England and Wales High Court (Commercial Court) Decisions

09/10/73

Borel v Fibreboard Products, 493 F.2d 1076 (District Court decision unpublished) (5th Cir. September 10, 1973), cert. denied, 419 U.S. 869 (October 15, 1974): Court of Appeals for the Fifth Circuit applied the doctrine of strict liability in asbestos disease cases and subjected producers to joint and several liability. Plaintiffs, in order to state a viable claim, need only show their exposure to defendants' asbestos or asbestos containing product and an asbestos-related disease. Federal Court decision interpreting state law in the absence of a definitive State Court decision.

25/11/77

Porter v American Optical Corp., 1977 U.S. Dist. LEXIS 12735 (E.D. La. 1977): District Court applied manifestation trigger of coverage for asbestos bodily injury claims. Federal Court decision interpreting state law in the absence of a definitive State Court decision.

04/05/78

INA v Forty-Eight Insulations, 451 F.Supp. 1230 (E.D. Mich. S.D. 1978): District Court applied exposure theory of coverage for asbestos bodily injury claims, with liability being apportioned on the basis of the relative lengths of their respective coverage. Federal Court decision interpreting state law in the absence of a definitive State Court decision.

21/10/80

INA v Forty-Eight Insulations, Inc., 633 F.2d 1212 (6th Cir. October 21, 1980). op. clarified 657 F.2d 814 (March 5, 1981): Court of Appeals for the Sixth Circuit upheld application of exposure theory and concluded that insurers have a duty to defend asbestos bodily injury claims brought against the manufacturers of asbestos. Court held that insurance liability would be pro-rated among all insurers on risk during exposure period, with the burden of any uninsured years falling on the producer. Federal Court decision interpreting state law in the absence of a definitive State Court decision.

30/01/81

Keene Corp v INA 513 F.Supp.47 (D.C. Dist.Col. 1981.): District Court applied exposure theory of coverage for asbestos bodily injury claims (i.e., the same as the decision in the INA v Forty-Eight Insulations case, not triple trigger). Federal Court decision interpreting state law in the absence of a definitive State Court decision.

08/04/81

Porter v American Optical Corp., Case No. 78-1953 (U.S.D.C. E.D. La. November 25, 1977), aff'd and rev'd in part, 641 F.2d 1128 (5th Cir. April 8, 1981). Court of Appeals for the Fifth Circuit reversed District Court's application of the manifestation trigger of coverage and applied the exposure trigger for asbestos bodily injury claims. Court expressly concurred with the Sixth Circuit's Forty-Eight Insulations decision and held that insurance liability would be pro-rated among all insurers on risk during exposure period. Federal Court decision interpreting state law in the absence of a definitive State Court decision.

14/08/81

Eagle-Picher Industries Inc v Liberty Mutual Ins. Co, 523 F.Supp. 110 (E.D. Mass. August 1981): District Court held that coverage for asbestos bodily injury is triggered when signs or symptoms become manifest, as determined by the date of actual diagnosis or, with respect to those cases in which no diagnosis was made prior to death, the date of death. Federal Court decision interpreting state law in the absence of a definitive State Court decision.

01/10/81

Keene Corp. v INA, 513 F. Supp. 47 (D.C.C. January 30 1981) rev'd 667 F.2d 1034 (D.C. Cir. October 1, 1981): Court of Appeals for the District of Columbia Circuit applied a triple/continuous trigger of coverage for asbestos bodily injury claims. In doing so, the Circuit Court reversed the decision of the District Court limiting coverage to the exposure period. Federal Court decision interpreting state law in the absence of a definitive State Court decision.

04/12/81

Commercial Union Ins. Co. v Pittsburgh Corning Corp. (E.D. Pa. 1981) 553 F.Supp. 425: District Court applied the exposure theory of coverage to asbestos bodily injury cases, holding in addition that the primary insurer owed an unlimited duty to defend despite exhaustion of liability limits. In 1988, in the case of Pittsburgh Corning v Travelers, cited below, the same court broadened its decision to incorporate continuous trigger, following Keene. Federal Court decision interpreting state law in the absence of a definitive State Court decision.

07/12/81

INA v Forty-Eight Insulations, Inc., 633 F.2d 1212 (6th Cir. Mich. October 21, 1980), op. clarified, 657 F.2d 814 (March 5, 1981), cert. denied, 454 U.S. 1109 (December 7, 1981): US Supreme Court denial of petition for writ of certiorari.

07/12/81

Porter v American Optical Corp., Case No. 78-1953 (U.S.D.C. E.D. La. November 25, 1977), aff'd and rev'd in part, 641 F.2d 1128 (5th Cir. April 8, 1981), cert. denied, 454 U.S. 1109 (December 7, 1981): US Supreme Court denial of petition for writ of certiorari.

08/03/82

Keene Corp. v I.N.A, 513 F. Supp. 47 (D.C.C. January 30, 1981), rev'd 667 F.2d 1034 (D.C. Cir. October 1, 1981), cert. denied, 455 U.S. 1007 (March 8, 1982): US Supreme Court denial of petition for writ of certiorari.

Also, on the same day, US Supreme Court denied rehearing of prior denials of petitions for writs of certiorari in Porter v American Optical Corp. 455 U.S. 1009 (March 8, 1982) and INA v Forty-Eight Insulations, Inc. 455 U.S. 1009 (March 8, 1982). The US Supreme Court denied a rehearing in Keene on 26 April 1982, 456 U.S. 951 (April 26, 1982).

30/06/82

Eagle-Picher Industries. Inc. v Liberty Mutual Ins. Co., 682 F.2d 12 (1st Cir. June 30, 1982): Court of Appeal for the First Circuit affirmed the District Court's application of the manifestation theory of coverage for asbestos bodily injury claims, rejecting Keene, but modified the appropriate definition of "manifestation date" to be not when the disease was actually diagnosed but when it becomes reasonably capable of medical diagnosis. Remanded to District Court for factual investigation as to when manifestation occurred. In August 1984, on remand, the District Court determined that asbestos-related disease becomes reasonably capable of medical diagnosis "six years prior to the date of actual diagnosis". Federal Court decision interpreting state law in the absence of a definitive State Court decision.

07/03/83

Eagle-Picher Industries. Inc. v Liberty Mutual Ins. Co., 682 F.2d 12 (1st Cir. June 30, 1982), cert. denied, 460 U.S. 1028 (March 7, 1983): US Supreme Court denial of petition for writ of certiorari.

13/06/83

American Home Products v Liberty Mutual Ins. Co., 565 F. Supp. 1485 (S.D.N.Y. 1983): The District Court refused to apply Keene to a DES case, criticizing Keene as "result-oriented" and instead applied an "injury-in-fact" trigger focusing on when disease was diagnosable and compensable. Federal Court decision interpreting state law in the absence of a definitive State Court decision.

07/07/83

Emons Industries, Inc. v. Liberty Fire Ins. Co. United States District Court, S.D. New York 567 F.Supp. 335 (S.D.N.Y., 1983): DES case. A denial of a motion for summary judgment. In doing so the Court criticized the Keene decision on the grounds that the manifestation trigger is not an unreasonable trigger of coverage for long term disease claims. Federal Court decision interpreting state law in the absence of a definitive State Court decision.

02/08/83

Crown, Cork & Seal Co., Inc v Aetna Casualty and Surety Co., No 1292, slip op. (Court of Common Pleas, Philadelphia August 2, 1983) (Mealey's, Asbestos Litigation Reporter, 12 August 1983 page 7,022): Pennsylvania State Trial Court, in an unpublished decision, triggered all policies in effect during exposure, exposure in residence or manifestation to indemnify and defend the insured, following Keene. A first instance State Trial Court decision and so not binding on any other court (i.e., without stare decisis, decided case status).

25/11/83

AC&S, Inc v Aetna Casualty and Surety Co., 576 F. Supp. 936 (E.D. Pa. 1983): District Court followed Keene and held that coverage was triggered by exposure, exposure in residence and manifestation and that the duty of liability insurer to defend is separate from, and broader than, the duty to indemnify, and insurers must continue to defend their insureds even after exhaustion of policy limits. Federal Court decision interpreting state law in the absence of a definitive State Court decision.

13/11/84

American Home Products v Liberty Mutual Ins. Co., 565 F. Supp. 1485 (S.D.N.Y. 1983), aff'd as modified 748 F.2d 760 (2d Cir., 1984): The Court of Appeals for the Second Circuit affirmed the District Court's choice of "injury-in-fact" but disagreed with the District Court's finding that "injury-in-fact" was the same as "diagnosable" or "compensable" and remanded the case to the District Court for further proceedings to determine when "injury-in-fact" occurred. Federal Court decision interpreting state law in the absence of a definitive State Court decision.

21/11/84

Owens Illinois, Inc. v Aetna Casualty & Surety Co. 597 F. Supp. 1515 (D.D.C. 1984). District Court bound by Circuit Court decision in Keene. Applied triple trigger theory of coverage for asbestos bodily injury claims. Federal Court decision interpreting state law in the absence of a definitive State Court decision.

22/03/85

Vale Chemical v Hartford Accident and Indemnity Co. (Pa. Super. Ct. 1985), 490 A.2d 806, rev'd. on other grounds, 17 October 1986, 516 A.2d Pennsylvania: Pennsylvania Intermediate Appellate Court found DES claims implicated continuous injury from ingestion to discovery of cancer in offspring and triggered all policies in effect during the time frame, following Keene. The Pennsylvania Supreme Court reversed on procedural grounds, erasing the intermediate and lower court decisions as precedents.

17/06/85

AC&S, Inc v Aetna Casualty and Surety Co., 576 F. Supp. 936 (E.D. Pa. 1983), 764 F.2d 968 (3rd Cir. June 17, 1985): Court of Appeals for the Third Circuit affirmed the District Court's decision that exposure, exposure in residence and manifestation all trigger coverage, following Keene, but overturned the District Court's decision that there was an unlimited duty to defend, holding that an insurer has no duty to defend if it is established at the outset of the action that the insurer cannot possibly be liable for indemnification because policy limits have been exhausted (explicitly refusing to determine whether or under what circumstances an insurer may terminate its defense of a claim in "mid-course"). Federal Court decision interpreting state law in the absence of a definitive State Court decision.

23/07/85

Commercial Union Insurance Co. v Sepco Corp., 765 F.2d 1543 (11th Cir. July 23, 1985): Court of Appeals for the Eleventh Circuit upheld exposure trigger of coverage, following Porter. Federal Court decision interpreting state law in the absence of a definitive State Court decision.

31/07/85

Lac D'Amiante du Quebec, Ltee. v American Home Assurance Co., 613 F. Supp. 1549 (D.N.J. July 31, 1985): District Court in New Jersey adopted the continuous/triple trigger of coverage for asbestos property damage and bodily injury claims. Federal Court decision interpreting state law in the absence of a definitive State Court decision.

02/12/85

Hancock Laboratories, Inc. v. Admiral Ins. Co., 777 F.2d 520 (9th Cir. 1985): Coverage dispute arising from allegedly defective heart valves. Court of Appeal for the Ninth Circuit rejected Keene theory on the grounds that it was adopted because it was difficult to discern from medical evidence when and how an injury occurs from asbestos inhalation. Instead, it applied the exposure theory, holding that the bodily injury occurred when the defective heart valve was implanted. Federal Court decision interpreting state law in the absence of a definitive State Court decision.

