Silica Liability: Ready to Explode

In June, 2004, rating agency Standard & Poor’s had the property & casualty insurance industry stand up and take notice when it announced it would be adding silica and other mass torts as a discussion topic in its future credit evaluations of insurers. Given that the dangers of silica to workers have been known since the earliest part of the 1900s, it would seem far-fetched for insurers to suddenly face a rise in claims arising from silica-related litigation. And yet this is just what is happening.

On the heels of the explosion in asbestos litigation over the past decade, U.S. courts are suddenly experiencing a spike in silica-related lawsuits aimed at a host of industries and blaming industrial exposure to silica for a wide variety of ailments. A report by Claire Wilkinson and Robert Hartwig of the Insurance Information Institute (III) points to the example of U.S. Silica, which saw more than 15,000 lawsuits filed against it in the first half of 2003. This follows just over 5,100 suits filed in 2002, and just under 1,400 in 2001. The suits were filed mainly in the “plaintiff friendly” jurisdictions of Mississippi and Texas.

The S&P report speculates that “silica could be the next asbestos”, noting, “the parallels to asbestos are of concern to us”. This includes the long latency period for exposure to result in illness, the large pool of potential plaintiffs and the just as significant group of potential defendants.

In fact, a 2003 report by General Re cites 50 companies currently facing silica-related lawsuits in the U.S. “If history is a guide, silica litigation and disclosure [of liabilities] by defendants and their insurers could balloon the way the asbestos crisis has,” the S&P report comments.

COMMON ELEMENT

Silica, or silicon dioxide, is a natural material appearing in crystalline and non-crystalline form. In its crystalline form it is commonly known as quartz, and is the earth’s second-most common element. Silica is not on its face dangerous, but when acted upon can create silica “dust”, particles which when inhaled can clog the lungs making it difficult to process oxygen. The disease most associated with silica, “silicosis” comes in three forms:

Chronic, which develops after 10 or more years of low-level exposure;

Accelerated silicosis, which develops over five to ten years; and

Acute silicosis, which can develop in a few weeks or up to five years as a result of high-level exposure.

Silicosis is incurable, but also highly preventable. Guidelines on safety measures which should be taken to prevent silicosis and other silica-related diseases have been in place for decades in the U.S and Canada. Other diseases associated with silica exposure include bronchitis, tuberculosis, pulmonary fibrosis, nephrotoxicity, lung fibrosis, emphysema and even lung cancer. The World Health Organization’s (WHO) International Agency for Research on Cancer and the U.S. National Institute of Occupational Safety and Health (NIOSH) have labeled silica as a “carcinogen”.

Silica exposure is prevented through such measures as wetting down work areas to control dust and the wearing of safety equipment such as respirators. Currently the U.S. Occupational Safety and Health Administration is looking at new guidelines for acceptable levels of silica exposure, and with the new rules comes the potential for further litigation.

“It (silica dust) is produced under many different circumstances and remote exposure is common,” notes Bill Blakeney, a partner at Blakeney Henneberry Murphy. “Particles can also float for miles so it is difficult to determine the source of contamination.” He notes that a host of industries and occupations give rise to silica exposure. However, in Canada silica litigation is not viewed as a domestic concern because claims have fallen under provincially-run workers’ compensation insurance programs. For example, a 2000 outbreak of silicosis at the Hemlo gold field mines in Northern Ontario resulted in five claims being allowed under Ontario’s Workplace Safety Insurance Board (WSIB), although some sources claim as many as 14 workers were actually diagnosed with silicosis. The prevalence of silicosis actually gave rise to government compensation programs in many provinces, although these have largely been disbanded as the number of silicosis cases declines. “Obviously most of the individual silicosis claims would be picked up under WSIB coverage, and the workers would lose their right to sue their employers or any other ‘Schedule 1’ employer, including most manufacturers,” Blakeney explains.

Nonetheless, a host of Canadian companies could face cross-border exposure in the U.S., and several insurance coverage lines could be involved. The most severe silica particle exposure takes place in mining and sand blasting, but other affected industries include construction, foundry work, stone cutting, glass manufacturing, agriculture (e.g. plowing), shipbuilding, pottery, soap manufacturing, laying railroads (see chart 1).

