New Asbestos Suits Hit Insurers Directly
The newest twist on the asbestos liability problem could impose direct liability on property-casualty insurers, according to a report recently published by Moody's Investors Service.

In a report entitled, “Rising Asbestos Losses Pressure Ratings of Commercial Insurers,” analysts from the New York-based rating agency describe trends giving rise to mounting asbestos-related problems for p-c insurers, warning that asbestos underfunding might be the principal driver of rating downgrades for p-c insurers in 2002 and beyond.

After recapping some well-reported adverse trends (such as asbestos-related bankruptcies and suits against peripheral defendants that have produced a spike in claims frequency in the past two years), Moody's reports that an infrequent event–class actions seeking to impose “direct liability” on p-c insurers–is a “troubling legal trend.”

In a footnote to the report, Moody's provides an example of this type of case, citing the language contained in a March 12 filing made by Hartford-based Travelers Property and Casualty Corp. with the Securities and Exchange Commission. The Travelers filing says:

“[P]roceedings have recently been launched directly against insurers, including us, challenging insurers' conduct in respect of asbestos claims, including in some cases with respect to previous settlements. Some plaintiffs are also seeking to join us as defendants in asbestos personal injury cases that are close to trial. We anticipate the filing of other direct actions against insurers, including us, in the future.”

The Moody's report also quotes a second Traveler's disclosure, indicating that a class action was filed against Travelers and several other p-c insurers in October 2001 in a West Virginia state court, and that Travelers received notice of another potential action in Massachusetts.

The West Virginia case, Charles L. Wise, et al. v. Travelers Indemnity Co. et. al., alleging that Travelers and others violated the West Virginia Unfair Trade Practices Act, “seeks to reopen large numbers of settled asbestos claims and to impose liability on insurers directly,” Travelers reported in its SEC filing.

While Moody's and others point out that such suits generally allege that insurers, as a result of workplace safety inspections and other underwriting processes, knew about the health dangers of asbestos dust and are liable for a “failure to warn,” the West Virginia case has an additional allegation. The added allegation is that in spite of this knowledge, insurers purposefully delayed claims.

Barry Hill, a partner with the law firm Hartley O'Brien Parson Thompson & Hill in Wheeling, W.Va., which filed the Wise complaint in the Circuit Court of Berkeley Count in West Virginia, explained that the case is primarily based on a unique cause of action available in only four states. West Virginia, Montana, Kentucky and Massachusetts, he said, allow a third-party cause of action to be filed directly against the insurance company that provided liability coverage for the company causing personal injury.

The Wise case, he said, alleges that p-c insurers “designed and orchestrated” their claims practices to “intentionally delay” and that they advanced defenses “even though insurance companies knew the defenses would never work.” By delaying the resolution of personal injury claims for many years, they could meet their goal of having the claims ultimately settle for less money, he said.

The actual language of the complaint charges that insurers, “individually and in conspiratorial concertdeliberately, systematically and repeatedly violated provisions of W.Va. Code, Sect. 33-11-4, which prohibits unfair insurance trade and settlement practices, in processing, adjusting and defending asbestos personal injury claimsover at least a 27-year period, beginning in 1974.”

Mr. Hill said the Massachusetts case that is just about to be filed is “essentially identical, other than the plaintiffs.”

The Wise complaint lists 11 plaintiffs and 16 defendants. Seven of the defendants, however, are either in Travelers Group or are predecessor companies (such as Aetna Casualty and Surety Company). Other p-c insurers named are companies in White Mountains Insurance Group, as well as ACE Ltd. (and related CIGNA entities).

A Travelers representative said the company could not comment on an action in litigation.

According to the Wise complaint, the plaintiffs are “not seeking compensation for asbestos injuries. They seek only the compensatory and punitive damages allowed by West Virginia law for maliciously violating provisions of W.Va. Code, Sect. 33-11-4.”

“Insurance company lawyers will tell you this is the most preposterous, insane thing that the plaintiffs' bar has ever dreamed up,” Mr. Hill remarked. “When a cause of action is only available in a few states, their reaction is, 'This can't be happening because we've never seen it.'”