14/02/86

Aetna Casualty & Surety v Abbott Laboratories, Inc., (D.C. Circuit) 636 F.Supp. 546: District Court in Connecticut applied an "injury-in-fact" trigger of coverage to a DES case.

03/04/86

Standard Asbestos Manufacturing & Insulating Co. v Royal Indemnity Ins. Co., No. CV-80-14909, slip op. at 9 (Mo. Cir. Ct. Jackson Co. April 3, 1986) (Mealey's Litigation Reports, Insurance, 1986, page 2,424): Missouri State Trial Court, in an unpublished decision, triggered policies in effect at the time of injurious exposure only ("injury-in-fact"), rejecting Keene and following INA v Forty-Eight Insulations.

The Court commented in regard to the asbestos coverage issues: "One of the problems in insurance law is that it is result oriented. In an effort to compensate litigants, the courts have manipulated concepts of contract law and interpretations of insurance contracts and have vastly expanded theories of liability and contractual relationships. While the motive may be laudable, the result is that there is no stability in the law and no one can predict the result in any given case." A first instance State Trial Court decision and so not binding on any other court (i.e., without stare decisis, decided case status).

09/05/86

Abex Corp. v Maryland Casualty, 790 F.2d 119 (D.C. Cir. May 9, 1986): Court of Appeals for the District of Columbia applied "injury-in-fact" as trigger, refusing to follow Keene because it recognised that a different rule would result under New York law, and following the American Home Products case. In the Abex case the Court was concerned with interpreting New York law. The panel of the Court of Appeals for the District of Columbia Circuit expressed disagreement with the same Court's earlier decision in Keene. Federal Court decision interpreting state law in the absence of a definitive State Court decision.

27/05/86

Zurich Insurance Company v Raymark Industries, Inc, 145 Ill. App. 3d 175, 494 N.E. 2d 634: Appellate Court of Illinois upheld the trial court's decision that insurance coverage for asbestos-related claims was triggered both by exposure and by manifestation but not exposure in residence (although the court did affirm the trial court's finding that if, during the "pre-disease" state, an individual "suffers from a disordered, weakened or unsound condition but it has not yet progressed to the point of impairment", he may be classified as having "sickness", which would trigger liability) ("dual trigger"). However, the court overturned the trial court's decision that insurers had a duty to defend claims even after the limits of their policies were exhausted by the payments of judgments or settlements, even in respect of pending claims. Federal Court decision interpreting state law in the absence of a definitive State Court decision.

21/01/87

Clemtex, Inc. v Southeastern Fidelity Insurance Co., 807 F.2d 1271 (5th Cir. January 21, 1987): Court of Appeals for the Fifth Circuit, in considering the applicability of deductibility provisions, was not asked to rule on the District Court's determination that the exposure trigger of coverage applied to silicosis under Texas law. Federal Court decision interpreting state law in the absence of a definitive State Court decision.

23/04/87

Clemco Industries v Commercial Union Ins. Co 665 F. Supp. 816, 830 (N.D. Cal 1987), aff'd mem., 848 F.2d 1242 (9th Cir 1988): Silicosis claim applying the exposure trigger and holding that insurer did not act in bad faith by refusing to embrace exposure theory, as law remained unsettled and unclear. Federal Court decision interpreting state law in the absence of a definitive State Court decision.

29/05/87

In re Asbestos Insurance Coverage Litigation, (Armstrong World Industries, GAF, Fibreboard), tentative decision in Phase III, ultimately incorporated in the final decision entered 24 January 1990, California Superior Court, City and County of San Francisco, Judicial Council Coordinated Proceeding, (No.1072), aff'd. Armstrong World Industries 45 CA 4th 1 (Cal. Ct. App. 1996):

The Court applied a Keene type result following its own distinctive analysis of the policy wording and broadened the period of continuous trigger found in Keene, to include the period from first exposure to asbestos or asbestos-containing products until date of death or date of claim, whichever occurs first. The Court followed Keene in requiring any insurer on risk during continuous injury to pay the entire claim up to policy limits, allowed the insureds to choose which insurer would be obligated to defend and relieved the insureds of responsibility for any uninsured or self-insured periods. In addition, the Court held that insurers were not required to defend actions, or even to continue to defend pending cases, once policy limits have been exhausted, although the cost of providing a defense does not reduce primary policy limits. State Superior Court first instance decision.

14/09/87

Zurich Insurance Co. v Raymark Industries, 514 N.E.2d 150 (Ill. Supreme Court, September 14, 1987): The Supreme Court of Illinois affirmed the lower courts' findings that coverage attaches upon bodily injury, which the Court determined is concurrent with exposure, or disease, which the Court determined is diagnosability (i.e., "dual trigger) as well as sickness, which the Court determined is ill-health, a disordered, weakened or unsound condition, but not exposure-in-residence. The Court also upheld the appellate court's finding that there was no unlimited duty to defend. State Supreme Court, so binding upon Courts in that particular State.

16/09/87

Eagle-Picher Industries, Inc. v American Employers Insurance Co.,685 F. Supp. 9 (D. Mass. 1986), appeal after remand, 829 F.2d 227 (1st Cir.1987): Court of Appeals for the First Circuit affirmed and modified the District Court's decision on what constitutes manifestation. The Court of Appeals upheld the District Court's finding that manifestation is six years before the actual date of diagnosis, but allowed an insurer to bring evidence to show otherwise. Federal Court decision interpreting state law in the absence of a definitive State Court decision.

20/01/88

Pittsburgh Corning v Travelers Indemnity Co., Civ.A. No. 84-3985 E.D. Pa. 1988, 1988 WL 5291 and 5301: In the decision reported at 1988 WL 5291 the District Court for the Eastern District of Pennsylvania determined that coverage for asbestos property damage is triggered at the time of discovery. In the decision reported at 1988 WL 5301, the District Court determined coverage for asbestos bodily injury, sickness or diseases is triggered "if any part of the injurious process... from time of exposure to time of manifestation... occurred within" the policy period. Federal Court decision interpreting state law in the absence of a definitive State Court decision.

28/12/88

Lac D'Amiante du Quebec, Ltee. v American Home Assurance Co 613 F. Supp. 1549 (D.N.J. July 31 1985)., vacated on other grounds, 864 F.2d 1033 (3d Cir. Dec. 28, 1988): Court of Appeals for the Third Circuit reversed the District Court with instructions to dismiss this action, and ruled that the District Court should have abstained from exercising jurisdiction. The lower court decision was questioned in the Third Circuit Court of Appeals' decision, but no conclusion was reached.

00/00/64

The Occurrence of Asbestosis among Insulation Workers in the United States.
Published by Dr Selikoff, Churg & Hammond. Ann. N.Y. Acad. Sci. 132, 139.

00/10/64

International Conference on the Biological Effects of Asbestos.
To review the data and discuss the problems, sponsored by The New York Academy of Sciences.

27/11/77

Asbestos-Associated Disease in U.S. Shipyards.
Prepared by I.J. Selikoff and published in 1978 March/April issue of the Cancer Journal.

26/04/78

Califano Statement on the Health Effects of Asbestos.

J. Califano, U.S. Secretary of State for Health issues a formal statement advising of the risks associated with exposure to asbestos. Two thirds of all asbestos was used in the construction industry, with ship construction having an especially high use. It is estimated that 20-25% of workers exposed to asbestos before the era of Government regulation die of lung cancer, 7% die of asbestosis, 7-10% of mesothelioma and 8-9% of gastro-intestinal cancers. 4.5 million persons worked in shipyards during World War 2,

and it is estimated that 500,000 to 1.4 million since the War. Other industries in which there has been significant exposure to asbestos included asbestos mining and processing; construction work involving insulation; building demolition; roofing; and automotive work in brake and clutch lining installation and repair.

00/00/78

Attorney H. Draft Report. Asbestosis Disease and the Liability of Manufacturers of Asbestos Insulation Products.
Disease caused by asbestos is rarely manifested in less than 10-20 years from exposure. It has become widely accepted that a manufacturer is held accountable for a product which proves to be unreasonably dangerous.

The concept of strict liability has gained rapid acceptance in the US. It was first applied to a case of asbestosis by the Federal District Court in Texas in the case of Borel v Fireboard Paper Products Corp. This case precipitated most if not all of the later cases. In this case the Court examined the history of the disease developed by medical testimony and concluded that the dangers of asbestos had been recognised for well over 50 years. It also cited the testimony of Dr Selikoff. In relation to damages, the Defendants argued that the Plaintiff was unable to show with any degree of precision how much damage was attributable to any one product and therefore recovery should be denied. However, the Court held that "where several Defendants are shown to have each caused some harm, the burden of proof ... shifts to each Defendant to show what portion of harm he caused. If the Defendants are unable to show any reasonable basis for division, they are jointly and severally liable for the total damage". Nor was the case statute-barred because the cause of action should not accrue until the injury could with reasonable diligence have been discovered. The Circuit Court later affirmed the decision of the District Court and the motion for a re-hearing was denied. The Certiorari was denied by the US Supreme Court. The Borel case was followed in the case of Karjala v Johns-Manville tried by a Federal District Court in Minnesota.

Attention must now be focused upon the insurance coverage problems that are arising from the Court decisions. The most immediate problem is which year shall be charged with the loss. Is it the year when the action is started, the year when the disease manifests itself, the year of first exposure, the year of diagnosis or some combination of the above? "As at this writing I have not uncovered any prior judicial opinion which may be used as guidance or authority, persuasive or otherwise, under the circumstances". The manifestation date is the simplest solution. Whether or not this will be adopted by the Courts remains to be seen. It may be decided in one or two cases being brought by Assured 16. The policy concerned expired on 31 October 1972 and so would not be effective from a manifestation viewpoint.

Once the loss date issue has been resolved attention must be focused upon the application of aggregate coverages during a given policy year. As for what the future has in store, a bill has been introduced into the House of Representatives in the US but it is sheer speculation to guess what will emerge from this. "Insofar as the filing of cases is concerned, that seems to have peaked out, and conceivably from here on in we shall see a reduction in filings. I hasten to add, however, that there is no current clear-cut trend evidencing such a fact".

24/08/78

Attorney H letter to Underwriters at interest Re Assured 3B.
Reports on INA's unsuccessful application for declaratory order against Forty-Eight Insulations Inc. The Court held that there was damage during each of the periods of coverage and that accordingly each insurer at risk at the time the damage occurred was the primary insurer. The Court therefore adopted the exposure theory. The attorneys continue that, in view of the finding in the INA case, loss data must be compiled from both an exposure and from a manifestation and/or diagnosis approach, at least until such time as appellate procedures in both the INA and Hartford cases have been exhausted, and hopefully the courts will find a unified approach. To prepare for this eventuality, they recommend that underwriters establish an arbitrary reserve of $200,000 for each year of account.

SI

22/12/78

Wall Street Journal: Group claims millions of school children have been exposed to asbestos hazard.

25/06/79

Business Insurance: Insurers Recoil in Wake of Asbestos Claims.
"Plagued by a massive amount of litigation over injuries to asbestos workers, most insurers have stopped underwriting the trouble-maker and, once burned, are taking a harder line on other product risks, especially hazardous materials. "Hopefully we have learned the lesson that insurers have to learn" said John J. Dwyer, National Account Director for Aetna Life and Casualty. The lesson: definitive data can, because of something external to the insurance relationship, be thrown off ... The asbestos claims could eventually be removed from litigation if a compensation board is established to handle future claims as proposed by U.S.