Silicosis deaths have been on a sharp decline due to warning labels and preventative measures. U.S. deaths from silicosis have dropped from more than 1,000 a year in the late 1960s to about 200 a year today. Nonetheless, the WHO estimates more than one million U.S. workers are exposed to crystalline silica, with the potential for tens of thousands to develop silicosis.

ANOTHER ASBESTOS?

In contrasting the declining rates of silica exposure and deaths to asbestos – a U.S. National Center for Health Statistics study shows during the 1990s, asbestosis was almost five-times more prevalent than silicosis (see chart 2). And, a 2004 Centers for Disease Control study in the U.S. finds asbestos-related deaths have grown 400% to 6.88 per million between 1968 and 2000, while silicosis deaths have dropped 70% over the same period. Even John Iten, S&P’s credit analyst and author of the rater’s silica report says in an interview, “I don’t think anyone is predicting the exposure [to insurers] will be anything compared to that of asbestos.”

Barb Basta, vice president and property casualty manager for Swiss Reinsurance Co. Canada says it is too early to say if silica will become as significant an issue for insurers as asbestos. “It’s premature to draw concrete conclusions either way. We can’t disregard it as being an issue, but there are distinctions [between silica and asbestos liability] that suggest it is very unlikely to be the monumental issue asbestos is in the U.S.”

The recent spike in silica-related lawsuits falls well short of that of asbestos. A 2004 study by the Rand Institute for Civil Justice cites US$70 billion paid out on 730,000 asbestos claims between 1970 and 2002. Basta also notes that there is not the same “cause and effect” link between silica and the host of illness attributed to it as there is between asbestos and its “signature disease”, mesothelioma. She notes that while silicosis is named as the main cause of death in 55% of cases, in about 45% of cases it is listed with other contributory factors.

Other differences include the shorter latency period for silicosis, far short of the up to 40 years seen in some asbestosis cases. Also, silica requires an active process to create the particles which are linked to illness, unlike asbestos, where claims are based on simply being within breathing distance of the substance.

For Canadian companies, as well, even the cross-border exposure is likely to be less serious for silica. Asbestos manufacturing and export is a big business in Canada, specifically in Quebec, notes Blakeney. “The mining and exportation of asbestos was largely a Canadian industry, and accordingly much of the litigation [in the U.S.] was concentrated on Canadian companies and their insurers.”

Bob Muncil of Cool Insurance says the furor over silica liabilities reminds him of the same concerns raised over electromagnetic fields (EMF) 10 years ago, when insurers were discussing possible EMF exposures. “They said it might be the next asbestos, but it didn’t turn out to be.”

PLAINTIFFS’ PLOYS

Notwithstanding the fact that silica lawsuits may never reach the crisis proportions of asbestos, they are certainly on the rise according to many reports. Several high-profile U.S. cases have put the issue on the front-burner, including a 2002 Texas jury verdict for US$7.5 million in Tompkins vs. U.S. Silica which linked silica exposure to emphysema and chronic obstructive pulmonary disease.

Back in 1993, a products liability verdict of US$2.0 million was handed out in the case of Wiley v. U.S. Mineral Products Co., according to Horsham, Pennsylvania firm Jury Verdict Research. The case charged an insulation manufacturer with causing chronic silicosis and other illnesses to a female welder working around the product.

But perhaps the most noteworthy case involves the subsidiaries of Halliburton, which filed for Chapter 11 bankruptcy on the back of a US$4 billion trust fund set up to pay 21,000 silica and 400,000 asbestos claims. Halliburton has reached a non-binding agreement with its U.S. and London market insurers to cover US$1.6 million of the fund, with the deal contingent on the U.S. government not passing asbestos tort reform by January 5, 2005.

Mirroring the asbestos litigation trend, where 90% of plaintiffs are “unimpaired plaintiffs”, or people who are not even ill but have been exposed to the material, the case of Gomez vs. Humble Sand & Gravel saw a Texas jury award the claimant US$1.9 million in damages, plus costs. “The inventory of [silica suit] plaintiffs shouldn’t be that large, but it could be large if plaintiffs’ attorneys are successful,” comments Gerard Altonji, senior financial analyst for A.M. Best. He points to “plug and play” plaintiffs’ lawyers’ tactics, where in some cases the same tests conducted on the same claimants are being used in both asbestos and silicosis cases. “Yesterday it’s proof of asbestosis, today it’s proof of silicosis.”

