Dave Powell and Alessandro Santoni look at how the US and major European countries deal with asbestos-related insurance claims and the subsequent impact on local insurance markets
The cost of asbestos problems in the US is expected to ultimately exceed $200bn, with over $120bn estimated to eventually be paid by the global property/casualty insurance industry.
These losses have been a significant drain on profits for many insurance and reinsurance companies.
The US disease incidence pattern is repeating in the EU with a time lag, and so the claims emergence seen in the US will be repeated in Europe. However, in terms of how asbestos claims are managed, there are important differences between the US and Europe.
Cover for US asbestos was typically provided in the US and London markets and reinsured globally. Cover for European asbestos is generally within Europe.
Although asbestos disease typically arises from occupational exposure, compensation in the US is sought from the manufacturers of asbestos and products containing asbestos rather than the employer.
Actions are brought in tort, usually under product liability or premises liability. Because the worker may have been exposed to numerous products containing asbestos, the typical lawsuit names in excess of 60 defendants.
The US legal system allows recovery for injury, even in the absence of physical impairment. The majority of suits currently being filed are for non-impaired plaintiffs. Diagnosis of non-impaired conditions involves the interpretation of X-rays, which can be highly subjective.
Furthermore, the US legal system is based on a contingent fee arrangement for plaintiff lawyers. This fee, which can be as high as 35% to 40% of the award, serves as an incentive to find plaintiffs and pursue actions.
US trials are by jury, which introduces further subjectivity. And each state has different legal features allowing some flexibility for the plaintiff to select the 'friendliest' jurisdiction.
Almost all these features are different in Europe.
In most European countries some portions of the effects of asbestos are borne by the national health system, rather than private industry (and its insurers). This is a significant difference from the US.
To date, European compensation has tended to be related to the employer, rather than the manufacturer, and sought under employment liability rather than product liability. Thus only a few companies are named in each action, rather than the 60 or more in the US.
In general, civil trials in Europe are by judge and not jury. This tends to reduce the subjective element as compared to the US.
The number of compensated people should be proportionally less in Europe for several reasons. The number of plaintiffs in the US is influenced by union and legal activity.
Health screenings, sponsored by unions and/or lawyers, tend to increase the number of plaintiffs. While less common in Europe, union-sponsored health screenings are increasing.
Compensation for non-impaireds is less common in Europe, as are contingent fees for lawyers and class actions. These should result in fewer plaintiffs in Europe relatively than in the US.
Perhaps the most important difference for insurers is how losses are ceded to reinsurance. Under product liability in the US, losses are usually aggregated and the total ceded. Individual European claims may not be large enough to exceed retentions.
Difficult to exclude
Another key difference is that asbestos is generally not covered by insurance policies issued today in the US.
In Europe, however, current policies may be exposed depending on the resolution of certain allocation issues. If compensation is granted and allocated to policies in effect at the time of manifestation, then today's policies may be exposed. It may prove difficult to exclude asbestos from statutory required covers such as employers' liability in the UK.
In conclusion, as asbestos issues and their effect on property/casualty insurance continue to emerge in Europe, there are several operational points that must be resolved.
For the most part, these have already been settled in the US, and therefore the US market provides some indicators.
However, there are important differences by territory and the US solutions are not necessarily reliable indicators for the various countries in Europe. In a number of European countries the implications for the insurance industry will depend on the continued willingness of the various social security systems to pay for asbestos-related diseases (see below).
The critical issue for Europe is allocation. People contracting asbestos-related diseases typically were exposed to asbestos for many years. Unless these years of exposure were with a single employer who had a single insurer, the matter of allocation arises. How is the cost allocated across multiple employers and/or across multiple insurers?
As the exposure may have taken place decades ago, what protocols are appropriate for lost policies? What is the treatment of uninsured periods? Some of the employers were smaller entities and are no longer in business - what happens to their share? How are covered losses ceded to reinsurance? The resolution will probably vary by country, and will only clarify over time. IT
' Dave Powell is European property/casualty practice leader at the Tillinghast business of Towers Perrin and Alessandro Santoni is a senior Tillinghast consultant
How other European countries are dealing with asbestos compensation
The situation is changing because of a 2002 court ruling. Before this, compensation for occupational asbestos-related disease was generally through the social security system. and without regard to fault. Higher compensation was possible if the employee could prove 'intentional fault' or 'inexcusable fault'. The 2002 ruling expanded the definition of 'inexcusable fault' thereby making it easier to claim against the employer in a liability action.
A special fund, 'Fonds d'indeminisation victimes del'amiante', or FIVA, was established to indemnify employees with occupational asbestos-related disease. The employee has a choice between selecting either this compensation or bringing a lawsuit against the employer. FIVA is subrogated to the employee's rights against the employer. But awards available through a lawsuit may be higher than those available through FIVA. The effect of this court ruling is to increase the involvement of property/casualty insurance.
To date compensation for occupational diseases is through the government occupational health system, and the property/casualty insurance industry has not been involved.
Compensation is typically paid by the social security (INAIL) which can then subrogate against the employer. The employer can recover under its insurance policies. INAIL has not typically used its subrogation rights, therefore asbestos losses have not been an issue for the insurance industry.
Compensation for medical expenses and lost wages is paid by Social Security. Compensation for general damages, for example pain and suffering, is available through lawsuit. Certain mesothelioma cases are compensated by the Asbestos Institute. The remaining mesothelioma cases and all other diseases are compensated by property/casualty insurance. The amount of loss that may be covered by insurance is affected by a statute of limitations. This statute is subject to ongoing interpretation.
Compensation to date has been met from Social Security. A recent court case accepting the link between exposure to asbestos and disease could potentially lead to higher compensation awards and the possibility of insurance involvement.
Although basic medical costs are borne by the NHS, losses from asbestos are an important issue for property/casualty insurers. Compensation for income loss and general damage is available through tort and is covered by insurance. Employers' liability cover is available for the occupational exposure of employees. Public liability coverage responds to non-occupational exposure, as well as to occupational exposure to non-employees such as contractors.
Two important court decisions influence the amount that property/casualty insurance may ultimately pay for asbestos-related diseases.
A 2002 ruling by the House of Lords (the Fairchild case) expanded the rights of the injured worker to bring an action against former employers as regards to mesothelioma. A 2005 lower court decision (subject to appeal) allows recovery, albeit at a reduced rate for pleural plaques without physical impairment, based on fear of developing a more severe condition.
The current allocation protocols apportion losses across the period from initial exposure to 10 years prior to manifestation. This is based on the premise that because it takes at least 10 years for the disease to emerge, the last 10 years did not contribute to the disease. If this protocol continues in the future, it is possible that employers' liability policies issued today may be exposed to asbestos losses 10 years hence. Because of the statutory nature of employers' liability coverage it is doubtful whether asbestos can be excluded by the policy.