The West Fertilizer plant explosion in Texas killed 15, injured many more and destroyed or damaged dozens of adjoining buildings. Now, word is out through the LA Times that the plant operated with only $1million of liability insurance. One might conclude the owners at Adair Grain are irresponsible and/or were badly advised. One also could conclude there is a Texas-sized hole in Texas regulatory law. One suspects the same flaw exists for other large industrial plants in other states. It's amazing that we see picayune state regulation in some areas, but also see holes this size with respect to an obvious risk. It will be interesting to see how the story unfolds, including what the insurance broker's file show and what the D & O coverage looks like. 

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Insurance can make anyone nuts. It's both invaluable and maddening. Sheafs of paper with words written in phrases that only occasionally read well or make sense to anyone without years of insurance experience. And on top of all that, the coverage - or lack of coverage -  is seldom apparent until one deciphers the coverage parts and the exclusions, and more. 

Happily, insurance experts are talking more often and in plainer words about why insurance does and does not work. To that end, Professor Jay Feinman and the Rutgers School of Law are hosting an upcoming conference on fragmentation of risks, and the impacts for insurance buyers. The topics and speakers are first rate, as described below from the web site:

The Rutgers Center for Risk and Responsibility presents a conference on:

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Policyholder lawyer Scott Godes has provided a link to an interesting ABA article on bankruptcy court treatment of self-insured retentions when the policyholder becomes insolvent. 

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The media this week has been full of a great example of the power of social media to inflict a major reputation hit. This week's target was Progressive car insurance, of tv ad fame. The social media attacker was a grieving brother of a woman who died, and the attack was both personal and successful. The attack began with a Tumblr post titled: My Sister Paid Progressive Insurance to Defend Her Killer In Court. 

Progressive earned its pain by failing to act in good faith while handling claims related to car wreck that resulted in deaths. Having acted less than in good faith, it then made matters worse. How? By issuing a literally true but practically false public statement in which it tried to cause the public to think that being an intervenor supporting a defendant was substantively different than representing a defendant. All lawyers know that's a classis "distinction without a difference." Progressive then compounded its mistakes by issuing a series of sugary but irrelevant Tweets, and then later withdrew the Tweets. 

It remains to be seen how much the storm actually will cost Progressive. In reality, the observable, actual cost may be very low in the short term. There will, however, be many future jury trials involving Progressive, and it now has a new degree of risk that it created. 

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Selling life insurance rights. Some says it's great. Some says it violates contract law. Some say it's a bad idea. Whatever your view may be, the NYT includes a wide-ranging August 10, 2012 article on the topic. The article is by James Vlahos.

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Insurers like caps on payouts. Why? Because it makes life easy for the actuaries.  X number of incidents for an insured population of Y times a max of $ ZZ means that total risk is quantified. Contrary to Wall Street myths aboyt swash buckling risk takers, the financiers hate risk - they like to eliminate risk and make certain money. That's why they like caps on medical malpractice awards. 

But, thanks to Twitter, one insurance cap has fallen. The fallen cap? A lifetime maximum of $ 300,000 for health insurance ASU college students. 

Why did the cap fall? Because a student with colon cancer exceeded the limit, and complained on Twitter about the annual cap imposed by Aetna. Ultimately, the CEO of Atena was pulled in and did the right thing - Aetna covered the unpaid bills. Then the CEO went a step further and worked with ASU to move the cap up to $ 2 million. In 2014, the cap will disappear as required by  "Obamacare." 

A significant fact.  The student exceeding the maximum was the first to do so, according to the NYT article. So, obviously, the absence of the cap was not going to break Aetna. Instead, if enforced, the cap would have been enforced against a sick student, leaving him with both cancer and $118,000 of medical bills. That's a terrible outcome, which illustrates the flaw of caps - the point of insurance is to spread risks to all so that no one person gets stuck with a massive bill they cannot possibly pay.

One more point? Ever heard a statistic on how many medical malpractice "pain and suffering" damages awards exceeded $1 million? Neither have I. If anyone has seen data on the point, please speak up.

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Insurers never cease to amaze, as illustrated by the recent Seventh Circuit decision in American Safety Cas. Ins. v. City of Waukegan, 2012 WL 882504 (March 16, 2012). There, the insurer (American Safety) argued that it had no obligation to defend until a $100,000 deductible had been paid out. That thesis was offered to justify American Safety's failure to file a decalratory judgment suit regarding the disputed coverage obligations. Judge Easterbook shredded the argument:  that "line of argument exemplifies American Safety's unreasonable and vexatious treatment of Waukegan." Attorney's fees were awarded against American Safety. 

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ACE insurance has been fined in Texas for violating state laws regulating insurers. The story is told on the ACE Litigation Watch, a web site and blog devoted to tracking litigation against ACE. As explained there:

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And from the NYT and the the offices of several state Attorney Generals, here is story detailing yet another example of Wall Street businesses failing to act in good faith. The story also illustrates  why most (not all) insurance companies have lousy reputations.  In short, numerous life insurers (e.g Met Life) fail to pay out hundreds of millions of dollars  even when they know or are using data which shows: 1) the person is dead, and 2) the company issued a policy covering that life.

How could they fail to pay out? Met Life and others managed to comfort themselves that it's legal to just sit back and ignore the facts they have or use, so long as no one made a claim on the policy. In other words, the plan is to make extra money by taking advantage of policyholders losing track of records and insurance policies. Worse yet, they used the same death data n reverse to save money - they checked death records to make sure they stopped sending out disability payments when a person died. 