Suits have a variety of bases: strict liability, negligence, misrepresentation, loss of consortium and involve a number of lines of insurance – workers’ compensation, general liability, products liability (premises liability suits have yet to rear their heads). The rise of silicosis suits is coming on the back of asbestos suits, sources agree, as are the growth of “mixed dust” suits which do not name the specific cause of illness. “That [mixed dust lawsuits] is actually seen as a plaintiffs’ ploy to get around the restrictions already in place for asbestos claims in some states,” Basta notes.

In fact, Basta says, the growth in lawsuits being filed may well be a case of trial lawyers trying to beat the gun on tort reform. “There is a lot of U.S. tort reform legislation in the works, at the federal and state levels. There seems to be a rush to present claims before these reforms are in place.”

In Ohio, legislation was proclaimed this year to establish medical criteria for claims to go to trial for both asbestos and silica – that state already has about 41,000 asbestos claims in the state court system and legislators hope the rules will ensure those actually showing signs of illness will become a priority. The legislation is slated to become effective September 2 this year, but trial lawyers are already trying to block this, which would require a petition signed by at least 193,000 people in the state.

The Ohio legislation, however, will do little to stem litigation because, despite the fact that Ohio experiences a high number of workers being exposed to silica, it is not considered a plaintiff-friendly jurisdiction (see chart 3). Basta notes that reforms are in the works to prevent “forum shopping” to plaintiff-friendly jurisdictions, another reason for attorneys to file suits as quickly as possible.

DEFENSE TACTICS

Despite this grim picture, there are some bright spots for defendants in silica liability cases, which includes not only direct employers, but also manufacturers of protective gear, suppliers of silica products and manufacturers of equipment used to process silica (e.g. sand blasters). Two key defense tactics have been used to date, in some cases successfully. The “sophisticated user” defense contends that, because products were labeled with warnings, industrial users are responsible for ensuring their employees are working safely with the materials, not manufacturers. The Tompkins and Humble cases will test this theory at the state supreme court level, the decisions of which will be closely watched by suppliers of silica products.

Another defense is the “bulk supplier” theory, which contends that since bulk suppliers of silica sand have placed warning labels on bags for years, they do not have a duty to warn the end user. For insurers, the future seems to be one of exclusions. While Muncil says he has yet to see such exclusions on standard business, Tom Talbot, president of The Wholesale Insurance Group, says his underwriters have seen “a fair number of exclusions by a number of companies for silica”. However, he adds, this varies greatly because some states do not appear to be allowing some exclusions. Muncil concurs, noting that workers’ compensation coverage in particular is highly regulated in the U.S. and thus insurers are bound to cover what a specific state mandates.

The ISO is currently working on a recommended silica exclusion, which it hopes to file for regulators’ approval by the end of the third quarter, confirms spokesperson Dave Dasgupta. And in Canada, the Reinsurance Research Council (RRC) is set to present recommended silica exclusion wordings to its members, says council chair Cam MacDonald (the regional vice president of Transatlantic Re). “Hopefully it will be ready for the yearend renewal season.” He points out, however, that the problem with exclusions is that they do nothing to reduce claims from prior years.

At this point, insurers have not set up reserves specifically for silica as they have done for asbestos. “The answer lies in the fact that it is an emerging issue,” comments Claire Wilkinson, III director of global issues and co-author of its silica report. “While it is on insurers’ radar screens, it’s still early to determine what the exposure will be. Only time will tell.”

However, as Iten notes in his report, “CNA added US$81 million to reserves for mass torts in the third quarter of 2003, citing elevated volumes of silica claims during the past year.” Other carriers are likely including claims thus far with environmental and other mass tort reserves, he adds. Altonji says A.M. Best has also not seen break-out numbers for silicosis claims. “My guess is there is not much going up in terms of reserves,” he says.

The future for both asbestos and silica liability will be determined to a great degree by the chances for of tort reform in the U.S., sources say. But, tort reform is a “long shot”, Iten admits, specifically at the federal level. “What Ohio passed is probably not likely to be adopted nationwide,” he adds, and individual state reform will simply increase forum shopping. And, Altonji believes the November election in the U.S. will also play a role in the viability of tort reform. “If the government changes [from Republican to Democrat], it is likely dead.”