R.I. Paint Verdict: A Threat To Insurers?

A Rhode Island jury recently found three paint manufacturers liable for the cleanup of lead paint in the state that could cost them billions of dollars in remediation costs, but the impact on insurers remains a question.

Sherwin-William Co., NL Industries and Millennium Holdings last week were found liable for creating a public health crisis by manufacturing, distributing and promoting lead-based paint products by a Superior Court jury in Providence, R.I.

"This is great news for the children, the taxpayers, and the short- and long-term public health of the state of Rhode Island," declared State Attorney General Patrick C. Lynch in a statement. "For the jury to have unanimously agreed that we met our burden, and proved our case, is enormously gratifying.

"Much more important, though, it means that the state can better fulfill its most important function, protecting its citizens--especially its most vulnerable citizens, children--from harm."

After a three-month trial, the jury found three of four defendants liable for the cost of cleanup. A fourth defendant, Atlantic Richfield, was not found liable.

However, Superior Court Judge Michael Silverstein ruled that the three manufacturers would not be liable for punitive damages.

According to Mike Healey, a spokesman for the Rhode Island Attorney General's Office, the judge ruled that the standard in the state's statute for punitive damages is very high and the evidence did not meet that burden.

It will be up to Judge Silverstein to determine the remediation costs at a hearing scheduled for March 13, Mr. Healey said.

The case was different from others brought in the past because it held that the three companies created a public nuisance in the dissemination of a dangerous product that has caused the state to expend money to detect and remediate.

Though banned in 1978 in the U.S., the dangers of lead poisoning were known to the industry as far back as 1900, according to the complaint, and the defendants did not stop production until it was banned.

The implications for insurers are being debated. Some analysts argue this could be the next asbestos, while others believe the penetration may not go so deep and may be limited to defense costs. There are also caps and aggregate limits that would limit carriers' exposures.

An analyst's note from KeyBanc said that unlike asbestos, the number of victims is declining, and it is difficult to make a direct causal relationship since there are other environmental lead pollutants, such as lead in gas and toys, that could also contribute.

KeyBanc also pointed out that the allegations are limited to pigment manufacturers and do not affect manufacturers of paint.

According to Fox-Pitt, Kelton, the potential for significant bodily injury claims is diminished because symptoms are manifest quickly, making them easily identifiable and quantitative. Insurers may also be able to apply exclusions that were unavailable to them with asbestos claims.

Fox-Pitt, Kelton also questioned the defense decision to present no witnesses at trial. The note said a similar approach would not be repeated, possibly changing the outcome of future trials.