Rep. Millicent Fenwick whose home district includes a major facility of Assured 1, the nation's largest asbestos producer. Under Ms. Fenwick's scheme, the government would pay asbestos claims from the time the law is enacted through the end of that year. The government could then sue the manufacturers for claims paid during that interim period explained Lawrence Rosenshein, her aide. Future claims would be paid by the compensation board from funds collected from asbestos producers, manufacturers of products containing asbestos and the tobacco industry, since smoking increases the likelihood of someone exposed to asbestos contracting asbestos or other disabling diseases. For asbestos producers, the fund's assessment would be 2% of sales for the corresponding quarter 15 years prior. Manufacturers of products containing asbestos would be assessed 1% of sales and there would be a levy of three-tenths of 1% of sales against tobacco manufacturers."

00/07/79

Document entitled "Reserving Asbestosis Claims for London Insurers" concerning a meeting held at the offices of Attorney H on Tuesday, 19 June 1979 at the request of London Underwriters.
Attended by the representatives of Attorney H, Attorney K, Attorney I and Attorney G. Recent developments in the asbestos litigation field were discussed. Two new declaratory judgment actions have been brought by Assured 3B and Assured 10 against Lloyd's Underwriters and other insurers in California and Florida as to when coverage attaches for the asbestosis claims. US Courts of Appeal are currently deciding other actions involving when coverage attaches for asbestosis claims. The US attorneys present at the meeting listed the asbestos manufacturing companies and producing companies directly insured in the London market. A lengthy discussion then followed as to an evaluation of a probable exposure to each of these assureds for their asbestosis claims. It was commented inter alia that

both verdicts and settlements in the future would be more expensive. Also that certain extremely unfavourable evidence had been discovered in some of the asbestos cases showing that certain assureds had attempted to discourage the dissemination of knowledge concerning the dangers of asbestos.

US attorneys make a joint recommendation that the direct London insurers establish a gross reserve of $75,000 on each of the asbestosis claimants. This would relate to each claimant but not to each assured (most claimants have brought claims against multiple defendants). Assured 1 itself has been excluded from the recommended reserves because it did not become directly insured in the London market until 1978 and because (due to its central position in the asbestos litigation) it involves special considerations. The reserve figure does not purport to apply to reinsurance interests.

In summary the US attorneys say that "the one certain fact about the asbestos litigation is that at present we cannot estimate the number of claims that will eventually be brought against your assureds". Some experts believe the number and severity of claims will peak "within the next year or two". Others estimate that more than 2 million people will die from asbestos-related cancer.

The report stated inter alia: "We do know that the number of law suits has increased dramatically each year since 1973"

19/09/79

Letter from Attorney H to Attorney G. Reserving Asbestosis Claims.
"Confirming our telephone conversations, Underwriters agree with [the recommendation of the US attorneys] that the direct London insurers establish a gross reserve of $75,000 on each of the asbestosis claimants. However, because of their direct excess participation on Assured 1, they desire that Assured 1 be carried at 20% and that the following reductions be made ... 20% for Assured 1 is $15,000 thereby bringing the total to $75,000. Underwriters say that we all recognise that this provisional basis of apportionment will only hold good pending discovery process on various accounts but they are content to accept year end reserving applying this formula as an interim measure ..."

13/11/79

Financial Times: Scale of awards goes soaring.

21/11/79

Attorney K Report to Underwriters at interest (c/o Sedgwick Forbes N.A Ltd.) Re: Assured 15.
"Since our last report, an additional 900 cases have been filed against the insured and are reflected on the bordereau ... Generally speaking, asbestos related litigation is increasing dramatically and is receiving national attention in the media ...

The latent and slowly progressive nature of an asbestos related disease has created an unsettled state in the area of insurance law. The issue in need of resolution is which insurer is obligated to defend and indemnify the asbestos manufacturer for injuries resulting from the inhalation of asbestos fibres ... Nearly all other manufacturers who have stated their position in various court actions, and numerous other insurers, have joined with the Travelers Indemnity of Rhode Island Insurance Company and Forty-Eight Insulations in adopting the exposure theory or a variation thereof, and in rejecting the manifestation theory...

The action between Forty-Eight Insulations and its insurers is a lead case in the asbestos litigation throughout the country. It is the only declaratory judgment case that has been tried, and therefore, is the only case on appeal. We are closely monitoring this situation and once the Appellate Court announces its decision, we shall immediately notify Underwriters regarding the court's ruling ...

We suggest that Underwriters maintain a $40,000 Attorney K expense reserve herein. We also suggest that Underwriters establish a $260,000 loss reserve, from the ground up, as to each of the years they were at risk. In our view, Underwriters' estimated total exposure, from the ground up, is $3,900,000 because they insured Assured 15 during 15 of the past 30 years.

As a result of our previous discussions with Underwriters, it was determined that the estimated damage to each claimant was $75,000 and that Assured 15's share is $6,000 per claimant ..."

SI

10/12/79

Letter from C J Ayliffe to E E Nelson Chairman, Non-Marine Association, Lloyd's Underwriters Non-Marine Association.
"I have been expressing concern at a number of declaratory relief actions which have been filed against underwriters at Lloyd's arising out of the long term product situation which currently faced the market. This problem surfaced in regard to asbestosis when we were faced with suits filed by the two insureds in circumstances where the domestic first excess layer adopted a different view on the attachment of loss than that which had been up to then adopted by the primary carrier. The result was that the insureds, having been denied ongoing reimbursement, were left with little alternative other than to file suit. Interestingly enough in the suit filed in respect of Assured 3B and Assured 6 the insureds were taking contrary views in pleading their case with their carriers, and it became apparent that in the interests of this market it would be helpful if we could reach a common approach to attachment throughout the Lloyd's market to enable us to respond. Although many discussions took place at that time it ultimately proved impossible to get a common approach in the market and, as you are aware, the markets split into two camps: One supporting the manifestation approach and the other that of exposure. As a result of this split in the market it became necessary for each view to be separately represented in the ongoing handling of the defence preparation and to this extent the market is now incurring a duplication of legal expense and effort ... a more recent development, but basically an extension of the same problem are the losses we have outstanding in connection with DES ... it was with this developing background that I called an informal meeting last week of claims settlers to discuss whether it is possible to arrive at some method whereby we can respond to the insureds' need and yet at the same time preserving the basic issue of where attachment ultimately should fall ... Whilst it was fully appreciated that in any discussions of this nature there could be no market mandate it was nevertheless recommended that a small Working Party be set up who would have the authority to explore, both with the insureds and domestic companies, some form of solution that would eliminate the proliferation of Declaratory Relief suits by reason of the industry's inability at the present time to provide indemnity to many long standing accounts in this market."

SI

28/12/79

Attorney G c/o Joseph Hadley (Insurance) Ltd to Underwriters at Lloyd's Re: Assured 4.
Difficult to ascertain the precise coverage provided by underwriters to the assured. In turn it has been difficult to obtain the requisite claims investigation from the assured. The attorneys ask for authority from underwriters to acknowledge coverage to the assureds for certain periods and layers for which there is no written documentation.

To date there has been 363 individual claimants who have filed 336 law suits against the insured (most of which are in the preliminary stages).

The attorneys note that asbestosis cases as a class manifestly represent grave potential exposure to asbestos producers. However, it does not appear that this Assured will be one of the truly major defendants. It is difficult to set reserves because it is uncertain the theory of coverage which will be applied. If "manifestation" "we do not believe that underwriters will be required to make any loss payments on behalf of the Assured". If "exposure" then underwriters will be required to make "substantial loss payments".

Estimate that 1,200 new claims will be brought against the assured in the next few years.

SI

31/12/79

Syndicate 604/605 (1979 Report).
"With the inclusion of reserves for these claims the reinsurance to close now involves a premium in excess of £17,000,000 being paid from the 1977 Account to 1978 Account. This sum covers all outstanding liability on closed years and included among its many items are Asbestosis and the drug "DES", for which reserves have been carried for a number of years."

07/01/80

Attorney G to the Interested Insurers Re: Assured 18.
The number of claims filed against the Assured has increased dramatically and it will be named in a substantial number of future claims. Because of this the attorneys are now of the opinion that it would be prudent for underwriters to establish a loss payment reserve for each of the 13 years when they are on risk for this assured. They have still not been able to obtain complete information or documentation as to the details of coverage provided by underwriters.

Since the last report an additional 33 asbestos related lawsuits involving 437 individual claims have been filed against the assured. Therefore total asbestos claims = 43 suits with 471 individual claimants.

The asbestos related claims as a class clearly represent serious potential exposure to the asbestos producers of the past 30 years. Establishing reserves difficult due to uncertain attitude of American courts (as between exposure and manifestation theories of coverage). Reserve figure of $75,000 set at meeting of London insurers American counsel in New York in June 1979 (this assured to bear a 2% portion of this reserve or $1,500 for each claim. Therefore recommend gross exposure reserve of $2,868,000 (based on an estimate of 2,500 claims including PVC and SBR of which assume 90% will be asbestos-related).

The report contains the following passage: "If .. American courts adopt an exposure theory of coverage then we believe that Underwriters could be required to make substantial loss payments under their policies on this assured."

The figures relate to the liability of a single assured, namely Assured 19.

SI

08/01/80

Attorney H to Underwriters at interest Re: Assured 1.
Preliminary reserve has been agreed of $75,000 per asbestos claimant, (20% of which ascribed to Assured 1), that is $15,000 per claim. This is strikingly close to the average contribution made thus far on behalf of Assured 1 in settled cases. The litigated cases present a different picture. Four cases tried in December 1979 resulted in damages of $435,000 per plaintiff. These Virginia cases were also interesting because a Federal Judge ruled that the US Government was not liable to asbestos manufacturers for injuries to shipyard workers at the Norfolk Naval Ship Yard.

"... the Travelers' reserves are structured on the "exposure" theory which approach is concurred in by Assured 1 ... Reserves from a manifestation approach ... would at most be minimal as far as underwriters are concerned."

Lastly, the loss date issue is no closer to resolution than it was 12 months previously. INA v Forty-Eight Insulations is still before the Sixth Circuit Court of Appeal (exposure). The Fifth Circuit Court of Appeal has not yet scheduled arguments in Porter v American Optical (manifestation).

23/01/80

Telex from Attorney H to Sedgwick Forbes.
The Travelers and Assured 1 have agreed to the application of exposure theory for loss attachment purposes. Reserves Travelers established in accordance with this theory set forth in report without comment, as we have not as yet accomplished a review of the 4,000 plus pending actions. Underwriters' policies recited can only be involved if exposure theory becomes law of all asbestos cases. This issue is still unresolved. Additionally Travelers has taken posture its policies (sic) for years 1951 through 1953 written on aggregate basis, but as we pointed out this also in doubt. Therefore in view severe question regarding loss date and question regarding aggregates for years 1951 through 1953, concluded best approach would be to leave it to each Syndicate's discretion whether or not to establish reserves consonant with those established by Travelers or on some other basis, each of which at this time could be equally appropriate.

SI

21/03/80

Attorney H report to Underwriters at interest (c/o Messrs. Willis Faber & Dumas Ltd.) Re: Assured 3A/Assured 3B.
"On the claims side, Assured 3B continues to settle cases where the plaintiff is able to establish (1) asbestos related disease, and (2) exposure to one or more Assured 3B products, on a per average claim of approximately $4,000.

