GlobalTort : Commentary from lawyers and experts on mass torts, law, insurance and science

Saying other things are more important, FASB continues to dither on estimating contingent liabilities - see here and this brief but biting story with some great quotes at the end about FASB's delays. The low priority assigned to contingent liabilities is especially hard to understand in this age of massive corporate bankruptcies by companies which failed to reserve for future liabilities (e.g. car companies), not to mention massive frauds and/or miserable business practices. 

The topic of coping with contingent liabilities continues to crystallize for Bank of America. This week it moved forward by pushing bad mortgages into a "different" business unit (but not entity), and by selling its forced place insurance business (Balboa) to QBE, an Australian insurer. The stories are everywhere, but good ones are here and here at the NYT. These steps follow massive December and January billion dollar settlements with Fannie Mae and Freddie Mac for, in essence, fraud by Countrywide in its mortgage business. Meanwhile, lots of others are lining up and suing  the banks for selling bad mortgages, including Allstate.

Morals to the story ?

• Contingent liabilities matter, and should be fully disclosed. FASB's delays are disappointing, at best.
• Segregating liabilities and claims is perceived as desirable to take the stock market's eye off of liabilities and problems.
• Too many masters of the universe create giant messes for millions of people, but then want to take an accounting  charge and walk way.

One more note. Insurance companies, such as Allstate, constantly complain there is too much litigation by plaintiffs. But when their money is stake, Allstate is happy to be a plaintiff, as evidence by its suit against Bank of America. Actions speak louder than words.

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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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