Fuller-Austin Asbestos Verdict To Be Appealed

Michael Ha

NU Online News Service, May 7, 4:17 p.m. EDT?One of the lead lawyers defending a group of Lloyd's of London underwriters, London market insurers and U.S. insurers against Fuller-Austin Trust said he is disappointed by the $189 million jury verdict and that there will definitely be an appeal.

A Los Angeles County jury earlier this week found the group of Lloyd's of London underwriters, London market insurers, Stonewall Insurance Company and Highlands Insurance Company should pay some $189 million to cover part of Fuller-Austin Trust's estimated future asbestos claims.

Prior to the trial, however, most insurers involved in the lawsuit had settled out of court. They include Security Insurance Company of Hartford, AIG, CNA and Chubb, as well as Fireman's Fund.

Fuller-Austin Trust was created in 1998 as a result of the bankruptcy of Texas-based Fuller-Austin Insulation Company after the business received thousands of asbestos bodily injury claims.

The verdict is the first of its kind involving bankruptcy law section 524g that applies specifically to asbestos companies. This law was designed by Congress specifically for bankrupt asbestos companies and to set aside assets, in the form of a trust, to meet pending and even potential claims payments in the future that could arise after a long latency, which is common in asbestos cases.

However, the law does not spell out what the obligation for insurers would be when the trust sets aside potential future claims payments.

"We were disappointed, but we were not surprised at all," said insurer defense attorney Patrick Cathcart, a partner at Hancock, Rothert & Bunshoft, a Los Angeles-based law firm, who said appeal would involve the jury's verdict as well as earlier rulings in the case by California Superior Court Judge Judith Chirlin.

"Our principal complaint is accelerating the payments for claims that are not here yet and for people who are not now sick and may never be sick," Mr. Cathcart told National Underwriter.

He said that insurers' position is to pay claims only when they are due and only if they are for covered injuries, not in advance and not on a speculation.

Mr. Cathcart also said that in the prior phase of the litigation, "the judge made numerous erroneous and prejudicial rulings. Frankly, that's what led to erroneous jury instructions and led to this verdict."

According to the judge's jury instructions, insurers were required to pay losses long before claims are even presented, he said. The verdict came after the judge ruled that the commercial general liability policies do cover estimated damages for future claims and that insurers are immediately obligated to pay policyholders for damages. "That's our principal complaint. We will definitely appeal," Mr. Cathcart said.

Michel Horton, one of the lead lawyers who argued on the side of Fuller-Austin, said the jury verdict means the present liability for future asbestos claims can be reasonably estimated and that Fuller-Austin's present liability for future asbestos claims has been calculated to be around $750 million.

"Fuller-Austin was a company based in Texas that sold, distributed and installed insulation, primarily for refineries and industrial facilities," Mr. Horton said in explaining the case's background.

The company began operations in the mid-1940s. And in 1985, the company, which by then was part of DynCorp, got out of the insulation business all together. But they started receiving asbestos bodily injury lawsuits in the late 1980s.

"Then the company started receiving hundreds and eventually thousands of lawsuits," he said. Initially, claims were handled by primary carriers under reservation of rights.

But as the claims increased, disputes started to arise between primary carriers, excess carriers and Fuller-Austin, Mr. Horton said. And then in 1998, Fuller-Austin filed for bankruptcy under the 524g section that applies specifically to asbestos companies. "The bankruptcy was filed because primary carriers were exhausting their policies and excess carriers were denying their obligations," Mr. Horton said.

Commenting on the trust, he said that it provides a mechanism for asbestos companies to file for bankruptcy and develop procedures for current claims as well as for future claims. "The idea is that a bankrupt entity should have enough assets for future claims," he said.

Mr. Horton also defended what Mr. Cathcart called "erroneous and prejudicial rulings" of the judge, arguing that insurers, under the asbestos bankruptcy law, have a legal obligation to pay current, as well as future, claimants.

"The judge determined that Fuller-Austin did have liability from the bankruptcy and liability for current and future claimants, and that could be covered under insurance policies."

He also said there are very sophisticated techniques on determining how many asbestos bodily injury claims, for how much, and for what diseases would be filed in the future for a specific company.

The reason this case has been watched closely by the insurance industry is that insurers would be forced to pay liability now for future claims, Mr. Horton said.

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Fuller-Austin Asbestos Verdict To Be Appealed

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