Defensively, the principal argument is still that the manufacturer's knowledge was such that prior to Dr Selikoff's report of 1964, the industry was not aware of undue exposure to insulation workers from the use of asbestos-containing products. In substance, what Dr Selikoff's report revealed was that the then considered threshold limit value of 5,000,000 pp/cu. ft. of air was too high and that insulation workers were at risk. Commencing in 1965, they placed warning labels on their products cautioning against the inhalation of dust particles and if adequate ventilation was not possible, to wear a respirator .... The claims continue to come in at a rate of approximately 100 per month and it has been estimated that this may continue for an appreciable time into the future ..."

SI

27/03/80

Memorandum from C J Ayliffe to R A G Jackson. Handling of asbestosis claims in the Lloyd's market.
"We are advised by most major insureds that the frequency of loss reports will continue at much the current levels for at least 5 years to come, and, to be realistic, if we accept this information as reliable, it would appear that we should now be calculating what the ultimate cost would be to the Market some 5 years hence. So far reserve recommendations for the market have been based upon cases which are presently known. Attorney G, who is now involved in reviewing the re-insurance of the Home for the account of Assured 1, are seeking guidance and support from the market as to their putting up reserves which do take into account a projection of something in the region of 4 years ... The other problem which presently exists is that although we have only 5,000 cases in suit at the present time most cases name all the major companies with whom we are involved ..."

"Not unnaturally the size of the figures that would then be recommended would be very large. Inevitably the impact of projected reserves on our Market would be substantial and I feel that it would be extremely difficult for the leads to make this type of determination by reason of the implication it carries."

07/04/80

Business Insurance Assured 1 Sues 27 Insurers in Asbestos Risk.
"Assured 1 filed suit in the superior court on March 31 seeking damages from the Home Insurance Company for denying coverage and an order for insurers to provide coverage .... Assured 1's suit in San Francisco asks the court to determine how 27 insurers should respond in the cases pending against the company. The issue is whether the claims should be handled on an exposure theory or a manifestation theory..."

09/04/80

Letter from Lumley, Dennant & Company Inc. (Signatures on it indicate wide circulation).
"We enclose a copy of the letter dated 6th December 1979 to the above assured (Assured 7) which is self explanatory and which we believe comes about because of the possibility of asbestosis claims being made under the Umbrella coverage which has been written for a number of years."

SI

14/04/80

Business Insurance: 9 accept asbestos settlements.

24/04/80

Lloyd's List: Court rulings may provoke claims flood.
A recent decision by the California Supreme Court may hit the London Insurance Market. Several Lloyd's Syndicates have already began to increase their reserves to meet asbestos claims. The case (which concerns the drug DES) established "industry wide" liability. There is no need for the person injured to identify specifically the manufacturer of the product as long as the harm has been proved. One of the main problems for insurers is that the illness often does not show itself for many years. Notes the comments of David Mackintosh and Bernard Seigne of Davis, Arnold & Cooper in Product Liability International Magazine: They have handled upwards of 1,200 asbestos cases during the last fifteen years and are now involved in about 360. "The unfortunate message to be read from a UK experience of asbestosis claims is that the US explosion is likely to be even larger than has been predicted to date and that it will inevitably include many borderline cases which will need defending on diagnostic grounds".

30/04/80

Letter from Stephen Merrett to Names enclosing accounts of the syndicates as at 31 December 1979.
RAG Jackson mentions in his report the insurance industry's delayed recognition of substantial exposure to losses, perhaps in years "closed" a long time ago, related to the asbestosis problem.

"You may have seen or heard comment on recent activity in the United States Courts on the filing of numerous suits and in particular on attempts to determine whether the liability of insurers is on policies current at the time when the claimant began to contract the disease by his "exposure" to the dust, or on the policies current when the claimant became aware of his disease by its "manifestation". If "exposure" is adopted there may be many claims made on policies current in the 1940's or even earlier, and it is inevitable that some insurers will have made inadequate provisions for such losses against those years. It would be prudent to suppose that other substances or work processes will increasingly be found by Courts to have damaged employees and others, and the exposure of the insurance industry to third party actions and Employers' Liability Workmen's Compensation claims against policy holders is very considerable indeed."

SS

03/05/80

Attorney G to the Interested insurers Re: Reinsurance of the Home Insurance Company first and second casualty excess of loss treaties. Assured: Assured 1.
Present opinion is that excess reinsurers are at risk of grave exposure on both first and second casualty excess of loss treaties in the period 1963 - 1974. As of March 1980 there were 4,323 claims in suit against Assured 1. 196 cases closed with an aggregate loss payment of $2,938,548 = average loss of $14,993 per case. New claims are being brought on the average of 100 per month. Both the Assured and its primary insurers between 1947 - 1976 (The Travelers Insurance Company) have adopted an exposure theory of coverage for asbestos-related bodily injury claims. Asbestos cases as a class represent a serious potential exposure to asbestos producers, the cases against such producers being "convincing".

There are difficult problems in reserving for asbestos claims:
(i) it is uncertain what principle of coverage will be adopted by the American courts;
(ii) the position on underlying aggregates is unclear;
(iii) it is unclear whether the Assured's deductibles from 1966 onwards are applicable;
(iv) there is an ever present possibility of punitive damages; and
(v) due to the long latency periods of asbestosis diseases, it is impossible to predict the number of claims that will ultimately be brought against the Assured.

Notes that the recommended bodily injury exposure reserve of $2,228,448 (including defence expenses) for excess reinsurers relates only to those claims filed thus far. It does not take into account future bodily injury claims to be brought against this Assured. Assured 1 believes the number of claims have now peaked and that, because of improved working conditions, there should be progressively less claims in the future. On the other hand some say that claims filed to date represent only the tip of the iceberg: e.g. The Secretary of Health, Education & Welfare in US recently stated that 67,000 each year will die from exposure to asbestos during the next 30 years. It is further known that 8 - 11 million workers have been exposed to asbestos in the US since the beginning of World War II. It is estimated that one-third of those heavily exposed have died, or are likely to die, of asbestos-related cancer. It is recommended that each underwriter on the first and second and third excess of loss treaties be shown its report. The attorneys also strongly recommend that each underwriter take all these facts into account in determining the loss reserve to be posted on these claims.

SI

00/06/80

Syndicate 90 (1979 Report).
"The 1977 account trading was satisfactory in itself but rendered improfitable by the need to create substantial additional reserves for possible losses on earlier years. The main problem has been the recent adverse development of serious liability claims (under both reinsurance contracts and direct US insurances) from victims of the industrial disease of asbestosis who allege that this has been caused by exposure to asbestos dust many years ago. Although these are disputable features in these claims it would have been wrong to close the 1977 account without making appropriate provisions in the reinsurance premium paid to the 1978 account."

24/06/80

Lloyd's List: Defendants fight yard asbestosis case award.
There are 4,000 to 5,000 outstanding liability cases over asbestosis in the US, most involving shipyard workers, according to Travelers Insurance Company. The Defendants, Assured 1 and Assured 20 have filed post-trial motions challenging the awards made in a recent case.

04/07/80

Letter from RAG Jackson to E.E. Nelson.
"I have been trying to get hold of you for some time to talk about asbestosis .. Jim Ayliffe. Wrote you a letter on 10^th December about the seriousness of this problem. Since that time as you are probably aware it has become even more serious a problem particularly as the split between the exposure and manifestation. Has become embittered a number of people have persuaded me to be the catalyst in getting a working party under-way and it is to this end that Jim Ayliffe and I have been speaking to a number of people in the market."

07/07/80

Business Insurance: Travelers asks to join suit.
Travelers is attempting to join Assured 1 in its legal fight to decide which of 27 insurers is liable to pay asbestos product liability losses. Travelers has filed a petition to intervene in the case, originally brought against the Home Insurance Company, to protect its own interests. Home is refusing to indemnify Assured 1 for $800,000 paid to claimants for property damages, claiming that Travelers is liable.

17/07/80

Attorney K to Underwriters at interest. Re Assured 15:
Current developments in asbestosis litigation. Reserves: "Since our last report of May 28, 1980 we have received approximately 500 additional cases naming the assured as a Defendant. This brings the total number of cases to approximately 2,300 and a total exposure of $13.8 million for the past 30 years. The average disposition cost of an asbestos claim to all defendants continues to total approximately $67,000 ... therefore, we suggest that underwriters increase the gross loss reserve to $460,000 from the ground up for each and every policy year they were on the risk."

SI

05/08/80

Letter from the AWP. Handling of asbestos claims in the Lloyd's market.
"... Market's involvement in the claims arising out of asbestosis have been gathering momentum over the past six months to the extent that there are now six Declaratory Relief actions pending and more could arise ... during the course of last year discussions took place with those law firms representing the Market's interest to ensure that there was a standard approach to the manner in which reserves were established, and following discussions with each of the firms involved it was agreed that for the present reserve recommendations to the Market would be based on an average cost of $75,000 per claimant. Bearing in mind that in most suits that have been issued there are multiple defendants a percentage scale was arrived at which embraced the major direct writings within the London Market, and by application of the scale percentage attaching to any particular insured we have been able to ensure that no duplication of reserve arose in regard to different insured named in any particular suit.

... the frequency with which new cases are filed is likely to continue at the present level for at least five years ...

Assured 1 had indicated that in their opinion there are likely to be between 2,400 and 3,000 cases filed in each of the next ten years and similar statements, although somewhat less pessimistic, have been made by other major firms involved in this litigation. This then raises the problem of whether or not our representatives should be taking into account in their reserve calculations forward projections of claims in regard to both direct and reinsurance business. Bearing in mind the substantial increase in costs over the coming years it will be immediately apparent that reserve projections in this matter will have a serious impact on the Market as a whole and yet, on the other hand, not to acknowledge the fact that reserves will inevitably increase would be irresponsible.

Arising out of the Market's inability to arrive at a common agreement on the basis on which losses of this nature attach it has been necessary for there to be dual representation on each Declaratory Relief suits that have been filed.

... it is unreasonable to expect matters to be controlled by the few leads involved and it has therefore been proposed that a joint inter-market working party be established which would have the responsibility of considering the day to day problems that have and will develop as the litigation proceeds. It is contemplated that the Working Party be made up of representatives from the Non-Marine and Incidental Non-Marine Markets and also to include a representative involved in LMX writings. It is intended that the party should include both Underwriters and claims representatives ... In addition, in view of the significant participation in certain areas of London Companies it is suggested that Mr John Heath of HS Weavers Underwriting Limited be invited to join the Working Party.

It must be emphasised that the potential involved here is so large and the issue so complicated that we cannot allow a muddle through somehow approach ... it has become clear that the split in the Market is serious and that the legal costs involved are going to be astronomical."

AWP

08/08/80

Attorney I to the Insurers at interest. Re: Assured 10 et al: Asbestos-related claim review.
Even assuming no further delays on the part of the assured, it will no doubt be several months before we are able to assimilate the data on these thousands of claims and render our final report to underwriters. We recommend that an expense reserve of $200,000 be set at this time.

SI

27/08/80

Minutes of an AWP meeting.
C J Ayliffe (in the Chairman's absence) emphasised to members that "the purpose of the Working Party was to deal with overall Market problems and it was therefore important that there should be seen to be complete impartiality in regard to the manifestation/ exposure attitudes that exist."

