“The ‘elephantine mass of asbestos cases’ lodged in state and federal courts, we again recognize, ‘defies customary judicial administration and calls for national legislation,'” wrote Justice Ruth Bader Ginsburg in the U.S. Supreme Court’s recent decision in the case of Norfolk v. Ayers. That makes the third time that the court has urged Congress to do something about asbestos litigation. Perhaps this time it will.
Congressman Chris Cannon (R-Utah) introduced HR 1586 “The Asbestos Compensation Fairness Act of 2003” on April 4 to provide a system to “fairly compensate victims with asbestos-related illnesses,” and to address “this national problem in a comprehensive manner,” said the announcement on his Web site.
“Congress must act now in a thoughtful way to end this litigation nightmare,” Cannon said. “With over 200,000 asbestos liability cases still pending, people who are sick right now are not getting the help they need. When victims or their families finally get compensated, they only receive about the same amount as people who might become sick sometime in the future. Our primary goal is to help those who are actually ill right now and preserve resources for those who will become ill in the future. Clear, objective medical criteria will do that.”
A previous article in the IJ (July 2001) called asbestos “the shroud over the industry,” and unfortunately since that was written it’s only gotten worse. Law firms specializing in asbestos claims have been targeting the companies that made or used the product, their successors in interest, their insurers and reinsurers, seeking increasingly large recoveries for thousands of people, many of who are not in fact ill. Insurers have had to increase their reserves by millions of dollars, just as the value of their equity investments and earnings returns have taken a downward plunge.
Companies only marginally involved with asbestos have been hit. Goodyear Tire & Rubber in its annual report said that it spent $19.3 million, before reimbursement from its insurance carriers, defending around 97,000 civil actions relating to alleged exposure to asbestos in its products and plants. That’s just one company of the thousands that have been named in lawsuits.
In many instances the insurance carrier becomes the payer of last resort. Equitas, the Lloyd’s runoff vehicle established to handle claims prior to 1992, and Honeywell International recently announced that they had “reached a comprehensive policy buy-back settlement of all insurance claims by Honeywell against the Lloyd’s of London names reinsured into Equitas, for $472 million in cash.”
ACE Limited took a $354 million fourth quarter after tax charge to strengthen its reserves due to asbestos and environmental claims, but the gross reserve increase was actually $2.178 billion. It was offset by $1.860 billion of reinsurance, including $533 million from its reinsurance agreement from National Indemnity.
ACE is exposed to business it didn’t even write, but that it acquired when it bought Cigna’s P/C business, particularly its Brandywine operations, in 1999 for $3.54 billion. CEO Brian Duperreault remarked, “the charge for prior years asbestos exposure overshadowed what was actually a very good year for ACE.” That statement, coming from an ex-AIG executive who’s built ACE into a global powerhouse, and is considered one of the world’s savviest managers, evinces the depth of the problem. Almost all P/C insurers and reinsurers, even the best-run companies, are facing a rising and seemingly endless tide of asbestos claims.
Furthermore, a study commissioned by the Asbestos Alliance, a coalition of companies and trade associations, chaired jointly by the American Insurance Association and the National Association of Manufacturers, found that the burden of asbestos claims has had a negative effect on the entire U.S. economy.
Prepared by Nobel Prize laureate Joseph Stiglitz, Professor of Economics at Columbia University, Jonathan Orszag, Managing Director of Sebago Associates and Peter Orszag the Joseph A. Pechman Senior Fellow in Economic Studies at the Brookings Institution, the study estimated that “61 companies have filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code as a result of asbestos liabilities. These companies are spread across the nation, with 47 states having at least one asbestos-related bankruptcy.” 204,868 people were employed by these companies before they declared bankruptcy according to the report. It also noted the following as further evidence of the negative economic impact:
Editor’s Note: To see the full story, see the April 21 issue of Insurance Journal.
Was this article valuable?
Here are more articles you may enjoy.