As Silica Litigation Moves Forward, Will Defendants Have Insurance Coverage?

"We don't have it anymore," John Ulizio, chief executive officer of U.S. Silica, told National Underwriter, when asked if his firm has insurance coverage for current silica exposures in general liability policies. For U.S. Silica, an industrial sand supplier, insurers started to exclude silica-related exposure in the mid-to-late-1980s, Mr. Ulizio said, noting that other companies still had coverage at the time.

In spite of the longtime presence of exclusions on their policies, however, some of these often-targeted defendants may have protection for many claims nonetheless either directly from prior policies or from indemnification agreements put in place as a result of mergers or acquisitions.

According to the SEC filing for Better Minerals & Aggregates Company (the parent of U.S. Silica, based in Berkley Springs, West Va.) for prior exposures, including a $7.5 million Texas jury verdict against two predecessor firms handed down in 2001, U.S. Silica is covered by a combination of the predecessor firms' insurance coverage and an indemnity agreement of ITT Industries (a successor to a former owner of U.S. Silica). The agreement covers suits filed prior to September 2005 alleging exposure prior to September 1985, subject to an annual deductible.

Similarly, Aearo Corp., an Indianapolis-based maker of personal protection equipment, discloses in its SEC filings that liability for claims arising from lawsuits involving respirators sold by a division of a predecessor firm is limited by an agreement in which the predecessor indemnifies Aearo against claims alleging injury from devices sold prior to the 1995 sale date of the predecessor. (Aearo Corp. pays a $400,000 annual fee for this indemification, the filing says.)

For many defendants, the question of whether prior insurance policies without exclusions will respond to claims depends on when workers alleging injury were exposed to silica dust hazards.

Roger Andrews, risk manager for E.D. Bullard, a respiratory products maker in Cynthiana, Ky., said his company typically has coverage, since most of the exposures date back to the 1950s, '60s, and '70s, when workers started sandblasting or working in whatever industry caused them to be exposed to silica.

From 1952 until 1984, roughly eight different insurance carriers wrote policies for Bullard, said Mr. Andrews, who served as the president of the Risk and Insurance Management Society in 2000. While carriers started excluding silica claims in the mid-1980s, he said his company was able to get coverage for silica claims restored through surplus lines carriers in 1992.

"In most situations, under conventional insurance policies, if [carriers] know you have some exposure to it, they're going to exclude it," Mr. Andrews said.

Jenni Biggs, a principal from the St. Louis, Mo., office of the Tillinghast business of Towers-Perrin, said silica exclusions are included in liability insurance policies on a case-by-case basis. "I don't think it's a widespread exclusion like the pollution exclusion in 1986," said Ms. Biggs, who is an expert on asbestos liabilities.

Noting that insurers must draw up their own silica exclusions because there is no standard language, she warned that insurers should steer clear of wording that is specific to silicosis. The original asbestosis exclusions "didn't end up holding up very well because they were too specific to asbestosis versus other types of disease," she said, drawing a comparison.

Is it pollution?

Looking beyond silica-specific exclusions, Robert Chesler, an attorney for Lowenstein Sandler in Roseland, N.J., said that "many insurance companies take the position that the absolute pollution exclusion clause applies to silica."

"It's a hotly debated issue," said Mr. Chesler, who represents policyholders in insurance coverage litigation, noting that while there have been a number of reported cases on the issue, there's been no overriding determination in those.

The two most recent cases (one by the California Supreme Court and one by the New York Court of Appeals) held that the exclusion "only applies to environmental pollution as that's normally understood." However, other courts have held that "since silica is listed under OSHA, it's under the absolute pollution exclusion clause," he said, referring to Occupational Safety & Health Association's designation of silica as an airborne occupational exposure.

"The bottom line is that this issue continues to develop," said Joanne McMahon, senior claims specialist for GE Reinsurance in Barrington, Ill. Ms. McMahon researched court cases on the applicability of the absolute pollution exclusion and found only a handful. One supporting the exclusion's application to silica cases was a 1998 Texas district court decision (Clarendon America Insurance Company v. Bay Inc.), holding that sand, gravel, cement and silica are pollutants within the meaning of the absolute pollution exclusion.

Ms. McMahon, who primarily deals with reinsurance on the casualty level, said reinsurers also look at issues such as whether the bodily injury was expected or intended to exclude coverage. She noted that there was a single-plaintiff case in 2003 in which an Ohio appellate court found that the expected or intended exclusion of a policy applied to deny coverage for a silica claim.

On the reinsurance excess-of-loss level, she said she also focuses on the appropriateness of the allocation and aggregation of claims. And "on both the insurance and reinsurance levels, trigger of coverage is a big issue as well," she added.

Possible triggers include initial exposure (when a worker inhales a silica particle at a job site), a continuous trigger related to the development of disease over a period of years, and manifestation (when the worker visits a doctor and discovers illness), Mr. Chesler noted in an "Insurance Alert" published on his firm's Web site (www.insurance-lowenstein.com).

Allocation, he wrote, refers to how much each insurer (or the insured for self-insured periods) must pay when a claim triggers multiple policies. While a few states, like Pennsylvania and Delaware, allow insureds to look to any one insurer for all damages, in most states, allocation is made to each insurer (based on the number of years the insurer provided coverage and the amount of coverage in each year).

"In most states, where you have the continuous trigger of coverage, where you can go back many years for the policies, insureds still face the issue of missing policies," Mr. Chesler told National Underwriter, explaining that if there's no coverage since 1986 because of the absolute pollution exclusion clause, insureds must look to pre-1986 policies for coverage. In addition, "under those states that allocate, the insured would be liable for the years with specific silica exclusions," he said.

Mr. Chesler reported that his firm is involved in three or four coverage dispute cases right now related to silica. "One case is in litigation over the pollution clause. We have other cases where we have cost-sharing agreements in place," he said.

In a cost-sharing agreement, "the carriers and the insured all agree to pay a certain percentage against indemnity," he said. "If you're in California, the California Supreme Court has ruled that the absolute pollution exclusion definitely does not apply. So if you're an insurance company, you've lost a major defense. You may want to enter into a cost-sharing agreement."

Mr. Chesler said that on a final case that his firm is involved in, the attorneys are waiting to see whether the New Jersey Supreme Court addresses the issue of the applicability of the absolute pollution exclusion.

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.