"Present indications were that the rate at which law suits are being reported will continue for at least the next five years, and the projections indicate that by that time there will be some 25,000 cases in being ..."

"At the present time there are six Declaratory Relief actions pending and the first of these, that of Assured 6, is due to come up for hearing in Boston on the 15 September. At this time it is not possible to indicate whether all matters currently in litigation will proceed to hearing ... Inevitably there will be appeals from the rulings of the lower court and it appears there will be a considerable passage of time before ultimately we have a clear indication of the thinking of the courts."

"It was noted that it was important not to adopt an unreasonably pessimistic approach which could mislead the Market in considering the reserve problem."

There was a discussion of the approach to reserving.

It was recognised that whatever approach was adopted by a particular Underwriter or company they would undoubtedly use their discretion on posting reserves which produced to them their highest involvement, even though that reserve may not necessarily be in line with the position they were advocating.

AWP

01/09/80

Business Insurance: Doing nothing may be answer to asbestos risk.

02/09/80

Lloyd's List: Lloyd's to look into asbestosis.
A working party has been set up at Lloyd's to help co-ordinate the handling by underwriters of the thousands of asbestosis claims which are arising in the United States.

08/09/80

Business Insurance: Lloyd's Group to monitor claims for asbestosis.

11/09/80

Post & Insurance Monitor: Lloyd's Working Party to examine asbestosis claims.
"The spate of asbestosis claims now emerging in the US has led to Lloyd's non-marine underwriters to set up a working party to examine the future effect on the Market ... Insurers in the United States are worried that if all the compensation sought by these and other workers, who at some time or another in the past 40 years may have been in proximity to asbestos, was totalled together, it could reach the massive sum of nearly $2 billion. But these are purely speculative estimates and no one yet knows the effect on Lloyd's, which is now beginning to feel the impact of recent American lawsuits. The first of more than 1,000 cases brought in Los Angeles by Long Beach workers ended in a $1.2m jury award. But this was reduced by the trial judge to $250,000, so that the amount of settlements likely to be determined for other litigants is still uncertain. But the problems, which had been lurking in the minds of Lloyd's insurers for some time, came to a head in June when $1.2m was awarded to Richard Hogard, a Long Beach worker, who cited Assured 1 and Raybestos-Manhattan as defendants. the reduction of Hogard's award to $250,000 is being watched with future settlements in mind."

22/09/80

Business Insurance: California bill sets a fund for asbestos claimants.
The California legislature has appropriated $2.6 million for the workers compensation fund in respect of asbestosis.

23/09/80

Attorney I to C J Ayliffe, Merrett Dixey Syndicates. Re Assured 10 Claims Review.
"You are no doubt aware of this tremendous volume of pending litigation involving asbestos, the high rate of new filings, and what appear to be increasing verdicts. These general factors, combined with the preliminary information gathered in our claims review, leads us to be concerned that the present method of reserving (as we understand it) may be under-estimating the exposure of underwriters."

SI

29/09/80

Business Insurance: Asbestos firm says it has way to share liability.
Standard Asbestos Manufacturing seeks in court to make tobacco companies co-defendants in asbestos-related suits.

01/10/80

Attorney G to Underwriters at Lloyds, c/o Merrett Dixey syndicates. Attention: C J Ayliffe.
Notes the monumental significance of the "manifestation" versus "exposure" issue. In relation to Assured 1, Lloyd's would be on risk for 31% of all the years of alleged exposure by the asbestos claimants, but only 7% of the claims if manifestation rules were adopted.

"It is widely accepted that asbestos liability will be the most significant legal and loss cost issue in the history of the insurance industry ... The number of potential future claims is staggering". In a statement on 26 April 1978 the US Secretary of Health, Education & Welfare estimated that 8 - 11 million American workers had been exposed to asbestos since the beginning of World War II. Dr Selikoff had predicted 20,000 asbestos related deaths per year in the US until the end of the century.

The attorneys say it is their opinion that, due to the long latency period of asbestos diseases, there are likely to be thousands of new asbestos claims at least until the 1990's. A great number of claims will ultimately come from all of the major industrial areas. On the other hand, despite the 8,000 or more cases filed to date, there have only been to our knowledge about 25 asbestos products cases tried to verdict thus far. Plaintiffs and defendants have won about 50% of time. However, underwriters are told to note the size of several of the jury verdicts in favour of the plaintiff (as high as $1.1m after appeal).

Notes possible sources of indemnity:
(i) third party actions against suppliers of raw asbestos which could be deemed to have merit and represent a serious potential exposure to the suppliers;
(ii) the US Government (because of the exposure of workers in US Navy shipyards), although the Department of Justice has vigorously refused to contribute to any of the most recent asbestos settlements. Attorneys believe that it is not unlikely that sooner or later courts will permit indemnity or contribution actions against the US Government which could provide some relief to asbestos manufacturers.

Potential claims against asbestos employers have generally been brought under workman's compensation schemes but, since the Supreme Court of California's decision in the Rudkin case, it has been possible to sue Assured 1 directly for concealing the dangers of working with asbestos. This decision could "open the door to a great number of suits under the Employers' Liability policies". Attorneys also note attempts to intervene legislatively. The report concludes that "it would appear that any federal relief to insurers is fairly remote at the present time".

It is the attorneys' view that underwriters can continue for the time being to reserve each claim on the $75,000 previously suggested by Counsel. However, more sophisticated information should allow a reallocation of percentages among the various assureds. "As indicated we believe the number of claims will continue to increase for the next several years ... We believe that eventually the asbestos manufacturers will obtain substantial indemnity help from the asbestos suppliers and from the US Government".

The Report also indicated that the Attorneys could provide date as to loss payments and costs incurred by certain American assureds thus far in the trial and settlement of asbestos claims. "We believe that these statistics form a reasonable basis from which to estimate probable future loss payments and expenses to be made on behalf of these assured".

SI

03/10/80

Attorney H to Merrett Dixey Syndicates Attention: C J Ayliffe Re: Asbestos Claims.
With regard to future developments in the overall asbestos problem, it is possible to come up with "very dire projections depending on the statistics drawn upon to support these projections". New lawsuits continue to be filed at the rate of approximately 100 per month or 1,200 per year.

Conclusions:
1. Higher settlements likely as a result of increased jury awards;
2. No legislative relief in prospect for insurers.

Essential that the current reserve recommendations be adjusted to reflect future potentials. Recommends increasing the present general per injury reserve of $75,000 to $100,000 which "while seemingly steep at first blush" ... "should sustain us through the mid point of the 1980's".

SI

13/10/80

Attorney K to Merrett Dixey Syndicates, Attention: C J Ayliffe Re: Asbestosis Litigation.
Asbestos litigation continuing to develop at an unpredictable rate. New claims flow into this attorney's office at the rate of approximately 50-75 per month and sometimes higher. Flow of new claims appears to be undiminished, if not increasing. Asbestos related injury receiving substantial publicity in the American press. The defence posture of key manufacturers is deteriorating ... "the problem is presently one of unpredictable size both from the aspect of number of plaintiffs and potential value" ... "the defence picture (is) darkening rather than lightening". Also a suggestion that property damage claims are potentially of a substantial value and should be separately monitored.

"At this date the attorneys also recommend that property damage claims be monitored separately".

SI

16/10/80

Attorney H to Merrett Dixey Syndicates, Attention: C J Ayliffe.
"In my earlier letter I observed another area where the Working Party might find our comments useful and that is with regard to our experience with percentages of claims that were assigned to the various insulation manufacturers involved in asbestos litigation."

SI

03/11/80

Business Insurance: Court restricts policies available for latent injuries.
"Insurance policies written over the years when workers handled asbestos are the only source of funds available to pay today's claims for recently discovered diseases says the Federal Appeals Court here ... In its decision (of) Oct. 22 in INA v Forty-Eight Insulations Inc. the court chose the exposure theory. It rejected the theory favoured by 48 Insulations that would prorate liability among all insurers from the time of exposure to the time of discovery ..."

06/11/80

Minutes of AWP meeting.
"The Chairman [Mr Nelson] then asked if sufficient legal decision had now been taken for one side or the other to change their views and have a common approach. He felt that when the Assured 6 decision was known there would possibly be full agreement. Mr Ayliffe said that the point had not been reached where agreement was likely. Mr Ayliffe continued that there would be another Court of Appeal decision shortly but it could be at least a further year before any Industry decision was likely. One of the difficulties he said was to whom does this Group talk in America bearing in mind there is still diametrically opposed opinion. Mr Heath confirmed that he felt when the Eagle-Picher declaratory relief action trial was known there would be an appeal and we must therefore, wait for the decision of the Higher Court ...

Mr Kemp felt that the Supreme Court would be brought in if different states took different views and this was confirmed by Mr Heath ... Attorney G stated that there were 13 declaratory relief actions but only 6 were known in the London Market. Mr Kemp felt that the remainder would be known by now if there was a UK lead".

AWP

10/11/80

Letter from CJ Ayliffe to EE Nelson.
Re Asbestos Working Party. "My concern basically stems from the fact that all attorneys who are handling the asbestos problem are aware that the working party is giving consideration to the difficult question that is raised by the manner in which reserves should be approached.. My basic concern on this problem is that whilst I am as conscious as you of the delicate manner in which the year end reserves must be handled, and also fully agree that our obligation must be to provide to the markets sufficient background information to enable them to make the final decision, I am nevertheless concerned that reserves now are possibly lower than they would have been had the working party not come into being. In the case of matters being handled by Attorney H, as I have said, it has been made clear to me that it would have been their recommendation that reserves be increased on a per claim basis, and the reserves they would have put forward would have taken into account some form of projection. Neither of these developments have taken place due to the belief that a Working Party would be providing guidance, and if matters were left as they now stand it would effectively mean that we would be explaining to the Market the imponderables and that any loadings that individual Boxes decided to apply would be attached to reserves which would have already been higher had we not become involved"

10/11/80

Business Insurance: Winner, Loser both seek re-trial in asbestos case.
Refers to the "precedent setting decision" on insurer responsibility for asbestos claims made by a US court on 22 October 1980 in the case of INA v Forty-Eight Insulations Inc. This supported the exposure theory of coverage. Both INA and Forty-Eight Insulations want the Sixth Circuit Court of Appeals to rehear the case. INA wants the court to reverse the decision in favour of the exposure theory and adopt a manifestation theory. Forty-Eight Insulations wants the court to reconsider part of its ruling that makes insurers responsible for coverage and defence costs only for the years they insured a risk.

12/11/80

Lloyd's List: Tobacco Firms Should Share Asbestosis Claims.
"Two California courts are being asked to rule that cigarette companies are at least partly to blame for the illnesses of many asbestosis sufferers and should pay part of the compensation..."

12/11/80

Attorney I to the insurers at interest Re: Assured 10 et al. Tampa claims review.
Assured has more than 4000 open claims files and this figure is growing by approximately 100 each week. In addition more than 500 claims have been settled and claims continue to be settled on a daily basis. Aetna Casualty is alone amongst the insurers in having paid a significant number of claims. However neither Aetna Casualty nor any other insurer has ever reviewed the insured claims files which suffer from "the most rudimentary organisation". The attorneys are further informed that Aetna Casualty has exhausted its limits for certain policy years and so cannot be relied upon to formulate any rational claims handling policy.