So, now what to think about the message: Get Met, It Pays. 

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A new idea that is now a business in the UK  - car insurance priced based on driving low-powered cars, plus actual driving data transmitted by chips embedded in the car's electronics. Speed freaks and frequent drivers should pay more. The business is online here. Hat tip to the Marginal Revolution blog for flagging the topic based on a tip from a reader. 

The online version of the article is here, and is pasted below:

Young Marmalade offering to provide low-cost car insurance for young drivers

17-04-2012 at 12:38

3

 

 

 

For most young people, the dream of buying and owning their very first car is a milestone that everyone wants to achieve.

 

But nowadays getting affordable car insurance presents a huge challenge for most young drivers looking to purchase their new vehicles.

 

A poll from 1,127 young drivers stated that 96% of them felt they were being priced off the road because of high costs related to motor insurance, stated by Young Marmalade in partner with the House of Commons Transport Committee.

 

Results surrounding high-priced car insurance for young drivers’ increases great concern as more of them are taking risks and driving without car insurance. Also another reaction to getting priced out from the market is that young drivers are turning to illegal risks. According to the Young Marmalade poll, 30% had thought of giving altered information when applying for car insurance in order to get a lower quote. 

 

Also 57% of young drivers did not that after a car accident, car insurance firms often give personal details to car services such as: a car hire firm, garage, or solicitor in order to cash in a referral fee. 

 

With such sky rocketing car insurance prices and unnecessary risks, many of these young drivers are now turning to Young Marmalade, the UK’s young driver specialist that offers customers with safe and new low-powered cars to decrease insurance premiums. 

 

Young Marmalade MD Crispin Moger believes that, “Young drivers are comparing website prices and opting for the cheapest price but then chop and change depending on the next cheap offer.” 

 

Since young people between the ages of 17 – 22 pose as high risk drivers a typical quote from a car insurance firm could start at over £5-,000 a year for comprehensive coverage. However, young male drivers pose the largest risk and can end up paying £8,000 a year.

 

Young Marmalade MD Crispin Moger states that they offer low-cost insurance packages because, “Young Marmalade buys many new cars and receives assistance from manufacturers, which is passed on to young drivers as Cash back. For example on the best seller Vauxhall Corsa 1.2 SXi 3 door, the Cash back on that model is £3,558 and can help pay off your first year of car insurance.” 

 

Fortunately, when you purchase a low-powered car from Young Marmalade, the free installation of a black box can cut your insurance premiums into half. By monitoring the driving behaviour such as acceleration, braking, what time of the day the car was driven and at what speed, Young Marmalade provides affordable telematic insurance premiums.

 

It’s simple. The black box data is used to calculate premiums, if the car was driven well, the lower the premiums will be and vice-versa.

 

According to MD Crispin Moger, “A young male driver who has Intelligent Marmalade in his car will pay on average £2,601/year for comprehensive insurance, while a young woman will pay £1,642/year. If the black box detects a bad driver, initial premiums will be subjected to a £250 and £500 increase or Young Marmalade will cancel the policy.”

 

MD Crispin Moger added, “Since young drivers are feeling priced out by expensive car insurance quotes, with the tracking of the black box in the car, young drivers can enjoy affordable telematic insurance premiums.”

 

Young Marmalade assists with all car maintenance as they control the age of the car, the tracking of the black box, safety rating, and the size of the engine. By helping to maximise all young drivers’ safety, passengers and other road users decrease the risks of getting into a car accident.

 

At Young Marmalade they offer a secure and unique low cost insurance policy that fights against the rising costs of car insurance. Along with low car insurance premiums, Young Marmalade designed a flexible payment schedule that can fit into anyone’s budget.

 

With Young Marmalade securing drivers with affordable car insurance premiums, it’s helped in making many first-time drivers dreams come true. Not only can they purchase a new low powered car, but the car insurance is affordable, and helps everyone feel safe

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Insurers like to complain about fraud by policyholders, but here's the  story of gross fraud perpetrated by a nationally prominent insurance company issuing automobile warranty policies. The entity - U.S. Fidelis - was run by previously convicted felons, and marketed itself as a "faith based" business. Key excerpts are as follows:

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Time and again insurers tell us that litigation is wasteful and all claims should settle.  And we are often told that insurers and others in the financial industry are swashbuckling entrepreneurs embarked on bold courses, and that handsome financial returns are therefore well earned in return for taking supposed risks. 

Contrast those spins against the following insurer comments following their resounding loss in a six year legal journey that ended yesterday with a ruling by the UK Supreme Court. In short, the reality is that insurers use litigation when it suits them and they want certainty. And to obtain their certainty, they often (but not always) refuse to pay claims and create far more financial uncertainty for sick people with few financial assets. The excerpts below are from a Financial Times article of today by Jane Croft: 

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Mesothelioma claiming in the UK is generally directed against former employers, as opposed to manufacturers of products. And, employers liability insurance was traditional and later compulsory in the UK.  Accordingly, it is highly significant that the UK Supreme Court today ruled on the trigger for  Employers Liability (EL) coverage for mesothelioma claims. The opinion essentially adopts an "exposure" trigger and so requires insurers to pay mesothelioma claims. Some had been trying to avoid paying claims by arguing that they were obligated to pay only if they were on the risk at the time of disease manifestation. The opinion is here.

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 Kevin LaCroix has an interesting new post linking to a useful article on managing D & O insurance through a corporate transaction. 

