Interference with potential business advantage
       Advertising Injury/Intellectual
New insurance products address some of these risks, but
coverage issues under the CGL form exist, including,
            Advertising Injury Coverage
    Whether Insured is in the business of advertising

    Whether in the course of advertising

    Whether it fits one of the “offenses”

    Whether during the policy period

    Whether 1st publication exclusion applies
      Advertising Injury/Intellectual

           Personal Injury Coverage
   Whether it fits one of the “offenses”
   Whether claims are invasion of recognized
    privacy right
   Whether during the policy period
   Whether 1st publication exclusion applies

 Product liability actions are a recent
 Lawsuits include:
       Private recovery actions
       Public recovery actions modeled after the
        government’s efforts against the tobacco

 8/4/99 Journal of the AMA report puts the
  annual cost for medical treatment of
  gunshot wounds at $2.3BB (1994 data)
 A Cal State/Tulane Univ. study in October
  1998 indicates 29% of high school boys
  possess a firearm
 The Bureau of ATF estimates handguns are
  used in 71% of all armed crimes
   Typical defendants include:
       Gun manufacturers
       Pawn shops
       Firearms trade associations
   Recent Developments
       USDC in Brooklyn found 15 of 25 gun
        manufacturers guilty of negligent distribution
       Cities across U.S. filed product liability/cost
        recovery actions against firearm industry

   Since claim activity is recent, it is difficult
    to predict insurance implications
       Several manufacturers have placed their
        carriers on notice
       There are generally no specific applicable
       Market share distribution of liability remains
                         Latex Sensitivity

 Latex is a natural rubber compound used to
  make protective gloves and other products
 About 2.5% of the population is sensitive to
  the proteins contained in latex
 Increased demand due to AIDS led to
  higher levels of protein in gloves
 Powder in gloves carries irritants into the air
                             Latex Sensitivity

 Hyper-sensitivity can cause skin and
  respiratory reactions leading to disability or
 Types of Claimants:
       Healthcare workers
       Patients
   Latex glove use in the US rose from 800
    million in 1987 to 10 billion in 1995
                          Latex Sensitivity

   The potential impact to the insurance
    industry appears manageable
      Courts have generally frustrated the plaintiff
       bar’s attempts to certify class actions.
      Most courts now address product
       identification before allowing additional

   The primary cause of human contamination
    is lead paint

 Nearly 1.7 million children in the U.S. have
  elevated blood lead levels (BLL>.10)
 At high levels, lead can cause a variety of
  health problems, including death

   Primary defendants include:
       Building owners
       Paint and pigment manufacturers or distributors
       Plumbing manufacturers and distributors
   Frequency and severity of lead claims have
    been less than the industry’s initial
                              Managed Care
As the population ages, there will be continued
 growth in the Managed Care industry
Congress is currently considering Patients’ Bill
 of Rights legislation
An increase of claims/litigation may likely
   Coverage Issues limited
     • Occurrence
     • Expected/Intended
Mold is a fungus, not a bacteria, that
occurs naturally in the environment.
Examples - aspergillus, penicillium and

Mold can cause health problems depending
on individual sensitivities and amounts

Three things mold needs:
  Water
  Food Source (paper, wood, etc.)
  Temperature
There are no state or federal guidelines on
  acceptable levels
There is a lack of information on health
Mold can be very costly to investigate
 and remediate.
Ballard v. Farmers Insurance - $32M verdict
 ($6.2M in actual damages, $5M in mental
 anguish, $12M in punitive damages and
 $9M in fees)

Among the claim handling issues are -
 timely response -

  mold can grow in 24-48 hours
 appropriate consultants and experts

 identification of coverage issues

 appropriate response (e.g. health issues)

 adequate remediation & prevention

    Coverage Issues Presented
1st Party Property (e.g. water damage)
  Exclusions for fungus, mold, wear & tear
  deterioration, seepage, etc.
Liability (PD, BI or PI)
  Does the Pollution Exclusion apply?

   MTBE has been used since 1979 as an anti-
    knock compound in gasoline
   In 1992 petroleum companies and the USEPA
    began using MTBE to improve combustion and
    reduce carbon monoxide emissions
   “Reformulated Gasoline” use in areas plagued
    by poor air quality became mandatory in 1995
   85% of reformulated gasoline uses MTBE and
    makes up 30% of nationwide gasoline sales
   MTBE has been identified as a possible
   There has been alleged widespread
    groundwater contamination from petroleum
    that contains MTBE
   MTBE can cause symptoms when inhaled,
    ingested or absorbed through the skin

Insurance Implications
   Use of MTBE was stopped by the EPA last
    year. Ethanol has been the substitute
   Non-specific symptomology may lead to claims
   If a product claim, some courts have held that
    the pollution exclusion may not apply
   The government’s virtual mandate to use
    MTBE will likely be used as a defense

 U.S. tobacco litigation remains active
 Types of exposures include:
       Private lawsuits
       Reimbursement actions
         • Government recovery of medical costs
         • Private reimbursement actions
       Ancillary exposures
         • Professional liability

   State medical cost recovery actions
       Settlement of 46 states Medicaid actions
       Payment of at least $206 billion
       Includes changes in business practices
   Insurance industry exposure remains

The Engel Verdict
 • $145 Billion in Punitive Damages
 • $12.7 Million in compensatory damages
   awarded to three smokers representing the
 • Class is comprised of 300,000 to 700,000
   sick smokers in the State of Florida only
 • Recent commitment to pay $710 Million

Foreign Exposure
• Canada has several reimbursement
  actions pending
• EU, Columbia, Guatemala, Israel and
  others have also filed actions
• There may be no operable exclusions

What else can we
 expect to see?
   The End

Thank you!