IBMs Legal Woes Reflect U.S. TortEnvironment

International Business Machines Corp., the world's top provider ofcomputer hardware, is facing legal woes from hundreds of its formeremployees, and some insurance experts are saying it's part of alarger trend in the U.S. tort environment where many trial lawyerszero in on workplace toxins.

Robert Hartwig, senior vice president and chief economist at theInsurance Information Institute in New York, commented that thistype of claim is not new in the greater scheme of things “peoplebecoming ill from exposures from some sort of chemical in theworkplace. This is not altogether a path-breaking type oflitigation,” Mr. Hartwig observed.

But, he added, IBM's legal troubles do open up a new avenue inthis “well-trodden path,” where occupational injuries wind up inthe tort system. “And in many cases, they wind up being veryexpensive,” he noted.

In February, the Armonk, N.Y.-headquartered IBM squared off inSanta Clara County Superior Court in California with two of itsretired workers, who alleged that systematic chemical poisoning atIBM's San Jose, Calif., manufacturing plant caused cancer, and thatIBM managers hid adverse health effects of chemicals used at theirplant from their factory workers.

In its defense, the computer giant presented occupational-healthspecialists who argued that chemical-exposure levels at the IBMplant were very low well within established health guidelines andnot a likely cause of cancer.

And while the jury in that case ruled unanimously against theplaintiffs, who were seeking millions of dollars in damages, inMarch, IBM decided to settle a separate suit filed in New York. Inthat suit, the plaintiff, a 23-year-old woman who was born withoutknee caps and with a deformed skull and who suffers from braindamage, alleged she is the victim of birth defects caused bychemicals used in yet another IBM plant.

The plaintiff, Candice Curtis, the daughter of a former IBMemployee who started working in the company's semiconductor plantin East Fishkill, N.Y., when she was pregnant, was seeking $100million in damages. Ms. Curtis has alleged she had developed herconditions because her mother inhaled noxious fumes when dippingsilicon wafers into acrid chemicals in her workplace. The terms ofthe settlement, which the two parties reached just as the juryselection was beginning for the case, is not currentlydisclosed.

IBM spokesperson Chris Andrews explained to NationalUnderwriter that the “Curtis case” has now been concluded anddismissed. “Terms of the resolution are confidential and will notbe disclosed.”

“Cases settle because both parties take into account the manycontingencies, risks and unknowns of litigation, and make decisionsaccordingly,” Mr. Andrews said. He added that for its part, IBMstill firmly believes based on facts and evidence that it had noliability in this case and that its workplace didn't cause theplaintiff's injuries.

However, IBM's legal adversity is far from over. In fact, thereare still hundreds of related lawsuits brought on by the Big Blue'sformer employees, who charge they developed cancer or poisoningwhile being exposed to chemicals used in IBM plants.

“A lot of it depends on how they are brought forward by theplaintiffs and their attorneys, because they may group sometogether or pair them up,” as was the case in the California trialin February, observed Mr. Andrews. But he added that the ballparkfigure for IBM lawsuits still awaiting trial currently numberaround 200.

“They generally involve some sort of illness or injury thatplaintiffs allege is caused by the workplace,” he explained, addingthat among them, 45-to-50 cases involve birth defects in childrenof workers or former workers.

Rita Novak, assistant vice president at Des Plaines, Ill.-basedProperty Casualty Insurers Association, who is keeping a closewatch on workplace-toxin litigations around the country, remarkedthat the Candice Curtis case involved “a horrible situation.” Butat the same time, she added, “IBM was very upfront. They said theyhad no knowledge whether anything was toxic. No one can say whetherthese birth defects are the results of Ms. Curtis' mother workingin the IBM facility.”

As for such a legal proceeding's impact on IBM's financialbottom line and its insurance coverage, the company may be to alarge extent self-insured, Mr. Hartwig observed. “Most majorcompanies do have very large retentions when it comes to virtuallyany kind of liability suit filed against them.”

And while IBM declined to elaborate on its insurancearrangements, Mr. Hartwig remarked that it's probably the case thata large proportion is financed by IBM itself.

“But I can tell you that most major computer companies in thiscountry do buy private liability coverage. So it's quite possiblethere's some private coverage in place here,” he said. He addedthat these types of claims would typically affect the higher-levelliability insurers, such as excess-casualty insurers that pay onhigh-dollar-value awards settlements.