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Does this story sound familiar? Tort claiming, constitutional law, and demands for tort reform are now playing out in Argentina.  Under the heading "Compensation Culture," LATAM Insurance Review includes an interesting article on the rapidly increasing rates of litigation in Argentina. The article also ncludes numerous comments from a representative of Australia's QBE, including the thought that perhaps there is a need for additional intelligence in underwriting now that damages are not capped.  Others comment about a need for so-called "tort reform." Set out below are key excerpts from the article:

"As well as the aforementioned change post-2004 which allowed employees to take legal action against the employer, in addition to the ART, in a civil court, in 2009 – following what Gonzalo Paz Saguier, legal manager at QBE Argentina, describes as “almost seven years of progress and setbacks due to lack of consensus among different sectors of the system” – the Argentina government issued Degree 1694/2009 which, among other things, eliminated the limits of sums insured (previously set at AR$180,000, or around $40,000) while establishing a minimum compensation limit of the same amount. This, according to Towers Watson’s Guaita, “led to a premium increase of 50%”.

And while this law has been in place for over two years, it has not been without its problems. “The courts have repeatedly ruled on the unconstitutionality of several pillars of the law, opening the way for the employer’s civil liability, and in some cases, also for insurers, leading to sentences for amounts in excess of coverage,” says QBE’s Saguier. “This has been fought by an active policy of negotiation in those cases that can be traded, and litigating hard in all those other cases that do not require it. It has also led insurers to increase the intelligence in underwriting risks.”

According to Marval, O’Farrell & Mairal’s Kelly, such reform would likely result in an increase in the costs and consequent re-adjustment of premiums as necessary for insurance companies in the region.

“However, given the current scenario, involving many interests implicated that have materially delayed the negotiations between governments, employers’ associations, unions and ARTs, even if the current draft of the reform was sent to Congress in March, a hard debate is expected,” he adds.

Indeed, it seems there is much more discussion to be had before any final decision is made. “There are still many different points of view within the administration and many different projects and ideas with regard to this law ongoing within the administration,” says Carlos Marin Rodriguez, a partner at Bullo Tassi Estebenet Lipera Torassa Abogados. “However, most consider the current system to be a more progressive, open system and the proposed changes to be a step backwards.”

But should this reform – a draft of which is expected to be sent to Congress next March – come to pass, it will be only the latest in a number of changes that have taken place in the workers’ compensation market in the region."

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Insurers frequently complain loudly about "trial lawyers" and too much litigation. But they like litigation when they are plaintiffs. Consider, for example, MassMutual's evident pleasure in successfully moving forward with nine lawsuits targeting uber banks for securities fraud. The quoted text is from an AmLaw article by Ross Todd on the substance of the ruling denying motions to dismiss:

"The MassMutual suits target a huge swath of Wall Street, including units of Credit Suisse, HSBC, JPMorgan Chase, Royal Bank of Scotland, Deutsche Bank AG, UBS, WaMu Inc., and Goldman Sachs, seeking damages over billions in alleged losses from mortgage-backed securities gone bad. (See our prior coverage of the MassMutual suits here, here, and here.) All of the MassMutual complaints assert claims under the Massachusetts Uniform Securities Act, which allows plaintiffs to seek to rescind their purchases of securities or recover damages without a showing of fraud. 

Quinn Emanuel's Philippe Selendy told us that MassMutual is "obviously very pleased" with Judge Ponsor's decision. "MassMutual looks forward to trials in all nine cases in which Wall Street is held accountable for misrepresentations to investors in the Commonwealth of Massachusetts," he said.

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"Direct actions" allow an injured plaintiff to file a lawsuit directly against the insurer for a defendant. Direct actions are not allowed in many jurisdictions, but some do permit direct claims. When a direct action remedy is available, the FDIC is using it in bank failure cases. Kevin LaCroix has the story in a recent post at The D & O Diary.

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Insurer "bad faith" has been a significant and growing problem ever since consulting heavyweight McKinsey & Company advised various insurers on financial engineering, and how to "manage" claims. For the history, see Professor Jay Feinman's great book - Delay, Deny, Defend - here is the web page for the book. Jay is a Distinguished Professor at Rutgers. 

The short-hand term "bad faith" actually is a misnomer. The real issue is that many insurers (not all) and their agents have built a business model based on refusing to pay claims. Insurers using this business model time and again breach the duty of good faith and fair dealing. Thus, instead of acting fairly and responsibly, they follow McKinsey's financial engineering advice on looking for excuses to refuse to pay claims instead of fairly evaluating and paying claims.  

I've often seen the lack of good faith in both my professional life and personal life. Some of the most egregious examples involve failure to pay for expensive treatments for cancer patients - the stories are real, the examples are legion, and people die and/or suffer terribly because of the practices of many  (but not all) health insurers.  Egregious also is the label for  insurers which refuse to pay asbestos claims - many still trump up excuses, and courts let them get away with it, thus helping to worsen the problems of mass tort litigation. 

For those interested in the subject, Rutger's is sponsoring a great looking February 29, 2012  conference on the subject  of "Bad Faith and Beyond." The speakers are top notch. The agenda is pasted below and includes heavyweights on both sides of the issues.  

Bad Faith & Beyond Conference - Agenda

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Reinsurance companies frequently sit "behind" insolvent primary insurers. When the primary carrier fails, some policyholders seek to sue the reinsurer directly in these '"cut through" suits. Courts usually but not always reject such "cut through" efforts. A brief, recent article by Robert DiUbaldo summarizes two recent federal district court opinions which rejected cut through claims. 

