Bankruptcy Court Treatment of Self-Insured Retentions
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.
Insurer Found Liable for Unreasonable and Vexatious Treatment of Its Insured When It Argued the Duty to Defend Would be Triggered Only After Payment of the Deductible
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.
UK Supreme Court Adopts "Exposure Trigger" and Rules that British Employers Insurers Must Pay for Mesotheliomas Arising from Exposures During Employment
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.
Virginia Supreme Court Renders Opinion Denying Coverage for Global Warming Claims
Animated Insurance Adjusters - Powerful Parodies
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.
Asbestos Insurance Coverage - Appellate Decision in NY May Cause a look into the Equitas Ploy
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.
Continental/CNA - The Latest Insurer to Seek to Limit Risks for Paying Defense and Indemnity Expenses for Asbestos Litigation and Other Third-Party Claims
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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CNA Enters into Agreement to Transfer Its Asbestos and Environmental Pollution Liabilities to National Indemnity Company |
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CHICAGO, Jul 15, 2010 (BUSINESS WIRE) -- CNA Financial Corporation (NYSE: CNA) announced today that its principal operating subsidiary, Continental Casualty Company, together with several of its other insurance subsidiaries, have entered into an agreement with National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway Inc., under which the CNA companies' legacy asbestos and environmental pollution liabilities will be transferred to NICO. Under the terms of the transaction, effective January 1, 2010 the CNA companies will cede approximately $1.6 billion of net asbestos and environmental pollution liabilities to NICO under a retroactive reinsurance agreement with an aggregate limit of $4 billion. The aggregate reinsurance limit will also cover credit risk on existing third party reinsurance related to these liabilities.
The CNA companies will pay to NICO a reinsurance premium of $2 billion and also transfer to NICO the right to collect billed third party reinsurance receivables with a net book value of approximately $200 million.
To secure its obligations, NICO will deposit $2.2 billion in a collateral trust for the benefit of the CNA companies. In addition, Berkshire Hathaway Inc. has guaranteed the payment obligations of NICO up to the full aggregate reinsurance limit as well as certain of NICO's performance obligations under the trust agreement.
NICO will assume responsibility for claims handling and collection from third party reinsurers related to the CNA companies' asbestos and environmental pollution claims. "We believe this transaction is consistent with our focus on financial stability and delivering improved levels of operating consistency as we effectively eliminate a significant source of uncertainty from these legacy liabilities" said Thomas F. Motamed, Chairman and Chief Executive Officer of CNA Financial Corporation. "This transaction will allow us to sharpen our focus even further on the execution of strategies to improve and grow our on-going core businesses." The closing of this transaction is subject to the receipt of required regulatory approvals and the satisfaction of other closing conditions. The closing is expected to occur in the third quarter of 2010 at which time CNA expects to recognize an after-tax loss of approximately $375 million. Serving businesses and professionals since 1897, CNA is the country's seventh largest commercial insurance writer and the 13th largest property and casualty company. CNA's insurance products include standard commercial lines, specialty lines, surety, marine and other property and casualty coverages. CNA's services include risk management, information services, underwriting, risk control and claims administration. For more information, please visit CNA at www.cna.com. CNA is a registered trademark of CNA Financial Corporation.
FORWARD-LOOKING STATEMENT This press release may include statements which relate to anticipated future events (forward-looking statements) rather than actual present conditions or historical events. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and generally include words such as "believes", "expects", "intends", "anticipates", "estimates", and similar expressions. Forward-looking statements, by their nature, are subject to a variety of inherent risks and uncertainties that could cause actual results to differ materially from the results projected. Many of these risks and uncertainties cannot be controlled by CNA and include the satisfaction of the conditions to closing, including receipt of regulatory approvals, whether the contemplated transaction will close, whether the other parties to the contemplated transaction will fully perform their obligations to CNA, the uncertainty in estimating loss reserves for asbestos and environmental pollution claims and the possible continued exposure of CNA to liabilities for asbestos and environmental pollution claims. For a detailed description of other risks and uncertainties affecting CNA, please refer to CNA's filings with the Securities and Exchange Commission, available at www.cna.com.
Any forward-looking statements made in this press release are made by CNA as of the date of this press release. Further, CNA does not have any obligation to update or revise any forward-looking statement contained in this press release, even if CNA's expectations or any related events, conditions or circumstances change.
SOURCE: CNA Financial Corporation CNA Financial Corporation |
Published Reports - UK Government Seeking a Deal With Unions on Pleural Plaques
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".
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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.
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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."
Global Asbestos Claiming - Report on Asbestos Litigation in Nine Nations - Munich Re's Major Compilation of Information
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.
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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.
Long Tail Torts, Insurers, Insureds and Schemes of Arrangement - Scottish Lion
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.
Signifcant Mass Tort Bankruptcy Issues in the W.R. Grace Asbestos Chapter 11 Case
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
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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.
"The real driving force was not what was happening in Judge Fitzgerald's courtroom but how long it would take to reach a conclusion through litigation," says Elihu Inselbuch of Caplin & Drysdale, who was counsel to the asbestos claimants committee. "It could easily have gone on another four years, with asbestos victims getting sick and dying the whole time."
Germany Tries to Change D + O Behavior With Limits on D + O Insurance
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.
Insurance Coverage Rulings That Will Put Grey Hairs on the Heads of General Counsels for Insureds
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.
Commentary On The Definition of Occurrence in Insurance Policies - Another Reason GCs for Insureds Get Grey Hair Managing Legacy Claims
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:
"Although the term was designed to be a clarification of coverage, it comes as no surprise to someone who represents policyholders when claims have been denied that insurance companies would have courts believe that instead, "occurrence" was designed to support coverage denials or limitations. Insurance companies also are happy to argue conflicting interpretations of "occurrence," depending on which interpretation will mean less coverage for the policyholder in the dispute at issue."
Upcoming Oral Argument in Supreme Court re the Scope of Bankruptcy Court Jurisdiction in Mass Tort Chapter 11 Cases
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.
More On: Sponsored Research - The Conundrum
"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
Tort Law & Insurance - How Much CGL Insurance Still Really Exists for Novel Risks ???
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."
Asbestos Litigation - Will the UK Reinstate Compensation for Pleural Plaques ?
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.