The Sixth Circuit Court of Appeals has recently affirmed the decision of the lower court in the Forty-Eight Insulations case. Strong support for the exposure argument. "An escape valve is provided. Liability among the insurers, said the Court, is not joint and several, but rather is individual and proportionate. Therefore, if an insurer can show that no exposure to asbestos products manufactured by its Assured took place during certain years, it is not liable for those years. However, the valve is effectively closed when the Court makes the burden of demonstrating this exculpating factor purely the insurers'. This burden will be well nigh impossible to carry in many situations."

SI

28/11/80

Minutes of AWP meeting.
"Mr Ayliffe believed that Attorneys should make recommendations for year end purposes but it was for the individual Underwriters to determine the figures used when closing the account. He was concerned that reserves currently carried on files, were lower than would have been the case under normal circumstances. Those concerned were looking for recommendations from the Working Party before final decisions were made. This view was supported by Mr Jackson, who thought that a figure of $125,000 per average claim was more realistic than the present figure of $75,000 currently used as a yardstick ..." He thought Attorneys should in fact provide two sets of figures:-

(a) Reserves as at 31st December, 1980 on known cases.
(b) The projected literally number of claims for the next five years, based on information currently available but to include an inflation allowance.

"... Messrs Rokeby-Johnson, Skey, Taylor, Kemp and Froude thought that $125,000 was excessive and $100,000 more realistic. They were not in favour of making projections of eventual numbers involved, but did agree that Attorneys should provide information on this matter ... Mr Heath was in general agreement with Mr Jackson and said that it appeared the number of new cases was more than doubling in each successive year from 1976 onwards".

Summary of the Chairman (EE Nelson) included the audit Committee were reluctant to identify individual situations for audit purposes. The asbestosis situation was well known in the Market. underwriters were aware of the potential problems.

AWP

08/12/80

Attorney H report to Underwriters at interest (c/o Willis Faber & Dumas Ltd.) Re: Assured 3A/Assured 3B.
Detailed report on US Sixth Circuit Court of Appeal's decision in INA v Forty-Eight Insulations

SI

24/12/80

Attorney K to E E Nelson c/o K F Alder (Underwriting Agency) Limited Re: Asbestos Claims.
Average case settlement price $67,000 comprised of contributions from various defendants. ... "one can expect future settlements to increase substantially to $100,000" or higher. While the number of defendants to the litigation is likely to rise (lessening the exposure of the individual asbestos manufacturers towards individual settlements) the average settlement package will "quite likely continue to increase in size ... it is likely that an average asbestos settlement will approach $100,000 per claimant over the next few years, with an additional $10,000 allocated for expenses." "Asbestos claims are multiplying rapidly" (this attorney gets 50 per month). US court decisions may substantially increase the number of asbestos related claims that will be brought and raise some further coverage questions. In particular:

1. in the case of Judith Ferriter v Daniel O'Connel Funds Inc. the Massachusetts Supreme Court held that the spouse and children of an injured worker have a right to sue the worker's employer based upon an allegation of negligence, even though the worker accepted workman's compensation payments;
2. the Supreme Court of California (Rudkin), and Appellate Courts in Delaware and Texas, have recently upheld actions brought on the basis of intentional or wilful misconduct by employers.

It remains difficult to project the number of claims to be filed in the years to come. This attorney estimates that, in the next 6 to 8 years (1980-86/88), 1,000 new claims may be filed each year. They suggest that this figure should be continually revised and updated on the basis of case law and new causes of action on at least a semi-annual basis.

Selikoff projections referred to in the above connection.

AWP

24/12/80

Attorney H to E E Nelson, K F Alder (Underwriting Agency) Limited. (Response to E E Nelson's letter of 10 November 1980).
Since the Borel jury returned a verdict of $79,000 in 1972 the amounts of settlements have increased to several multi-million dollar awards. Currently the attorneys recommend that underwriters should increase reserves to $125,000 per claim (which they believe will see them through until 1983-84 including an item for defence expenses). The attorneys predict that the peak years "may very well be fixed for 6 or 7 years hence". Claims are being filed at an average rate of approximately 100 per month or 1,200 per year. "We currently do not see any marked increase in this number, nor on the other hand do we anticipate a sharp reduction." However these comments are to be considered as "guarded" because, over the past 30 days, there has been a sharp increase in filings. Assured 3B alone has had 286 cases filed since 1 December (1979). Attorneys say their "guesstimate" is that cases will not peak until at the earliest mid-1985.

AWP

29/12/80

Telex Attorney G to E E Nelson (c/o K F Alder (Underwriting Agency) Limited).
"... thousands of additional claims can be expected at least into the 1980's. For these reasons we would deem it prudent to raise reserve for each known BI asbestos claim to DLRS US 125,000 with such reserve including costs ..."

SI

19/01/81

Letter from C J Ayliffe to E E Nelson.
Referring to reports from US attorneys such as Attorney H, C J Ayliffe states: "... I think you will agree that it is important that the Market should have access to the reports in question and form their conclusions from those comments rather than be influenced by anything that we might independently say in the form of a report".

26/01/81

Attorney G c/o C T Bowring & Co to the Interested Reinsurers Reassured: Assured 1.
"We regret to advise the excess reinsurers that the situation has materially worsened since our last report". The number of claims against the insured has increased sharply, there have been several large settlements made, and some verdicts have been returned against the insured which "portend" poorly for future litigation. The case of INA v Forty-Eight Insulations has supported the "exposure" theory of coverage. The primary insurer states that aggregate limits on three of its annual periods have been exhausted and that exhaustion of its limits for all other years is imminent. "It thus appears that the Reinsured must become in effect a primary insurer with defence obligations in the very near future". The attorneys therefore recommend a substantial reserve increase to the excess reinsurers: "We request each reinsurer to carefully consider his own reserve on these claims". There is a possibility that "a great number of claims may be brought in the future". The reserve which has been indicated by attorneys does not take into account either loss or expenses of reserves for future bodily injury claims which may subsequently be brought against the insured or indemnity or contribution claims that might be brought against the assured.

SI

27/01/81

Lloyd's Underwriters' Non-marine Claims Office, (LUNCO).
Circulates US attorney reports about Glen Alden Corporation asbestos-related claims review correspondence.

00/02/81

Assured 2's Annual Report.
"Assured 2's youth and the relatively small involvement of its former subsidiary in the asbestos-containing thermal insulation Market put the Corporation in a unique position relative to other defendants. Assured 2 is nevertheless being exposed to the same legal liability as miners and suppliers. Most of these have substantially greater resources and continue to have a stake in the Market. Unlike Assured 2, they can recover the costs of their asbestos cases from their current operations. Assured 2 is making every effort however, to resolve the asbestosis problem facing the Corporation. Management and its counsel believe that the disposition of existing possible unasserted asbestosis claims and other cases will not have a material effect on the consolidated financial position of the Corporation."

02/02/81

Business Insurance: Asbestos suits cloud firm's 1980 report.
Assured 1 has qualified its annual financial report for 1980 because of uncertainty over whether its insurance will cover its potential liability in the thousands of asbestos suits brought against it. There has been a dramatic rise in the number of suits filed against it (from 2,707 to 5,087, and the costs of disposing them has risen from $13,000 to $23,000.)

10/02/81

Letter from AWP (Mr E E Nelson) to the Active Underwriters.
The insurance industry, including the London Market, continues to be divided as to whether asbestosis claims are attributable to policies on an "exposure" or a "manifestation" basis. A significant decision was given recently in the appeal in one of such actions, INA v Forty-Eight Insulations, Inc (U.S. Court of Appeals for the Sixth Circuit) which, in affirming the trial court judgment, adopted the exposure theory by a majority of two to one. The dissenting opinion argued that the date of loss was when the condition was first discoverable. This could be considered a "half-way" house between the exposure and manifestation arguments, a further complication of the issue. Lloyd's has been actively involved in another Declaratory Relief Action, the Assured 6 case, which was tried in Boston, Mass. towards the end of 1980. Judgment is expected at any time now, and whatever the decision, the case will be appealed. A Declaratory Relief Action by Assured 1, who probably have the largest involvement in the asbestosis problem of any Insured, is not expected to be heard until next year. "In all the circumstances it is reasonable to assume that the manifestation against exposure issue will not be resolved in the near future."

"With the approach of the year-end attention has focused upon claims reserves particularly bearing in mind the following:
(1) the rising trend of settlement figures and the effect upon them of inflation in the U.S;
(2) as underlying aggregates are exhausted some insurers may look to excess carriers to absorb defence costs; and
(3) during the past year the number of cases in suit has increased from about 5,500 to in excess of 8,000 and at this stage it is not possible to project how many more claims will be filed".

"It cannot be emphasised too strongly that you should make yourself aware of the contents of [your U.S. legal representatives'] reports".

AWP

12/02/81

The Post Magazine - Problems of disease claims.
"In the United States by the late 1960's so many workers had contracted asbestosis that manufacturers had begun to cut back on the production of asbestosis containing products ... Claims on behalf of many injured workers were made against manufacturers. This was on the basis of strict liability for defective products; the workers arguing that the manufacturers had not warned them of the dangers. Since it was impossible to tell which particular manufacturer had been involved with so many thousands of products on the Market, the workers contended that all relevant asbestos manufacturers should be jointly and severally liable."

18/02/81

Attorney G to Underwriters at Lloyd's Re: (Assured).
"It is generally accepted that asbestos liability will be the most significant legal and loss cost issue in the history of the insurance industry. The number of future potential asbestos claims is overwhelming." The attorneys note the estimate that 8-11 million American workers have been exposed to asbestos since the beginning of World War Two (Califano Speech, April 1978) and the US Government study in 1978 which projected that 13%-18% of all cancer deaths over the next 30 years would be asbestos related. The Director of the National Institute for Occupational Safety and Health has predicted that tens of thousands of asbestos deaths are likely to occur annually. "We can continue to expect thousands of new asbestos claims at least into the 1990s ..." There are approximately 9,800 claims in suit against this assured. The assured has concluded settlements at an average loss payment of $9,000 per claim.

There are problems with reserving for asbestos-related claims:
1. the basis of coverage is still uncertain;
2. it is impossible to predict the number of product liability claims;
3. there are inconsistencies where primary insurers have adopted a manifestation theory, and reinsurers an exposure theory.

The attorneys emphasise to reinsurers that suggested reserves relate only to claims known to have been made against the assured so far: "... there are numerous well informed people who believe that many hundreds or even thousands of additional claims can be expected in the future". Reinsurers should consider all factors in establishing reserves.

23/02/81

Attorney H to Underwriters at interest Re: Assured 1.
Several significant developments have recently occurred which warrant underwriters' prompt attention. Of immediate concern is the fact that the Travelers as primary insurer for Assured 1 spanning the years 1947 through 1976 has just about exhausted its aggregate limits.

SI

23/02/81

Attorney G to the Interested Reinsurers.
"There have been some favourable developments since our last report and we no longer believe that the indemnity claim brought by Forty-Eight Insulation Inc against the assured, a subsidiary of General Dynamic Corporation will ultimately represent exposure to the excess reinsurers herein.