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The Virginia Supreme Court has held that there is no coverage for underlying global warming claims when the plaintiff alleged intentional emission, and did not allege that the emissions were negligent. The opinion is here, and is summarized here by Marten Law. 

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Insurers often claim that STOLI policies are illegal - see this prior post on STOLI policies. So, it's kind of amusing to see that insurance and banking giant UBS was working with Rick Perry and staff to create a giant STOLI investment in Texas, as is detailed  here in Huffington Post. 

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STOLI policies are  Stranger Owned Life Insurance policies. Insurers spend plenty of time and ink  complaining about STOLI policies, and seeking laws making them illegal. 

But, interestingly, this new lawsuit in Chicago alleges that Lincoln National Life actually encourages STOLI policies in order to earn premium before rescinding the policies. According to the allegations, Lincoln National sold a series of STOLI policies through one particular agent in Chicago, and apparently loved the premium income. In this instance,  $10 million policies were sold to a 70 year old  husband and wife.  Selling policies that size seems fishy on its face when the purchasers are 70 years old.

A Google search on Lincoln National and STOLI turned up multiple cases involving Lincoln as issuer of STOLI policies. And, this article, quotes from one case in which Lincoln National is said to have sold some 80 policies known to it to be financed by a third-party funder (which can happen innocently for some types of policies).

"Lincoln had prior experiences with the Mutual Credit Corporation because Mutual had funded more than eighty other policies that Lincoln had written.301 Of those policies not a single original insured or beneficial trust retained ownership of the policies after the two-year contestability period had expired.302 It was known that Mutual’s funding source was a hedge fund that invests in life settlements.303"

Call me cynical, but I'd bet that Lincoln did in fact know it was aiding and abetting the sale of STOLI policies, and loved the premiums it earned before it sued to rescind the policies.

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Humorous parodies are powerful. Two from youtube lampoon the supposedly "independent"  adjusters  who work for insurance companies.

This one addresses the absurdity of the handling of some car crash claims. After watching it, ask yourself : why do insurance companies ask everyone to clam up and deny fault even when fault is obvious, and why do people follow that advice ?

Sadly, most insurance compant adjusters no longer have any authority, except to say no, as is exemplified by this video.   
 

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"Delay, Deny Defend."  The phrase sets out the business method for too many U.S. insurers.  The phrase also is the title of an insightful and detailed book by Jay Feinman, a  Distinguished Professor of Law at Rutgers. As a law professor teaching contract law in general and insurance law in particular, Professor Feinman truly knows the subject and explains well how the phrase applies to the US insurance industry. 

Today, the phrase also applies globally. For example,  Australian insurer QBE is famous in Florida for not paying hurricane damage claims, as illustrated here, here and here.  Now, back in Australia, it's gaining fame for refusing to pay claims arising from the recent disasters in Australia. Go here for a video and print story.  In the UK, QBE  recently picked eighteen law  firms as part of its legal defense for EU claims. So, it appears  EU policyholders can look forward to the same "3D' tactics.

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This week's issue of Business Insurance brings an update article on the  "pollution exclusion" - in its various iterations. The article relies in part  on this  massive Am Re summary of the case law. As more and more substances are identified as "toxins," one can expect more returns to the issues. The insurance industry also seeks to apply the clause to substances such as Chinese drywall.

The pollution exclusion arguments highlight a real problem. Insurers do not want to take any real risk, thus badly impairing the function and role of insurance.  Industry refusal to really take on risk contributes to the growing need to manage the risk that insurance does not work. 

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A new chapter may be opening in the long-running saga of London Market insurance coverage for asbestos claims. The story to date, in short, is that many London Market names and companies were in fact  insolvent in the 1980s and 1990s as a result of then-current and then-foreseeable asbestos claim payment obligations. However, most refused to admit the future claims impact of past insurance promises. Instead, they embarked on financial engineering on a grand scale, creating an enity known as Equitas to ostensibly "reinsure" and thus pay future claims. 

After its creation, Equitas t took steps to consolidate and limit the financial pain. Among other steps, it went around the world pleading poverty, complaining about the US tort system (sometimes rightfully), and threating to go into insolvency unless policyholders accepted relative pennies instead of full insurance dollars. Many, many corporate insureds gave up and took the pennies. 

Later, Equitas started more financial engineering. That round culminated in a deal with Warren Buffet insurance entities to take over much of the risk of Equitas. Now the Buffet companies use much of the Equitas playbook, and refuse to pay many claims.

Now, a New York appellate court has ruled the Equitas situation can be examined in an antitrust claim.  The opinion is here. A summary article is here. Many think it be wonderful to see this case expose more of the details of the financial engineering scam known as Equitas. But one has to wonder if the London Market players will let that happen.

