WC Insurers Waiting For Silica Dust to Settle

But there is bad news, too. Despite the fact that the number of deaths attributable to silicosis has dropped from more than 1,000 per year in the 1960s to under 200 today, the number of lawsuits associated with occupational exposure to silica is increasing sharply.

Moreover, workers in many occupations and industries remain exposed at least 1.7 million U.S. workers alone, according to the National Institute for Occupational Safety and Health and the U.S. Department of Labor.

The apparent paradox of declining deaths and rising litigation is the direct result of enterprising trial lawyers pulling a page or two from the dreaded asbestos playbook which teaches that neither proof of negligence nor impairment are requirements for compensation. Equally disturbing is the recent failure of class-action and asbestos reform legislation in Congress, potentially clearing the way for large-scale silica-related litigation.

Lessons From Asbestos

Despite the recent surge in silica-related litigation, most workers impaired by silicosis and related disorders are receiving workers' comp benefits. While treating injured workers through the workers' comp system can be very expensive, it is a drop in the bucket compared to the tort alternative.

Insurers will want to be extremely careful that the silica "cat" does not get out of the workers' comp bag in the way asbestos did decades ago. In the early days of workers' comp programs, asbestos producers lobbied to keep compensation levels low and eligibility rules restrictive.

Due to the long latency period of asbestos-related diseases and the fact that symptoms were often mistaken for other ailments, workers often left their jobs without knowing that they had asbestos diseases and therefore did not qualify for compensation. Asbestos producers even performed medical examinations on their employees but did not inform them if they had asbestosis to hold down the number of workers' comp claims.

Once a claim had been denied, the exclusive remedy doctrine in workers' comp prevented workers from suing their employers.

The misuse of the workers' comp system on the part of asbestos producers, combined with haphazard regulation of workplace and product safety from the 1940s through the 1960s, meant that occupational exposure to asbestos was actually rising. The denial of asbestos claims in the workers' comp system, in the years to come, would eventually drive hundreds of thousands of asbestos-exposed workers to seek compensation through the tort system the ultimate costs of which are expected to exceed $200 billion.

Fortunately, there is no evidence that the duplicitous behavior of the asbestos producers more than a half-century ago is being repeated by the silica industry today. Nevertheless, letting the asbestos cat escape the workers' comp bag back then was arguably the biggest mistake in tort-related history of the United States.

Occupational Exposure

A glance at the numbers shows why silica liability is such a concern to insurers and reinsurers. So widespread is the use of silica in the workplace that an estimated 1.2 million of 4.4 million workers in at-risk U.S. industries are potentially exposed to silica dust, according to a recent analysis by Credit Suisse First Boston, including all 556,800 workers in the mining industries (see graph).

Given the ubiquitous nature of silica and its utility in a wide variety of industries, banning silica is a practical impossibility. However, the Occupational Safety and Health Administration has established exposure limits for the maximum amount of crystalline silica to which workers may be exposed during an eight-hour shift.

Workers involved in sandblasting, rock drilling and mining are considered to be at high risk of developing silicosis (see graph on page XX).

Rising Litigation

While the number of silica-related suits is on the rise, exactly how many claims have been filed to date and how many are likely to be filed is hard to say. Documented silica claims may not be in the hundreds of thousands yet, but clearly the potential pool of plaintiffs could be significant.

According to the Coalition for Litigation Justice, one large insurer has seen silica claims rise ten-fold since August 2002. It reports that the insurer is facing cases brought by more than 25,000 claimants in 28 states. Of the nearly 30,000 plaintiffs, some 66 percent are from Mississippi and 25 percent are from Texas. In fact, Mississippi has the highest number of silica plaintiffs, with more than 17,000 filing lawsuits in that state.

Aware of the growing potential for large settlements involving silica, some insurers have begun setting aside reserves. Other companies have mentioned increased silica claims activity in their financial statements without disclosing specific reserve amounts.

Meanwhile the list of silica defendants is growing longer by the day. For example, U.S. Silica, a large producer of industrial sand headquartered in West Virginia, is facing more than 22,000 silica claims. In 2003, the number of plaintiffs naming the company in lawsuits was three times what it was in 2002. U.S. Silica reports that it had 15,342 new claims filed against it through June 30, 2003, up from around 5,142 for full-year 2002, and 1,371 in 2002.

Other U.S. corporations to have reported an increase in silica-related claims include Houston-based Halliburton Company, which has a pending $4.2 billion agreement that would settle about 21,000 silica personal injury claims (in addition to 400,000 asbestos claims). Minnesota-based 3M Corp. is another company that has publicly acknowledged its silica exposure, noting last year that it was facing lawsuits involving approximately 54,000 individual claims.

Silica & Insurance

Workers' comp remains the first and primary source of compensation for those suffering from silicosis, but the experience of asbestos suggests that trial lawyers will work hard to identify potential plaintiffs and seek to tap various commercial liability policies that can produce multimillion-dollar settlements.

Historically, general liability, product liability and commercial umbrella policies have not contained a specific exclusion targeting silica-related injuries. Even today, Insurance Services Office forms do not contain such wording, so individual insurers must draft their own silica exclusions.

One major reinsurer notes that to the extent claims are based on workplace exposures of insured employers, the exclusive remedy of workers' comp insurance and new GL exclusions should keep most claims out of the GL arena.

The distinction, of course, is that workers' comp benefits are determined by statute, while awards in tort cases are notoriously unpredictable. Individual judges and juries in hundreds of different jurisdictions are empowered to award enormous sums to plaintiffs (and their attorneys), often with little regard to actual economic damages.

Is Silica The Next Asbestos?

The sharp increase in silicosis claims is leading many to question whether silica is the next asbestos. This is not surprising, given the similarities between the two.

Like asbestos, silica is still legally in use in the United States today. Similar to asbestos-related illnesses, some silicosis cases can have a long latency period typically more than 10 years. Silicosis, like asbestosis, is a pulmonary disease and diagnosed with a chest x-ray. The widespread exposure of many industries and occupations to silica is similar to asbestos, and indicates the actual number of current and potential silicosis cases could be much higher than it is.

Given the history of asbestos litigation, it is inevitable that silica is being compared to asbestos, but this is probably where the comparisons should stop.

So far the numbers show that asbestos continues to dwarf silica in terms of claims, costs and lethality. Between 1990 and 1999, the mortality rate for silicosis was one-fifth of the asbestosis mortality rate (see graph on page XX). According to the Centers for Disease Control and Prevention, the overall U.S. mortality rate from silicosis for that period was 1.21 deaths per million population, compared with a national death rate from asbestosis of 5.41 deaths per million population in the same period.

The economic impact of asbestos is also much higher. Some 8,400 companies have had asbestos claims filed against them (approximately 70 of which have gone bankrupt) and 600,000 people filed asbestos-related personal injury claims through the end of 2000, typically against multiple defendants. According to the RAND Institute, the estimated cost of asbestos litigation to-date is about $54 billion, and indications are that up to 2.4 million additional claims could be filed.

So far, silica does not appear to be on the same claim count or cost trajectory as asbestos, and the mortality rate associated with silicosis is relatively low. Yet the pool of potential silica plaintiffs is enormous.

A generation ago, few people foresaw the changes in the tort environment that would give rise to today's massive asbestos lawsuits. Insurers, employers and manufacturers need to do everything they can to keep silica claims within the workers' comp system, and out of the courts.

Robert P. Hartwig is senior vice president and chief economist, and Claire Wilkinson is director of global studies at the

Insurance Information Institute in New York.

Reproduced from National Underwriter Edition, August 19, 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.