We are now pleased to report that the trial Court has dismissed the Count of the claimant's complaint praying for a Declaratory Judgment on all pending as well as potential indemnity claims that the claimant might have against the assured ... Since our last report we can advise that on October 21, 1980 the United States Court of Appeals for the Sixth Circuit handed down its decision in the INA v. Forty-Eight Insulations Case previously discussed. The Court of Appeals affirmed the trial Court holding that the date of loss, triggering coverage in the asbestos-related bodily injury cases against this claimant was the date when the individual bodily injury claimants were exposed to the alleged defective asbestos products. This decision is certainly favourable to the excess reinsurers here who could be subject to far greater liability under a manifestation rule in the 1975-1978 period.

The rulings of the US District indicate that the Court will view each individual bodily claim as a separate occurrence. If this interpretation continues then the reinsurer should bear no losses."

SI

00/03/81

Lloyd's Bill receives second reading in the House of Commons.

06/03/81

Attorney G to Interested Reinsurers Re: Assured 25.
Repeats that it is generally accepted that asbestos liability will be the most significant legal and loss cost issue in the history of the insurance industry and that hundreds if not thousands of new claims can be expected until the 1990's at least, asbestos exposures ranging from a few years to as many as forty to fifty years. Currently twenty declaratory judgment actions being litigated between insurers and insureds in the US. The attorneys have reviewed claims brought against each of the 19 individual assureds at risk with the reinsured and suggest reserves in respect of each assured calculated on both an exposure and a manifestation basis. The reserve calculations have been made only on the basis of claims that have been brought to date against such assureds. Additional asbestos-related bodily injury cases must be reserved for separately. Potentially there are other risks (depending on the law of employers' liability).

SI

13/04/81

Notes of an AWP meeting taken by Elborne Mitchell.
Reporting on trip to the US of C J Ayliffe and K R Rayment: discussions had been held with Attorney H and Attorney G in respect of the Assured 1 coverage 1951-63.

"It would appear that the excess layers covered by London Underwriters were on an occurrence basis only between 1951-60 ... this left them with a gap in coverage ... However, Underwriters' lawyers are by no means certain that Underwriters will be able to benefit from this coverage problem ... if the coverage situation described ... above is correct, then the exposure of the London Underwriters may be substantially reduced between 1951-60... Can London agree to any funding arrangement in these circumstances? Could this situation lead to a lump sum settlement with Assured 1 for those years? Assured 1 have said they will revert when they have further investigated the coverage situation".

"Assured 12 is being sued by 9,000 claimants and is a larger problem than previously realised. First layer insurances are now exhausted - above them is the Home and above the Home are London Underwriters. The Home is involved with all 28 Assureds which concern London, except Assured 20 and Assured 17".

"The Fifth Circuit U.S. Court of Appeals has reversed the judgment in Porter v American Optical and applied the exposure theory of assigning liability. The Court agreed with the reasoning of the Sixth Circuit in I.N.A. v Forty-Eighty Insulations Inc".

AWP

13/04/81

Business Insurance: Asbestos: Judge ties California suits.
Judge Ira Brown has issued an order co-ordinating four pending actions to determine whether insurance cover would apply under exposure, manifestation or pro rata theories. This affects more than one sixth of the pending asbestosis liability suits in the US.

14/04/81

Attorney I to the Insurers at interest. Assured 10 Claims Review:
The US attorneys have reviewed the 4,500 individual claims files of the assured, some of which contain hundreds of claimants. "We understand that the entire London Market is considering a consolidated claims review process which would encompass all London insureds."

$125,000 is the reserve figure for each pending asbestos claim (8%, or $10,000 worth, is assigned to Assured 10). The attorneys recommend underwriters periodically consider the adequacy of the $125,000 figure. It may be accurate in respect of average settlements in 1981 but may not be an accurate prediction as to the ultimate settlement value of pending asbestos claims. Reserves have been recommended tentatively and on the basis that the sheer volume of claims means that underwriters may face liability no matter what the specific terms of policies, or which theory of coverage is eventually adopted. Legal decisions:

1. District Court for District of Columbia has ruled in the Keene case, following the INA v. Forty-Eight Insulations decision and ruling in favour of an exposure theory of coverage. The court in Keene extended this decision to Mesothelioma and Bronchial Carcinoma as well as asbestosis. The Court went on to pro rate the obligation to defend and indemnify for each insurer on risk during the exposure period. Appeals are underway;
2. the Environmental Protection Agency in the US has recently found that asbestos poses an "unreasonable risk of injury" to school children and school employees. Potential property damage claims arising out of making school buildings safe;
3. The Sixth Circuit of the Court of Appeals has denied a request for an open hearing in the Forty-Eight Insulations appeal and has extended its prior ruling to Mesothelioma and Bronchial Carcinoma;
4. Van Buskirk litigation in Philadelphia has held that an asbestos manufacturer cannot rely on workmen's compensation immunity. This may have a significant impact on the coverage provided by underwriters;
5. claims by 890 asbestos workers in New Jersey recently settled by establishment of $59.4 million fund. The average per claim claimants settlement was $13,500, far below the current national average;

Reserves discussed do not allow for new claims.

SI

17/04/81

Letter from Attorney D (US attorney) to K F Alder (Underwriting Agency) Limited Attention: E E Nelson.
Encloses a copy of the recent proposal authored by the American Re considering the asbestos claims handling procedures. The enclosure headed "asbestos claims handling procedure" sets as its objective: formulation of a procedure for the unified control of evaluation, negotiation and litigation management by the insurance industry. It envisages "form a national asbestos litigation committee ..."

"Why is such an elaborate and unprecedented organisation required: (A) Asbestos litigation is the largest phenomena that has ever hit the casualty insurance industry. The present mechanism is not capable of handling it effectively. (B) Asbestos litigation is going to get much much worse. No one knows how bad the problem will ultimately become. (C) Even some prominent members of the bar have stated the waste in defence cost because of the lack of uniform co-ordinated approach is scandalous. This problem will only get worse as time goes by."

20/04/81

Attorney G report (c/o C J Ayliffe, Merrett Dixey Syndicates Ltd.) Re: Assured 4.
"Several hundred new suits have been brought against the assured and it appears that Underwriters' involvement may be greater than initially believed ... Since our last report, we can advise Underwriters that we have documentary evidence that there have been 571 additional claimants who have filed 351 additional lawsuits against the assured nationwide. Thus, to date, we know for certain that there have been a total of 943 individual claimants who have filed 637 lawsuits against this assured. However, this number may not represent the true correct status as the assured has recently reported to us that there have now been 1,099 lawsuits brought against it on behalf of 2,019 individual claimants ... Our information as to the assured's average disposition of these claims remains generally unchanged from our last report .... the assured generally will not be a target defendant in these cases. We continue to believe that the asbestos-related bodily injury cases represent grave potential exposure to the producers of asbestos and to the manufacturers of products containing asbestos. However, we do not believe that this assured will be one of the truly major defendants in the asbestos cases ... It thus appears at this point that the exposure theory as opposed to the manifestation theory will probably prevail in the American Court system .... we suggest a reserve be established herein based upon an average total cost per claim of $2,500 ..."

SI

23/04/81

Attorney G to the Interested Insurers Re: [various] Lloyd's Policies. Assured: Assured 19.
"It ... appears at this point that the exposure theory as opposed to the "manifestation" theory will probably prevail in the American court system in the asbestos cases". This could be unfavourable to excess underwriters in the US. The issue of the self insured retention by assureds is not yet resolved. Attorneys recommend a conservative approach. However, "because of new coverage information we are now recommending a substantial reduction in the exposure reserves previously suggested ..."

SI

28/04/81

Victor Levit, Managing Partner of Attorney F of California, gives a talk at the invitation of Lloyd's Under 30's Non-Marine Claims Committee entitled: Recent Developments in Insurance Coverage of Asbestos, Agent Orange, DES, Radiation Hazards, and Similar Catastrophic Product Liability Development.
Figures suggest that (at 1 February 1981) 25,000 individual plaintiffs have sued for asbestosis (with 500 more suits per month). Losses and expenses from these suits alone in 1980 are costing $1.35 billion per year (liability premiums are $6.35 billion). Assured 1, the principal defendant in most asbestos suits, is running out of primary insurance for the period 1947-1976 (its accounts for 1979 and 1980 had to be qualified). Assured 20 will have qualified accounts for 1978-1980 and this may be only the "tip of the iceberg". The staggering size of toxic latent disease claims could threaten the solvency of some insurance companies. Levit notes Dr Selikoff's recent study on the long latency period for asbestosis (15-45 years). If an exposure theory of coverage is accepted this could put a great financial burden on insurers. A recent California case indicated that Assured 16 alone had potential exposure of $20 billion. The same case stated that the Court should construe insurance policies to promote coverage. Two recent cases have also shown that victims are not confined to claims under workers' compensation schemes.

A recent consolidated action settlement involving 680 workers at a Assured 20 plant involved the establishment of a $9.4 million fund. A 1978 settlement in Tyler, Texas, provided a $20 million fund for 445 asbestos workers. The opinion has been expressed that such settlements may encourage more suits. "I believe that there will be many more claims than we can possibly anticipate from toxic substances, that such claims will often take many years to manifest themselves, and that the dollars involved will be far greater than we can possibly imagine".

00/05/81

Syndicate 219 (1980 Report).
"A major problem which has recently reared its ugly head is summed up in one word "Asbestosis". Although it has long been known that the inhalation of asbestos fibres damages lung tissues, causing disability and sometimes death, it is only recently that the US Courts have upheld the legal theory that manufacturers of asbestos are liable for failing to provide warnings regarding the dangers of its use. There are now 8,000-10,000 claims pending and this figure will probably rise rapidly. Although insurers themselves have had to go to court to ascertain who covers what, the general view emerging is that 'bodily injury' occurs repeatedly with each exposure over the years and that insurers at risk during the periods of the individual exposure will have to respond since manifestation can be up to 45 years after initial exposure. In practice this means that policies issued decades ago are likely to be involved. This Syndicate commenced underwriting in 1956 and already we have some advices on our very early years. As Members are aware the Syndicate carries substantial reserves for such contingencies but as the situation develops over the years it may well be considered necessary to increase those reserves."

04/05/81

Business Insurance: A modest proposal? Asbestos comp trust may clear legal backlog.
Attorney D (a US attorney) suggests that it is time for the insurance industry, with the co-operation of policy holders and the government, or even independently, to find a workable solution aimed at reducing the avalanche of asbestos claims. The solution must involve the disposition of a substantial number of asbestos claims leading to a reduction in legal costs. This could take the form of a asbestos compensation trust.

11/05/81

Minutes of AWP Meeting taken by Elborne Mitchell.
"Mr Maitland reported that the Commercial Union were advocating strongly that the tobacco companies be made parties to Asbestosis litigation..."

AWP

12/05/81

Asbestos a Social Problem: A position paper prepared by the environmental issues task force and issued by the Commercial Union Insurance companies:
The estimated number of cases to date ranges as high as 12,000, involving some 25,000 plaintiffs and more than 260 defendants. Likely that many thousands of additional claims will be filed during the next 25-30 years, placing a severe burden on the insurance and asbestos industry. Viewed objectively, the proliferation of asbestos claims jeopardises the financial stability of many companies.

"Estimates as to the total number of individuals who will contract an asbestos-related disease are frightening. In 1978, Joseph Califano, the then secretary of a former department of health, education and welfare, warned that as many as 5.6 million Americans may die of cancer of other diseases associated with asbestos...".