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A brief story in AmLaw presents an interesting synopsis of a longer article in the New Jersey Law Journal regarding Prudential insurance allegedly improperly settling claims to avoid litigation and claim disclosures prior to an IPO. In short, the issues are now in court as new plaintiff's counsel seeks to invoke the crime-fraud exception to obtain communications regarding the prior settlement.  The key excerpt from the NJ article is as follows:

"It is unheard of for an adversary to pay a contingency fee up front," he said, especially when $4 million of it is nonrefundable and the amount of the payment is laid out in a separate agreement not signed by the clients and allegedly hidden from them. Snyder made repeated references to Prudential's conversion to a publicly traded company, which he said made it extra important to keep the claims -- which included allegations of red-lining minorities -- out of court and the public eye. Prudential did not go public until 2001, but in 1999, when the alleged bribe was paid, Prudential needed government approval, and bad publicity could have derailed the plans, the plaintiffs claim. "

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Insurance is much needed, but increasingly does not work. That's the thesis for an October 1 conference hosted by my law firm, among others. I've been part of the team putting the conference together. We are fortunate that excellent speakers agreed to share their time and thoughts. They include two Law Professors, Jay Feinman and Daniel Schwarcz, and Michael McRaith, Director, Illinois Department of Insurance. We hope our guests find the conference both interesting and informative.

(Sorry, the register button does not work through this blog.)

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The insurance industry continues to create new structures to complicate and limit the risks of paying defense or indemnity for third party tort claims. Thus, set out below is the text of this on-line press release from Continental/CNA this morning. The bottom line is that Continental/CNA is seeking to transfer the financial risk of its asbestos and environmental insurance obligations. The transferee will be Warren Buffet/Berkshire's  National Indemnity Company.

The transfer is to be accomplished through a new reinsurance contract that is said to be subject to a top end cap at $ 4 billion. If the transaction is concluded, Berkshire will then have an even more massive share of the asbestos litigation risk.

Berkshire previously took on similar but more massive risk for London insurance vehicle Equitas (today is known as Resolute) in a $ 7 billion deal, as is described here in general and here in some detail. Much of Berkshire's insurance risk acquisition took place after Buffet/Berkshire bought Johns-Manville through a deal announced back in 2000. 

Is this deal "good" or "bad." ? Many answers are possible, depending on one's perspective. The bottom line, however, is that the risk transfer deals are happening frequently, and most regulators, insureds and tort claimants are doing very little to scrutinize the deals in any material way. One might argue there are parallels to the failure of regulation for markets for CDOs and derivatives. Why ? Among other things, the deals are complex, and the results may  not be fully felt for many years. Then again, the results may come to roost sooner, depending on what happens in the litigation industry.

One should consider Warren Buffet's 2005 statements on why he loves insurance and how key it is to the Berkshire empire. The bottom line is that insurers love to take in premiums (money), and make more profits if they do not pay claims, or pay very slowly. Thus, as quoted in this Insurance Journal article,  Mr. Buffet said:

 ___________________________________________________________________________________________________________

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This article from a British newspaper reports that the UK government is trying to cut a deal with unions 1) to pay for more scientific research on cancer, and 2) require more compensation from insurers for asbestos victims, but without reinstating pleural plaques claiming. Apparently remaining insurers would be required to pay bills left behind by insolvent insurers. On reading the article, one wonders about linkage between this development and the insurance industry's 8 January 2010 resounding loss in Scotland as various insurers failed to overturn legislation reinstating claiming for pleural plaques in Scotland. 

According to today's article:

"Asbestos victims offered £70m support package


Unions divided on plan to set up a research centre and compensation fund - because of exclusions

By Emily Dugan

The Government is set to present a £70m package of help for asbestos victims to trade unions this week. The proposals include setting up a research centre into asbestos-linked diseases; insisting insurers fund compensation for dying victims unable to rely on their employers' insurance; and more money for sufferers of the deadly asbestos cancer mesothelioma.


The proposals, campaigned for by the IoS, are likely to receive a mixed reaction from campaigners seeking justice for thousands of workers who face painful deaths because of negligent exposure by their employers.


The fund and research centre were welcomed last night, but opponents were quick to criticise the Government's decision not to overturn a 2007 law lords' ruling which left sufferers of a condition known as pleural plaques ineligible for compensation. The condition is often a sign of the onset of deadly asbestos diseases.

The proposals were outlined in a private meeting between Gordon Brown, the Justice Secretary, Jack Straw, and concerned MPs last week. Sources confirmed that if accepted by the unions, the plans would be rapidly adopted. But the construction union UCATT called the proposals "morally indefensible".

*****


The establishment of an Employers Liability Insurance Bureau to maintain a "fund of last resort" for victims of asbestos exposure who cannot trace their employers' insurers is the most significant victory, as it will be mainly paid for by the insurance industry.
 
*****
Mr Straw is understood to have said that overturning the pleural plaque ruling would be too costly, with the Government already facing liabilities of up to £600m because so many public sector workers were exposed to asbestos in previously nationalised industries and in the Armed Forces. Critics believe ministers have surrendered to the powerful insurance lobby.

Andrew Dismore MP, who tabled two bills to overturn the 2007 ruling, said: "If you've got pleural plaques, there's nothing in this package for you. What's on offer is not chicken feed, but it will mean there are lots of people who will not get the compensation they deserve."

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Here is the online image of Munich Re's recent, comprehensive report on asbestos litigation, Asbestos: Anatomy of a Mass Tort. The 112 page report is authored by Nicholas Roenneberg, and is Order number 302-06142. The report can be downloaded and printed from this page.
The same page, on the right hand side, allows you to order a printed copy at no charge.

The report is quite good. It begins with a review of asbestos litigation in North America. The report goes on to explain and explore various factors relevant to reinsurers such as Munich Re.

Beginning at page 58, the report addresses asbestos claiming in other nations in the context of employers' liability. The report covers the UK, Ireland, Italy, Spain, France, Czech Republic, Japan and Brazil. These country-specific reports are well worth reading to better understand the global asbestos claiming situation.

