Insurers Learn From Asbestos Mistakes

o Inactive dockets:

"We're pushing for the establishment of inactive dockets," she said, referring to state court systems in which rules are set to allow only those cases in which plaintiffs show credible evidence of illness to move forward. Plaintiffs who do not meet the medical criteria are allowed to seek compensation only if they later develop injuries.

"We feel that a lot of the cases that have been filed maybe were rushed into production and probably, if there are injuries, it's unlikely that they are silica-related injuries," Ms. O'Mara said. "Those would be better off in an inactive docket. In the event that the plaintiff actually does develop a real injury, then the plaintiff can bring a suit."

o Venue Challenges.

"We're challenging venue and jurisdiction so that cases don't get consolidated in jurisdictions which are known for heavy plaintiffs' awards," she said, adding that instead, cases "should be litigated where it's appropriate for them to be litigated."

o Multi-district litigation:

Insurers are also supporting multi-district litigation, according to Ms. O'Mara, who said "this usually means you move your case to the federal court and then try to have a single MDL litigation judge appointed to oversee the cases." Such a system, she said, "avoids inconsistent rulings," noting that a federal MDL can handle cases in federal court from any state. A state MDL, such as one that's been set up in Texas, would just handle Texas cases.

o Challenge medical issues:

"We're taking discovery on medical causation to make sure that the plaintiff's injury is in fact related to silica," Ms. O'Mara said. "In any case in which you have causation and medical issues, the plaintiff needs to use epidemiological studies probably. So we need to challenge those studies to make sure they are based on appropriate science."

o Case-by-case evaluation:

"We tend to reject what we called in the asbestos arena 'inventory deals,'" she added. "Each individual case needs to be evaluated on its merits."

Jenni Biggs, a principal from the St. Louis, Mo., office of the Tillinghast business of Towers-Perrin, agreed. Ms. Biggs, who is an expert on asbestos litigation trends, said insurers and reinsurers should focus on not being forced into situations where defendants must settle due to the incredible number of claims. "They need to resist making payments to people who aren't injured or to try to impose some kind of medical criteria in evaluating the cases."

"Going back to asbestos" to understand motivations, she predicted, "the attorneys will continue to recruit plaintiffs and bring cases as long as there is compensation for their efforts."

o Watch out for bankruptcies:

A related lesson for insurers is to watch for prepackaged bankruptcies a growing trend in the asbestos arena, Ms. Biggs said, noting that the sheer volume of claims can force defendant companies to consider bankruptcy "not because they face insolvency, but rather to use bankruptcy as a mechanism to resolve the claims."

In prepackaged bankruptcies, she explained, the defendant companies negotiate with plaintiffs that have the largest case volumes "and generally the entire bankruptcy proceeding is negotiated and voted upon before they actually file." In the early negotiations, "many times, the assets that are promised to fund a trust are insurance policies," she said, noting that the policies are suddenly in line to pay for these claims, even though insurers have had no say in the negotiations.

So far, industry representatives say there have been few silica-related bankruptcies.

Joanne McMahon, senior claims specialist for GE Reinsurance in Barrington, Ill., identified only three. Among them is Houston-based Halliburton, which has cited 400,000 asbestos claims and 21,000 silica claims in its DII Industries subsidiary.

Although Ms. McMahon also included Oglebay Norton on her list, the Cleveland, Ohio-based minerals supplier has emphasized that the bankruptcy filing has nothing to do with asbestos and silica claims, she noted. But the company is a major sand supplier, "and this bankruptcy may impact silica litigation to the extent that there is one less solvent defendant available against which to pursue silica claims," she said.

o Snap into action:

Robert Hartwig, chief economist for the New York-based Insurance Information Institute, said insurers have learned to act quickly because of their experiences with asbestos. "When they started hearing about these claims, they didn't wait. They quickly looked to see what kind of exposure was there. They didn't let it fester for a couple of decades as was the case with asbestos."

"In the case of mold, for example, exclusions were added quickly," he said.

Mr. Hartwig went a step further than Ms. O'Mara and Ms. Biggs with suggestions for enforcing impairment criteria. "Maybe insurers will try to keep these claims within the workers' compensation system," he said. "That is the most logical and equitable solution for everyone. That's what the workers' comp system is for," he added, contrasting the predictability of benefits prescribed by state statutes with the "vagaries" of the tort system. "At least, no matter how bad the problem would become, that coverage would be forthcoming if someone is actually occupationally injured," he said.

Lance Lubel, a plaintiffs' attorney for Heard, Robins, Cloud, Lubel & Greenwood in Houston, disagrees. "I'm really shocked that insurers said that," he commented.

Workers' comp "may be a great system for someone suffering a minor injury if he breaks his armBut when you take a serious injury with serious impairments involved, and you give that man his best day in the comp system, it's a miserably bad day," he said, referring to small dollar amounts of benefits available.

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.