Asbestos claims dust will take years to settle
The deadly material has led to global payouts of $200bn but insurers are warned to boost reserves against a deluge of new claims, writes Yvette Essen
Clarence Borel was dying. The Texan worker had spent years fitting asbestos insulation and the fibres had fatally penetrated his lungs. By 1972 he was dead and his widow picked up the $79,000 damages.
Borel's success in suing asbestos-maker Fibreboard Corporation was a landmark. It was the first case in which a manufacturer was held liable for injuries caused by its product and the ruling opened the floodgates for similar claims.
They have been pouring through ever since, on behalf of an estimated 600,000 people. A total of 67 companies involved in the manufacturing of the substance have been bankrupted as a result.
The Association of British Insurers estimates that in the UK alone, insurers have paid out £300m to date for asbestos-related claims, but this is a tiny fraction of the whole.
The British Insurance Brokers' Association (Biba) puts the global payouts at more than $200 billion. Mike Williams, Biba chief executive, says: "This is the biggest single cause of insurance claims in history and, as a result, dozens of insurance companies have gone bust."
The claims are still piling in. Ten days ago, Royal & Sun Alliance became the latest victim, using £800m of the company's £960m rights issue to fund spiralling asbestos, environmental and liability claims.
Decades after the event, insurers and reinsurers around the world are having to bump up their asbestos reserves as the rampant litigation activity shows little sign of abating. In June, Equitas, the vehicle created to take over the liabilities that brought Lloyd's of London to its knees, increased its reserves for asbestos claims for the third time.
Even this will not be enough: last week, the world's three largest credit rating agencies warned that insurers will have to increase their reserves further.
Darren Michaels, a consultant at Tillinghast-Towers Perrin, a leading consultancy for advising insurance companies on their asbestos liabilities, adds: "US insurers have increased their reserves by around $10 billion since the beginning of the year and some of that will follow through to UK underwriters."
By comparison, the total losses from the World Trade Centre attack are unlikely to top $50 billion.
After the Second World War, asbestos was considered a wonder material. Cheap, durable and easily worked, it went everywhere. An excellent thermal, electrical and acoustic fireproof insulator, it was ideal for roofs, flooring and ceiling tiles, insulating boilers, ships and car brake pads.
The first lawsuits hinged on when its dangers were first realised, and the reaction of the manufacturers to the health threat. Today, blue asbestos is considered highly dangerous, causing illnesses such as mesothelioma, a cancer of the membranes in the lungs, and asbestosis, scarring of the lung tissue.
They can take decades to develop, and about 27m US workers had significant asbestos exposure between 1940 and 1979. So far about 500,000 have filed claims.
Tillinghast now puts the total cost of all claims, past and future, at $200 billion, split between companies and insurers. Such projections in the past have proved hopelessly optimistic.
The compensation culture is fuelling the claims, years after the event, and from those who have no symptoms of disease. Gillian James, of insurance broker Benfield, says: "In the mid-nineties people thought they had asbestos claims under control but the plaintiffs' bar in the US is nothing if not resourceful."
Sensing blood, lawyers have long since moved on from merely targeting manufacturers. Distributors and transporters that handled asbestos products also face personal injury allegations, as do telephone companies, computer makers, consumer product retailers and even food manufacturers.
People who have not even been directly exposed to asbestos are also turning to the courts. In March 2002, a West Virginia jury awarded US$6.4m to the family of banker Leonard Cox, who died of an asbestos-related cancer aged 52.
As a child he unknowingly contracted the disease from his father, who had worked as an insulator at a DuPont plant and had returned home every day covered in asbestos dust. "There has been a sizeable increase in the number of currently 'unimpaired individuals' who are not showing symptoms of disease," says James.
"The trend in the US is for attorney firms to present a number of unimpaired life claims together with a small number of impaired life claims and threaten to go through the courts unless all these claims are settled as a block."
So far, insurers in the UK have drawn the line at paying people who have no symptoms, a category which now accounts for four-fifths of current claims in the US. They may not be able to hold that line. David Williams of Axa says: "It is a really serious issue which we think will get worse. We think it will peak in around 2010 as asbestos was heavily used in the 1970s."
James adds that in recent years, the number of claims filed has been significantly above expectations. "A number of factors have contributed to this trend," she explains. "For example, there have been second claims from individuals who have previously made claims for 'minor' asbestos-related diseases, and have then subsequently developed more serious disease."
While people are suffering and companies are going bankrupt, the lawyers are thriving. Rand Institute for Civil Justice, a non-profit US institution, estimates that about 60pc of the money paid out goes in legal fees. US law firms advertise for potential claimants, and some place vans outside union meeting halls, offering X-ray screening.
A rare note of optimism comes from Equitas. Glenn Brace explains that guidelines introduced in 2001, demanding evidence of asbestos-related injury, have improved attitudes. "Many of the people in the US are convinced now that this asbestos claim industry harms asbestos victims, the economy and the legal system," he says.
At Axa, Williams argues that UK insurers cannot afford to follow their American counterparts' example of paying out for claimants with no symptoms.
"People are jumping on the bandwagon and are getting payments when nothing is wrong with them but we have got to save the money for the genuinely hurt people."
He wants to see an insurance pool for industrial-related diseases, funded by money from the insurers and nationalised industries.
A panel would assess claims, rather than dragging them through the courts. "As soon as someone knows there is a problem they should be able to go to the pool and get payment a lot quicker. We are going to pay out the money anyway, why not pay it out in a very quick way?"
The last word should go to Tillinghast's Michaels: "The answer to the age-old question 'What will be the next asbestos?' has become apparent. It is asbestos."
|8 September 2003: Insurers warned on asbestos reserves|
|5 September 2003: Royal admits needing ?m more reserves|
|25 April 2003: US firms agree $100bn asbestos fund|
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