_____________________________________________________________

I owe a hat tip and thanks to Christian Lahnstein of Munich Re for bringing the report to my attention this past fall, and for provding value contributions to dialog regarding mass tort claiming. Christian is a very thoughtful thinker and speaker on the subject of asbestos claiming and its consequences. Indeed, he is thoughtful enough that at a dinner before an international asbestos conference this past fall in London, a smart plaintiff's lawyer listened to Christian for a while and then commented that he was surprised to learn that Christian works in the insurance industry.

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A scheme of arrangement is a UK term that applies to a variety of legal proceedings, including proceedings in which a solvent insurer seeks to end its operations - for its convenience - and to put an end to the life of insurance policies that pay claims based on an "occurrence." Occurrence policies have cost insurers billions of dollars paying for underlying asbestos claims.

Insurers like such schemes because they can shut down operations and seek to end their life without waiting for all claims to mature/occur/manifest. In general, schemes are disfavored by insureds that sold products that may produce long-tail injuries. Why ? Because they paid for long term coverage but the scheme ends the coverage before all claims may have manifested themselves.

In a recent scheme in Scotland, the trial court had to consider these issues in a scheme proposed by Scottish Lion. Here is a summary of the Red Lion opposition from the law firm - Covington & Burling - that opposed the scheme for its insured clients. Is that a winning rationale ? Stay tuned for the answer.

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Significant mass tort bankruptcy issues are being contested as the W.R. Grace asbestos chapter 11 case moves deeper into its phased confirmation hearing. Subsequent posts will touch on some of the issues and pleadings.

Two issues are of perhaps greatest overall note. First, multiple objectors are arguing that Grace in fact is solvent, and so they argue the plan is not confirmable because the payouts called for by the plan violate, they say, various subsections of code section 1129 regarding the relative rights to payments as between creditors and equity holders. In short, they say the equity owners are being allowed to keep too much in the way of assets.


Another big picture point is that the Grace case presents an unusual and wide-ranging set of plan objectors, with most or all of the challengers having apparently uncontested standing to object to the plan. So, this chapter 11 case could end as one of the few asbestos chapter 11 cases that actually ends with rulings and judgments instead of the usual bankruptcy court deals.

As a reminder of how Grace came to this juncture, recall that on April 7, 2008, W. R. Grace announced a settlement in principle of many but not all of the asbestos injury claims related to its long-running Chapter 11 case. The settlement occurred when the case was in the midst of a hotly contested trial on "liability estimation" for personal injury claims. Grace had presented significant evidence on the flaws of the "mass screened" asbestos cases, and was slated to present further evidence intended to diminish the value of future claims. Overall, Grace was putting on evidence to prove that many or most claims against were frivolous claims. Part way through that battle, Grace and the ACC (the Asbestos Creditor's Committee) reached a deal.

The prior settlement deal is described in the excerpts set out below from this article by Alison Frankel in the online American Lawyer.

Familiar Faces Central to W.R. Grace's Settlement of Asbestos Claims
The American Lawyer
By Alison Frankel
April 09, 2008

***
Familiarity doesn't preclude disagreement, however. W.R. Grace, which was forced into Chapter 11 bankruptcy in 2001 by asbestos liability, estimates the settlement to be worth less than $2.5 billion in present day value. The plaintiffs lawyers say its present value is closer to $3 billion.
The trust that will pay out asbestos claims will be funded by a $250 million cash contribution from Grace (payable on the company's emergence from Chapter 11); an additional $1.55 billion from Grace paid over 15 years, beginning in 2019; Grace's asbestos insurance coverage, worth an estimated $600 million; warrants to purchase Grace shares; and more than $1.2 billion in previous settlements with companies accused of fraudulently purchasing Grace assets.
Unlike previous bankrupt companies that reached deals with asbestos claimants, W.R. Grace went to trial to challenge the plaintiffs lawyers' estimation of its liability for the more than 100,000 asbestos claims it faced. Claimants estimated that liability to be $3.5­ billion to $7 billion. Grace contended it owed less than $800 million, though it set asbestos reserves at $1.7 billion.
Beginning in January, Delaware federal bankruptcy court Judge Judith Fitzgerald presided over a trial to determine both the appropriate way to estimate claims and the total value of those claims. Grace had concluded its case and plaintiffs lawyers had presented their first witness when the deal was reached.

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The D + O Diary, a blog on D + O liability, includes this post about a new German law that seeks to change behavior of corporate officers and directors by imposing 10% of a loss on the individual officers subject to an annual cap. Here's the gist of the law as described by the post:

"Among other things, this new Act will impose a new requirement that German Stock Corporations (Aktiengesetz) purchasing D + O insurance for their executives must impose a personal deductible to be borne by the directors in an amount equivalent to at least 10% of the relevant loss, up to an annual cap. Comments accompanying the Act specify that the annual cap must be set at not less than one and one half the annual fixed remuneration of the director."

The post goes on to cover issues/methods that may come into play if Ds and Os and their companies seek to skirt the new law. In short, an interesting article about an interesting new law, but perhaps the ultimate point is that the article proves that most any government has a heck of a time actually regulating business because lawyers and business persons often can find or create a way to skirt many laws, for better or for worse.

