How Much Will Silica Claims Cost Insurers?

How much will commercial liability insurers ultimately end up paying out on silica-related claims? So far, the usual experts involved in asbestos analysis aren't willing to hazard a guess, and even the number of claims that individual insurers already have had reported to them remains a well-guarded secret.

The first mention of silica-related exposure by an insurance company that National Underwriter is aware of came during an early 2003 investor conference call for Chicago-based CNA. Asked about asbestos litigation trends at that point, Jonathan Kantor, general counsel for CNA, responded that in addition to asbestos claims trends, his company was looking “very carefully” at silica.

“We have seen quite a bit of activity in the area of silica. It is obviously not asbestos, but it is considered part of our mass tort book. So stay tuned for developments there,” he said.

More recently, CNA's 10-K filing gave this view of litigation activity: “The company recorded $80 million in unfavorable mass tort net prior-year development in 2003, due in part to the elevated volume of silica claimsThe most significant silica exposures identified to date include a relatively small number of accounts with significant numbers of new claims and substantial insurance limits issued by the company.”

Beyond that disclosure, commercial insurance company representatives contacted by NU either declined to be interviewed or referred us to the Coalition for Litigation Justice.

The Coalition has reported that one large unnamed insurance company has seen a tenfold jump in claims since August 2002, with 30,000 claimants now included on its books. While Mark Behrens, counsel to the Coalition, revealed that the insurer that collected the information did so under the condition that its identity would be kept confidential, he did note, based on conversations with other insurers, “that data is representative of what other companies are seeing.”

“There doesn't seem to be anything unique about the policies written by that company to suggest that its situation is any worse or better than any other insurer,” said Mr. Behrens, who is also a defense attorney in the Washington office of Shook, Hardy & Bacon.

Jenni Biggs, a principal from the St. Louis, Mo., office of Tillinghast who evaluates asbestos liabilities, said that, for the most part, insurers and reinsurers she's talked with “haven't put a lot of time and effort into silica claims experience.”

“In many cases, they don?t have separate computer coding for silica,” she said, noting that while asbestos and pollution claims are typically tracked separately from other mass tort claims, silica is often lumped into an “all other” category. “However, individual claims-examiners know which policyholders have been impacted to date.”

Giving a reason why separate databases haven't been put in place, she said: “I think it?s an issue of materiality. At this point, I don't think the silica losses are significant enough to insurers.”

Insurance experts agree that, at this point, silica is a frequency rather than a severity issue for insurers and reinsurers.

Robert Hartwig, chief economist for the Insurance Information Institute in New York, said: “We're more concerned about a rapid escalation in these claims. It's not something that's characterized by many mega-awards.”

The most detailed disclosure of the size of individual awards and settlements that NU has found is contained in reports by 3M in St. Paul, Minn. The company, whose exposure comes from making respirator masks, reported in its 2003 10-K filing that its “vigorous defense” of both asbestos and silica suits resulted in an average settlement of less than $1,000 per claimant for all resolved suits (including those dismissed without payment), and jury verdicts for 3M in four of five cases tried to verdict.

With respect to 9,315 lawsuits pending at year-end 2003, 3M disclosed that plaintiffs asserted specific dollar claims for damages in 5,569 of them. Among those 4,344 cases that involve claims of $100,000 or more, 143 involve claims between $100,000 and $3 million, 69 involve claims of $7.5 million, 1,007 cases involve claims of $10 million, and six involve claims of $50 million. In addition, the typical complaint asserts claims against an average of 88 defendants, the filing said.

In spite of the low severity, “reinsurers actually are quite concerned about silica,” Mr. Hartwig said, explaining that “a sharp acceleration” in claims “from basically nothing” can burn immediately through primarily layers of coverage.

Joanne McMahon, senior claims specialist for GE Reinsurance in Barrington, Ill., said that her company, which separately codes silica claims, has seen an increase in reported claims. “But, to date, the actual loss payments have not spiked.”

A good defense.

To keep future payouts down, insurers are banking on what they believe are a set of strong defenses that silica defendants can use to get out from under the mountain of case filings?defenses that put defendants in a better position than asbestos counterparts.

The standard of strict liability applies for asbestos claims, said Charles Dal Corobbo, a Tillinghast consultant, noting that, “theoretically, all the plaintiffs have to show is that they were exposed to the defendant's product and that they've developed an asbestos-related disease.” A strict liability standard isn't likely to apply for silica, he said.

One defense against failure-to-warn allegations in silica suits is that silica has been known to cause respiratory problems for many years, he said, noting that a series of government hearings took place in the 1930s after some terrible silica incidents.

Tort law is very sensible, Mr. Behrens said. “You don't have to give a warning to people if the warning doesn't tell them anything they don't already know,” he said. “That's why there's no warning on your stove at home that says don't put your hand on the stove.”

Connie O'Mara, president of the Brandywine division of ACE USA in Philadelphia, listed the bulk supplier defense and the learned intermediary defense among those that may help defendants. “Those defenses typically come out of cases where sand suppliers can't label the sand with a warning because they're supplying it in bulk. Or they can supply a warning and are supplying it to a sophisticated end-user,” she said.

“The defenses weren't written for silica. They just happen to fit very well in the silica context,” Mr. Behrens said, noting that the bulk supplier doctrine applies to anyone who supplies materials in bulk steel, sand or a railroad car of chemicals where there may not be a place to put the warning on the product because it's not in a bag.

As to the question of how successful these two defenses will actually be, Ms. O'Mara pointed to the latest state Supreme Court ruling by the Supreme Court of Minnesota to frame her answer. The court, in Gray v. Badger Mining, found that “there has to be a very specific analysis as to what any individual defendant did in terms of warning the end-user,” she said.

Specifically, with respect to learned intermediary and sophisticated user defenses, the March 18, 2004 ruling says: “Where genuine issues of material fact exist with respect to whether an employee is a sophisticated end-user or his employer is a sophisticated intermediary, and whether the bulk supplier's warning to the employer was adequate, the employee's duty to warn claim cannot be decided on summary judgment.”

Reacting to the decision, the Washington-based American Tort Reform Association said the Minnesota decision would make silica cases more costly to litigate, since plaintiffs and defendants will be forced to go through extensive discovery to detail when and how they learned about silica dangers.

“We have to look at the facts of each individual defendant's defenses and each plaintiff's alleged injuries and litigate them, probably one by one,” Ms. O'Mara concluded.

Reproduced from National Underwriter Edition, June 11, 2004. Copyright 2004 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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How Much Will Silica Claims Cost Insurers?

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