But relying on 25 years of experience, he asserted that “most juries don't like it when they find out insurance companies handled claims unfairly,” and will award large verdicts against insurers.

To Mark Behrens, an attorney in the Washington office of Shook, Hardy & Bacon, “the only thing that makes this newsworthy is that it is in West Virginia.” Mr. Behrens, who represents an insurer group called the Coalition of Asbestos Justice, said West Virginia has a pro-plaintiff orientation. But otherwise, the case is weak, he said.

“The plaintiffs lawyers are saying that during the course of litigation, defendants raised meritless defenses to the litigation” and that if they hadnt, the cases would have settled for more money. They also say that if they knew everything the defendants knew, that that would have resulted in them settling for more, Mr. Behrens said.

“That doesnt pass the red-face test,” he said, suggesting that sophisticated plaintiffs lawyers, who are equally-well financed as defense lawyers, “can't credibly claim that they relied on what the defendants were telling them” without blushing to reveal their deception.

“There is no duty on the part of defendants to do their homework for them,” he said.

Mr. Behrens also said that in addition to the Wise case, the West Virginia Supreme Court has consolidated some 2,500 asbestos cases before a single judge. Part of that litigation, he said, involves claims that insurers had knowledge of health hazards and failed to prevent injuries.

While he has seen such cases in other states, “its rare that they succeed,” he said. The general rule is that selling insurance does not make an insurer responsible for the health and well-being of the insured companys employees.

Jerry Oshinsky, a partner for Dickstein, Shapiro, Morin & Oshinsky in Washington, agreed that “it hasn't been unusual for plaintiffs to argue failure to warn,” but noted that health insurers, not p-c insurers, have been the target defendants, simply because they wrote policies or because they did inspections.

“I've always thought they were nonsense,” said Mr. Oshinsky, who represents policyholders in cases against insurance companies. If Travelers “had superior knowledge” based upon performing safety inspections, then “who did they have a failure to warn? The world?” he asked, rhetorically calling such allegations generally “baseless.”

Still, Jennifer Biggs, a consulting actuary for Tillinghast-Towers Perrin in St. Louis who studies asbestos liability trends, pointed out that Metropolitan Life has paid a lot of money to settle cases naming them as defendants in asbestos suits. In Met Life's case, she noted that the insurer had a medical director on staff who allegedly knew about the dangers of asbestos.

In its most recent annual filing with the SEC, MetLife said while “it has meritorious defenses” to asbestos claims arising from research activities of the director and others, “and has not suffered any adverse judgments,” most cases have been resolved by settlements. The filing discloses 89,000 claims at year-end 2001 and $275 million in settlement dollars paid over a three-year period.

William Wilt, vice president and senior credit officer for Moody's, told NU that the Travelers filing is the only commercial insurer filing he's seen disclosing a direct liability case against a p-c insurer.

“We haven't formed an opinion and have no basis for pointing to it as a significant trend,” he said, noting that legal experts contacted by Moody's don't view it as anything more than another attempt to get at insurers deep pockets. “On the other hand, from a na?ve, nonlegal point of view,” he added, “bad things happen to insurance companies, irrespective of legal theories. I'd be hesitant to dismiss it.”

He also said that asbestos losses have begun to figure prominently in Moodys analyses of U.S. p-c insurers.

“Now companies that merely used asbestos-containing product on their premises or in their own production process find themselves facing litigation,” he said, suggesting that their insurers need to respond to the litigation wave by boosting reserves.

According to Moody's Managing Director Ted Collins, updated estimates of the insurers exposure by credible consultants present a “startling gap” between the ultimate cost of asbestos claims and the amount recognized” by insurers.

“Insurers can expect Moodys to presume that asbestos reserves are deficient unless they reflect significant funding ratios or [reserves] have been subject to thorough study in the very recent past. The onus will be on the insurance company to prove us wrong,” the report said.

The report also said that recent studies by Tillinghast and Milliman USA imply that funding levels (the number of years of average claim payments the reported reserves are able to fund) need to boosted to 25 or 30. At year-end 2000, the average ratio was 7.0, Moodys said.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, April 22, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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New Asbestos Suits Hit Insurers Directly

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