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Suppose the following. You are the General Counsel of a company that's been sued in a few hundred asbestos cases. You've timely notified all the primary insurers of the underlying claims, and some have paid defense expenses. But, assume also that a primary insurer known as Home has filed for the insurance equivalent of bankruptcy (see opinion here re Home) and is not paying any claims. Assume also that an insurer known as London has denied that it should pay claims because the insured cannot provide originals of the small pieces of paper known as "slips" that denoted issuance of its insurance, and assume further that London has created a purported successor entity you are forced to deal with and also has claimed that it is on the brink of insolvency (see Wikipedia here or see all the things that a lawyer for insureds has to say on his insurance coverage blog here) Assume next that your company obtains virtually nothing from Home even though it issues lots of insurance, and assume your company settles with London for about 90 cents on the dollar of the policy limits of London, with you figuring that litigating to death will cost more than just eating the difference, and who knows, London may in fact prove to be insolvent some day. Under these facts, can you recover from excess insurance policies above the policies issued by Home or London ?

For that general counsel, the sad reality is that some courts might well preclude recoveries from excess policies due to the circumstances of Home and London. Really? Yes ! For the specifics, see the informative article by Gilbert Oshinsky coverage lawyers Richard Shore, Stephen A. Weisbrod, and Andrea K. Hopkins. And, yes, the article also explains why they disagree with the rulings. After reading the article, you'll better appreciate the difficulties of managing legacy liability issues.

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An interesting post at the Adams Drafting blog points out various issues regarding the meaning of the word "occurrence" in commercial insurance policies. Billions and soon trillions of dollars will change hands based on the meaning given or found by court's deciding insurance coverage cases for underlying toxic tort cases. The post includes comments from some lawyers who focus on insurance coverage for insureds, including Scott Godes. The following words from Scott are key:

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Monday, March 30, 2009, is the date for oral argument in the Supreme Court on the Travelers/Manville case. The appeal presents important issues regarding the extent of bankruptcy court power and jurisdiction in a Chapter 11 case arising from asbestos litigation. The outcome may well apply to all mass tort bankruptcies.


All the briefs are collected at this page of the Scotus wiki built as a companion to the respected Scotusblog. Expert commentary also is provided.

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"Sponsored research" continues to be controversial. The topic will be squarely addressed next spring in a Friday March 20, 2009 session of the Defense Research Institute's annual seminar on toxic tort litigation. The full DRI seminar agenda is here, and the session is as described as follows:


Meddling with Science--Is Scientific Research
Manipulated for Purposes of Litigation or Regulation?


Plaintiffs' lawyers claim that corporations protect their profits
by suppressing or influencing scientific and medical research and
information. Defense lawyers fight what they call "junk science"
offered by plaintiffs' experts and environmental activists. Do
scientists who participate as experts in litigation tamper with
or improperly influence scientific investigation to bolster the
prosecution or defense of claims in litigation? Do corporations
underwrite research simply to cast doubt on the claims of
environmental advocates and the plaintiffs' bar, or are they
interested in legitimate research that may rebut unwarranted
claims? Two scientists at the center of this contentious dialogue
will engage in a lively debate.

Speakers are:

David Michaels, Ph.D., MPH, George Washington University
School of Public Health and Health Services, Washington, D.C.

Dennis J. Paustenbach, Ph.D., CIH, DABT, ChemRisk Inc.,
San Francisco, California

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Much of the strict liability theory taught in law school in 1980-1983, and still today, invoked a rationale of risk-spreading, and assumed that manufacturers could and would purchase CGL insurance to spread the risk of loss. Risk-spreading of course makes sense, and most individuals will acknowledge that there it is difficult to articulate a moral and rationale basis for insisting that some limited number of unfortunate individuals should alone bear the physical, financial and emotional harms caused by defective products (at least when there is real harm and a real defect).

That said, tort theory needs to reflect the reality that the actual availability of CGL insurance does not always exist, and seems to continue to shrink. Non-availability of coverage dates back to the so-called "pollution exclusions" inserted in the 1970s and 1980s, and then the "asbestos exclusions" that became common in the mid-1980s.

Two recent articles highlight the further shrinkage of CGL coverage. The first is an article by David Lenckus in the December 1, 2008 issue of Business Insurance. Its gist is that CGL insurance is now being significantly limited by some insurers by using terms that preclude coverage for later-acquired operations, at least when the operations are not exactly the same as the current operations. Terms of this sort may well may life tougher for the M & A world.

The second is a blog article from PorterWright regarding insurers starting to issue exclusions that preclude coverage for harms arising from nano particles. Exclusions are being issued because some studies indicate that the risks associated with nano particles may equal or exceed the risks associated with the various types of asbestos fibers.

Article 1


Curb on CGL coverage creeping into market


By DAVE LENCKUS
Dec. 01, 2008

Restrictive commercial general liability insurance policies that are moving into the admitted market worry some experts that more policyholders with tough risks--particularly construction contractors--could unexpectedly find themselves with limited CGL coverage.

Experts also are concerned about the coverage the policies provide, because some critical coverage terms are linked to an insurance industry database that is modified periodically and is not directly accessible by risk managers.

Unlike traditional CGL policies, which provide broad coverage for claims arising from a policyholder's operations--except for excluded risks--the restrictive policies contain an endorsement with a "classification limitation" of operations that underwriters will cover.

Those endorsements are contained in the declaration pages of policies, which otherwise follow the traditional CGL policy language developed by the Insurance Services Office Inc. of Jersey City, N.J. However, ISO did not develop the classification endorsement, a spokeswoman said.

Under the policies, if a policyholder adds operations without notifying its underwriter, or if the policyholder's current operations do not fit squarely within the classification limitations, then related losses would not be covered, experts said.

