Asbestos and tobacco liabilities loom

Asbestosis, tobacco and pollution related liability exposures were identified by panelists at the recently held Casualty Actuarial Society (CAS) annual meeting as being the top three risks facing U.S. insurers in coming years.

Although asbestosis claims subsided in the early 1990s, the latter part of the decade saw renewed activity, according to Jennifer Biggs, a consulting actuary at Tillinghast-Towers Perrin. “In the late 1990s, filings have gone crazy…Ultimately, the industry loss from asbestos in the U.S. could easily exceed US$40 billion.”

Recent years have seen an increase in claim filings and higher settlement amounts, she observes, largely resulting from tort reform and its impact on accelerating the time frame for filings. The role of more aggressive attorneys specializing in asbestos litigation has also been a contributing factor to the rise, Biggs surmises. In that respect, she notes that the number of defendants has risen from approximately 300 in the 1980s to several thousand today. “The defendant list continues to expand since asbestos was used in a variety of products, including yarn and thread, brake linings, to roofing materials and paints.”

A new threat on the horizon for insurers is tobacco litigation, says Phillip Miller, a consulting actuary with Tillinghast-Towers Perrin. Between 1954 to 1983, there were around 300 tobacco litigation cases filed with no sustained verdicts or paid indemnity. In contrast, the 1990s produced more than 1,500 suits, with roughly 1,225 of these pending by the end of 1999. Furthermore, there have been recent court verdicts in favor of plaintiffs which raises the question, “will the next wave of suits be a tidal wave?”

Insurer involvement in tobacco litigation has thus far been limited, Miller notes, with carriers denying that cover exists under standard policies. Other than an action taken by the Ligget Group against 33 insurers for recovery of defense costs and payments from primary, excess and umbrella, and advertising liability policies from 1970 to 1979, tobacco companies have not sought to regain compensation from their insurance companies, he observes. This, however, could change depending on the outcome of the Ligget case as well as any significant swing in favor of plaintiff actions sustained on appeal.