U.K. Asbestos Ruling Impact Rated Low
NU Online News Service, May 17, 11:07 a.m. EST–Standard & Poor's said today the impact on insurers from yesterday's ruling by the highest U.K. court of appeals in the landmark Fairchild asbestos liability case should be minimal.
S&P said the decision "is not expected to have come as a surprise to the U.K. insurance industry," and that the impact on insurers' financial strength and ratings is therefore "likely to be slight."
The ruling by the U.K. Law Lords determined that those who suffer from asbestos-related health problems are entitled to compensation, even if they are not certain as to the exact source of the asbestos that caused their mesothelioma. The illness is a form of lung cancer caused by asbestos exposure.
The five Law Lords overturned a U.K. Court of Appeals decision from December 2001, which said that an employer could not be held liable if it was not possible to prove which exposure to asbestos caused a claimant's illness.
S&P said the latest ruling "clarifies an inequitable situation from the claimants' perspective, allowing more than one employer to be found liable for negligence." The rating agency noted that "although [the court] has not decided how compensation is proportioned among plaintive companies, the impact on insurers should nevertheless be minimal."
Experts quoted in a number of published reports yesterday estimated the potential exposure to insurance companies at some $12 billion.
"Those insurers and reinsurers most affected by the likely acceleration of U.K. asbestos costs and claims implied by yesterday's decision already have a clear understanding of the issues, given their experience of similar litigation in the U.S. over the past decade," said Kevin Willis, a director at Standard & Poor's Financial Services Ratings Group in London.
"The insurance industry is prepared for claims inflation and is known to have set aside significant reserves to fund as yet unreported U.K. and Continental asbestos-related liabilities," he added.
"Nevertheless, the progression from setting aside noncash loss reserves to funding actual cash payments relating to legal expenses and claims does mean that insurers will have to manage their prospective liquidity and liability reserving with even greater precision and prudence than might sometimes have been the case in the past," S&P added in its statement today.
David Anthony, a director and criteria officer at Standard & Poor's Financial Services Ratings Group in London, added that a clear lesson coming out of the United States is that the number and level of claims and awards relating to industrial diseases such as mesothelioma does tend to increase over time.
However, he added, "the very fact that the reporting of claims is likely to be spread out over many years does give the insurance industry some time to top up its reserving where necessary, with future investment income generated on as yet unpaid loss reserves further contributing to the industry's ability to pay claims when the legal process has culminated in a quantified award."
This is the second major asbestos coverage development this week. Earlier this week, it was announced that more than three dozen insurers would contribute $1.7 billion to a $2.7 billion asbestos liability settlement negotiated by Pittsburgh-based PPG Industries.
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