Furthermore, when looking beyond IBM in cases of othersemiconductor companies that may retain less of the risksthemselves and purchase more insurance in the private sector thereis the potential for substantial exposures.

And there are plenty of possible plaintiffs waiting in thesemiconductor industry. The sector currently employees some 250,000workers in all, with the number of people who have worked insemiconductor fabrication adding up to tens of thousands during thepast 40 years, according to John Greenagle, the spokesperson forthe San Jose, Calif.-based Semiconductor Industry Association.

“How many workers have been exposed to these chemicals? Althoughhard numbers are not easy to come by, there are at least tens ofthousands of people who fit into this category and who can at leastin theory file lawsuits if they develop ailments,” Mr. Greenagletold National Underwriter.

And Mr. Hartwig also observed that, certainly, these cases seemto be escaping the workers' compensation realm “to try tocircumvent the statutory benefits prescribed by state workers' compsystem which is important to note.” He added that many of theseformer employees likely have been receiving workers' comp benefitsalready but as what's happened in areas such as asbestos, there isa trend toward trying to “break the shackles of the workers' compexclusive-remedy doctrine.”

“The model for this type of litigation is asbestos, wherevirtually all exposures were occupationally related, yet you woundup filing claims under products liability, and operations-typepolicies were being hit,” he explained. “There is a very strongincentive for trial lawyers to do this because there is potentiallyfar more money involved in class-action suits alleging negligenceagainst deep-pocketed defendants than there is for them in theworkers' comp system.”

Ms. Novak from PCI said, “I think it's way too early to tell howbig in scope this will become.”

“You are talking about exposures to workplace chemicals its anemerging issue,” she added.

“Certainly, there is a concern in the insurance industry but isthis going to be the next asbestos? I don't think it's going to hitthat,” Ms. Novak said.

But similar types of litigations to circumvent workers' compsystems have also been found in the type of claim called silicosis,and even in the toxic-mold area.

As for the semiconductor industry, Mr. Greenagle from theSemiconductor Industry Association said computer-chip makers nowhave a plan for a new study to examine their historical records toevaluate cancer rates among their plant workers, who sometimes comein contact with harsh chemicals. The decision, he explained,followed an 11-month effort by a team from the Johns HopkinsUniversity's Bloomberg School of Public Health to determine whethera sufficient amount of data exists to undertake such a study.

“We are talking about a study that's going back 40 years,” saidMr. Greenagle, who emphasized the necessity for an in-depthanalysis to counter allegations made by some plaintiffs.

“All the companies are concerned all the companies have followedthe developments of these cases. But interestingly, critics of theindustry are pretty long on making accusations but pretty short onbringing out the evidence,” Mr. Greenagle said.

When Popcorn is Toxic

IBM's settlement of a liability lawsuit in March was just one ofa number of cases in which workers say workplace toxins made themsick and they're not confined to the semiconductor industry.

Another notable legal action in recent weeks involved a $20million jury award in the so-called “popcorn lawsuit” in March,where a factory worker claimed his lungs have been ruined as aresult of mixing butter-flavoring oils used in microwave-popcornproducts. In that case, a former factory worker in Jasper, Mo.,filed his suit against International Flavors and Fragrances Inc., amanufacturer of butter flavorings and there are now reportedlyscores of similar suits awaiting trial in Missouri and otherstates.

In an SEC filing on March 15, the company said it will appealthe decision. The filing added that while IFF could not predict theoutcome of the appeal or remaining cases involving workers at thesame factory which used butter flavor supplied by IFF, “in light ofthe merits of its defense and the availability of insurance, thecompany does not expect the litigation to have a material adverseimpact” on its financial condition.

A smaller verdict, a $1 million award to a retired welder latelast year, is also drawing the attention of plaintiffs' lawyers,according to Mark A. Behrens, a defense attorney in the Washingtonoffice of Shook, Hardy & Bacon. Mr. Behrens, who is alsocounsel to the Coalition for Litigation Justice, a Washington-basedinsurer group, said that six earlier welding rod cases, allegingthat manganese fumes released in the welding process causeillnesses such as Parkinson's disease, resulted in defenseverdicts.

But last year's jury award in Madison County, Ill., has put theissue back on the radar screen of plaintiffs' lawyers, he said,noting a high number of conferences and seminars that now includediscussion of the issue.

Reproduced from National Underwriter Edition, April 9, 2004.Copyright 2004 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.