Policyholders also could not expect insurers to provide a defense against those claims, noted Joe Underwood, a senior consultant with Albert Risk Management Consultants in Needham, Mass.

Such policies are common in the surplus lines market but have now begun to creep into admitted coverage, potentially leaving some buyers with less coverage than they thought they had, experts say.

Nonadmitted insurers have been writing the restrictive CGL coverage for construction risks for a few years, said Bruce MacDonald, also a senior consultant with Albert Risk Management.

And John DiBiasi, president, excess and surplus lines for XL America Inc. in Exton, Pa., said XL America writes the restrictive coverage for many other tough risks, including real estate ventures.

But policyholder attorney Kevin Connolly, a partner with Anderson Kill & Olick P.C. in New York, said he first saw policies from more than one insurer with the endorsements in the past few months and that the policies have not "carried the stamp of a nonadmitted carrier."

An XL America standard lines market subsidiary, Greenwich Insurance Co. in Stamford, Conn., writes CGL policies with the restrictive coverage, according to documents that Business Insurance obtained. Greenwich is admitted in all 50 states.

An XL America spokeswoman did not know how long Greenwich had been writing the coverage.

But several brokers at major brokerages said they had seen the restrictive coverage only in the surplus lines market.

Major change

The classification endorsement "turns the CGL policy upside down," Mr. Connolly asserted.

A CGL policy "should be covering everything you do, unless there's fraud in the policy application," said John Lubatti, an Atlanta-based senior vp in the casualty practice at Willis HRH, a unit of Willis Group Holdings Ltd.

XL America's Mr. DiBiasi disagreed. The classification limitations include all of the typical operations in which a policyholder would be involved, he said. But the limitations protect an insurer from being drawn into covering operations it never wanted to insure, he said.

Mr. Connolly said the endorsement is so unusual that policyholders were unaware of it until after he had conducted routine policy reviews at the outset of construction projects.

"That's 100% true," Mr. MacDonald said. "That's the principal part of the concern of this type of endorsement." He said he has encountered the endorsement when construction project owners have retained him to review contractors' coverage that would name the owners as additional insureds. Contractors often did not realize their coverage was restricted, he said.

Buyers of surplus lines coverage typically have their "antennae up" for unusual endorsements, but risk managers do not expect such coverage limitations from admitted market insurers, Willis HRH's Mr. Lubatti said.

XL America's Mr. DiBiasi asserted that buyers should either carefully read all of their policies or hold their brokers accountable for explaining their coverage.

Experts say another problem with the restrictive policies is that they do not give policyholders the flexibility to adjust their insurance to cover all operations.

With traditional CGL policies, an insurer typically conducts a premium audit and then requires a policyholder that adds operations during its policy period to pay additional premium to cover those operations, risk experts say.

Under the more restrictive policies, however, a policyholder with operations not covered by its policy is not given that opportunity, Mr. DiBiasi and other experts explained.

Mr. DiBiasi said the premium audit process should not force insurers to cover any risk.

But understanding what operations are and are not covered is somewhat challenging for policyholders, experts said. The policies do not clearly spell out which operations are covered in the "classification limitation," they said.

Instead, the policies refer policyholders to an ISO database for additional information, but that database is not open to policyholders. Policyholders could ask their brokers for that information, because brokers have access to the database, experts noted.

Still, experts raised concerns about insurers linking policyholder coverage to a database in which definitions of covered operations could be modified between a policy's inception date and the time a claim is filed. A modification could leave a policyholder with no coverage for operations that originally were covered, they said.

"We have to trust the insurance company to do the right thing when a claim comes in," said Mr. Connolly, the policyholder attorney.

XL America's Mr. DiBiasi said, "The policy stands as it was issued and will be handled for claims on the basis as it was issued even years after the fact."

He added that "ISO changes apply only to policies going forward and only if a specific company adopts the change."

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How should governments and courts decide/define when persons have a condition that should warrant payment of compensation through tort claims or through government agency programs ? The question is relevant in many settings, but the issues I know best relate to asbestos litigation. The question is presently the subject of discussion in a variety of jurisdictions and contexts.

Issues of this sort are under discussion in the UK. There, asbestos-related cancers are increasing significantly, and so are lawsuits seeking damages for the cancers. Paying compensation for cancer is easy to understand in many instances. However, some groups want to go further. Thus, some constituencies are urging the UK government (Britain and Wales, for this purpose) to use legislation to change recent case law so that payments may or will be paid to persons who can be deemed to have a condition known as "pleural plaques." Plaques are marks on a lining outside the lung, and the plaques are markers of past asbestos inhalation, but do not cause any impairment except, perhaps, in unique circumstances.


These issues arise because the House of Lords issued an opinion holding that common law compensation was not payable, concluding in essene that plaques do not constitute an injury. Subsequently, the UK Ministry of Justice issued a 9 July 2008 "Consultation" paper asking for views on whether the UK government should use legislation to allow or facilitate payment of compensation to persons with pleural plaques. The UK Consultation paper is a lengthy document setting out information about the issues, and five possible alternatives for government action, with a cost estimate for each of the five proposals. The government's Consultation paper is available online at: http://www.justice.gov.uk/publications/cp1408.htm.

Many papers were submitted on both sides of the issues, and the collection will be posted here as time permits. For now, I've posted online an image of the paper I submitted in opposition to the two most extreme aspects of the proposals set out in the Consultation paper.

The UK Government is expected to submit a reply to all the papers, and the reply is expected during November 2008.

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