The courts are grinding to a standstill and the situation is likely to get worse in the future. Thousands of additional law suits can be anticipated. It is impossible to assess with exactitude the total liability that the insurance industry will have to bear. A study conducted by the Insurance Services Office indicates that for the period between July 1976 and 15 March 1977 the average payment in an asbestos case (for settlements and jury awards) was approximately $170,000. If just 1 million asbestos claims are resolved at that average value, the insurance industries liability will be £170 billion. "...It is not inconceivable that several million claims will ultimately be filed... We can anticipate an increased instance of asbestos-associated diseases during the next two or three decades".

The number of asbestos product liability claims may be "staggering", potential liability "immense". "It is conceivable that the damages that will be ultimately awarded will exceed the combined assets of the insurance and asbestos industries". Concludes that there is a need for a federal solution.

00/06/81

Lloyds League Tables 1978 (produced by Chatset).
In respect of Non-marine business:

"A vintage year with the total result of 22%, nearly double that of 1977. The settled claims figure was much the same but there were not those special provisions for reserves which were charged in 1977 so there was a much lower increase in reserves and a better underwriting result. The principal reason for this appears to have been that those special provisions in 1977 for computer leasing and asbestosis were considered adequate when closing 1978. It would appear likely that additional reserves will have to be made in the 1979 and 1980 accounts against further asbestosis and DES claims. Asbestosis has been described as the largest ever insurance loss and will not only affect the Non-Marine Market. 1979 and 1980 were showing higher settlements at the end of 1980, so the Non-Marine section as a whole will certainly be back into an underwriting loss". (Published in 1981).

00/06/81

Syndicate 90 (1980 Report).
"... Although the asbestosis claims which caused the loss in the previous year have continued to accumulate we have been able to buy a substantial measure of reinsurance protection for the 1974 and previous accounts ..."

00/06/81

Syndicate 334 (1980 Report):
"This has exposed us to a number of potentially serious asbestosis claims on closed year. The most recent reports from our legal advisers (received in February 1981) have caused us to take a serious view of the possible cost of these claims and we decided that a substantial additional provision had to be made before closing the 1978 account. We shall endeavour to do what our Non-Marine colleagues have done, namely to buy r/i to protect the old years of the syndicate against any worsening of the position in regard to asbestosis or similar liability claims."

01/06/81

Minutes of an AWP Meeting taken by Elborne Mitchell.
"Assured 1 understand that the post 1956 London Market cover wording is on an occurrence basis and that this will lead to their claim, which at present stands at US $347,753 on the 1952-1960 London Market covers being rejected. Assured 1 indicate that they will look to Marsh McLennon for this shortfall, thus both the American brokers and the London Market will have to be involved in any final settlement with Assured 1."

AWP

04/06/81

Attorney H to the Underwriters at interest Re: Assured 1.
Travelers has exhausted its aggregate limits and, as a consequence, Assured 1 has demanded direct immediate payment from underwriters of US $347,753 on an exposure basis against the years 1952-1959 (as their contribution to the $1,872,027.27 settlement of 73 asbestos claims). Reports warning of the exhaustion of Travelers primary limits given to C J Ayliffe at a meeting on 7 January 1981 with Mr Von Wald (Corporate Counsel, Assured 1). At a subsequent meeting with Von Wald (also attended by K R Rayment and J Heath) on 9 April 1981, limits and attaching levels were considered in detail. Counsel for Assured 1 also conferred at length with R A G Jackson. It was discussed that as the policies are on an occurrence basis then underwriters would be required to respond only to those cases where the loss exceeded the stated occurrence limits.

SI

29/06/81

Business Insurance: Asbestos insurers apply exposure rules.
Spokesman for Assured 16 and Aetna reaffirm their support for the manifestation theory despite recent court decisions to the contrary. However, some insurers, for example Travelers, have recently adopted the exposure theory in the light of these court decisions. Aetna is also willing to work out agreements based on the exposure theory but reserves its right to review these. The insurance industry as a whole will pay more under the exposure than the manifestation theory and can be expected to continue fighting it in the courts. Two key cases are Eagle-Picher v Liberty Mutual Insurance, which is about to be decided by the district court and Keene Corporation v INA, in which a decision is also due soon. A ruling in the consolidated cases in California could be more than three years away. Pending Californian asbestos coverage cases were consolidated in March 1981.

11/07/81

The Economist: Warning: Asbestosis may cost you more than money.
"In the past two years, there has been a quintupling in the number of law suits in which Assured 1, once America's biggest Asbestos producer, is named as Defendant. Law suits against Assured 2 have risen ten fold .... Auditors Coopers & Lybrand qualified both the 1979 and 1980 accounts of Assured 1 because of the potential liability from law suits. The 1980 accounts of Raybestos-Manhattan were also qualified, and some other asbestos companies must expect the same treatment in future.

There are roughly 25,000 cases against asbestos companies pending in the American Courts ... The Industry is now desperately worried because some courts are awarding punitive damages - in effect, saying that asbestos companies wilfully did not do enough to protect workers against the hazards of asbestos ... Some believe that legislation will be needed if great chunks of American industry are not to go bankrupt."

04/08/81

Telex from C J Ayliffe to Attorney I Re: reserves on asbestos cases.
"The Working Party are now considering the reserve philosophy to be adopted for the coming year end in regard to all the accounts which come direct to London Market and it is our intention to now adopt a reserve per case for each insured based upon average cost of settlements achieved to date plus loading to take care of inflationary trends."

10/08/81

Minutes of an AWP Meeting taken by Elborne Mitchell.
"Elborne Mitchell ... had now obtained copies all of the slips in respect of Assured 3 and Assured 7. They have not been able to obtain the slips for Assured 4 since the brokers were having difficulty in finding some of them". CJ Ayliffe noted that Assured 4 held cover notes stating that 100% coverage was placed in the London Market. That company had 900 claims. CJ Ayliffe reports that "a great deal of information was coming to the Leading Underwriters in respect of Asbestos claims and a central store of this information was required ... general reports were shown to the Market by the brokers. However any reports of a delicate nature would be reviewed by Elborne Mitchell prior to a decision as to their release to the Market".

Attorney H sought the Working Party's agreement to certain estimated per claim figures, arrived at by adding a 20% inflation factor to the average claim payment during the first half of 1981. The per claim figures were: Assured 3B $5,500; Assured 6 $15,600; Assured 17 $15,000; Assured 12 $12,000; Assured 2 $12,600; Assured 13 $10,500; Assured 14 $10,200; Assured 7 $18,200; and Assured 1 $25,000. Attorney H also recommended an expense figure of 25% for each claim.

AWP

31/08/81

Business Insurance: Court Reverses trend to maximise coverage.
Reports the carefully worded decision of a US district court on 14 August 1981 in the case of Eagle-Picher v Liberty Mutual Insurance. The court ruled in favour of a manifestation theory of coverage. However the significance of a decision is unclear since the decision in favour of the manifestation approach maximised coverage in this case.

14/09/81

Business Insurance: Asbestos Maker, Insurers differ on liability theories.
Commercial Union says that the solution of the problem cannot be found in the court room and that legislation is needed to handle the flood of claims from asbestos-related diseases. Assured 1 agree that legislation is needed but argue in favour of wide liability for insurers. A spokesman argues that an exposure theory of coverage is now the law.

21/09/81

Minutes of AWP Meeting taken by Elborne Mitchell.
Assured 11. Following figures for asbestosis claims made against this assured which gave some indication of the increasing rate at which new claims are made: 1977 - 96 claims; 1978 - 386 claims; 1979 - 310 claims; 1980 - 632 claims; first half of 1981 - 860 claims.

AWP

25/09/81

Letter from Lloyd's Underwriters Non-Marine Association Re: US Reinsurance Contracts Covering Casualty Business.
"The Non-Marine Reinsurance Committee has given a lot of time and thought to the attitude that they should take as individual Leaders in connection with the renewals of U.S. Reinsurance contracts covering casualty business in the fight of the latent disease problem. As a result a "discussion paper" has emerged which those Underwriters who have signed it intend to use as a basis for discussion with their reassureds at the time of the renewal of their programmes. A copy of this paper is enclosed for your information." Discussion document: "the potential for losses arising from asbestos products has been known for some time and obviously will continue to be dealt with by the insurance industry for many years to come. The same latent disease characteristics, in some degree or another, are unfortunately common to many elements, compounds, chemical mixtures and products ..."

28/09/81

Business Insurance: Government liable for asbestos ills:
Commercial Union, taking the lead position in the insurance industry fight against asbestos litigation, is waging a full scale effort to lay the liability for asbestos claims with the Federal Government.

05/10/81

AWP meeting which reported on Keene.

26/10/81

Minutes of AWP Meeting taken by Elborne Mitchell - Recent Keene Decision.
"Mr Ayliffe who had recently returned from the United States, reported that the insurance industry, including Assureds, considered the Keene judgment to be erroneous and detrimental to products coverage as a whole."

AWP

02/11/81

Business Insurance - Keene case concerns London Insurers.
Insurers that cover manufacturers of asbestos products must seriously review their policy terms in light of a recent US Court decision that widens the scope of asbestosis claims liability one Lloyd's underwriter says. "We must give serious thought to where we go from here", says R A G Jackson, an underwriter with Merrett Syndicates Ltd. "It's too early to tell how this decision will affect the liability market. But I am asking a lawyer for an opinion on our position ..."

09/11/81

LUNMA letter to Market.
"A Market meeting has been arranged for 4pm on Monday 16th November 1981 in Committee Room A, at the Institute of London Underwriters ... to enable a report to be given of the current developments in connection with the Asbestosis claims. The report will touch on both direct insurance and reinsurance."

10/11/81

Minutes of an Advisory Panel of Auditors meeting attended by, inter alia, N F Holland of Ernst & Whinney. Notes made by D Stevens of Littlejohn & Co.
Potential claims in connection with asbestosis make computer leasing appear insignificant by comparison. As a result of the Keene decision the insured may claim both on exposure and manifestation theories of coverage. Murray Lawrence stated that there would be a report on the 10-12 major assureds showing the underwriters' lines of each syndicate on all years of cover. The report will project the number of claims forward for five years to show which layers the policies are exposed. It is also to produce some information on the reinsurance side. It could not be over-emphasised how serious the losses will be as a result of asbestosis.

PA

10/11/81

Minutes of an Advisory Panel of Auditors meeting taken by N F Holland (dated 9 December 1981) [in relation to the same meeting as the above minutes]:
W N M Lawrence made a fairly detailed statement on asbestosis. Following a recent decision in the US courts, both exposure and manifestation were a basis for settlement. Accordingly, all years covered on each basis were vulnerable for claims. Attorney H were preparing a report in respect of direct business and were going through the 10-12 major assureds covering all years and the losses on each year on all known covers. They would then project figures forwards, hopefully giving some feel for the loss on direct writing. It would then be up to each syndicate to consider what reinsurance protection it had and arrive at net losses. R J Kiln said he did not wish to see mention of specific claims in the Audit Instructions.

On reinsurance, W N M Lawrence could give no help at all. Each syndicate would have to do its own "rough shot" of its potential exposure and would hopefully develop some feel for the sources from which claims will materialise.

W N M Lawrence was pressed to call a meeting of Panel Auditors early in 1982 to keep them informed of the latest position and he agreed to talk to E E Nelson and see what could be done. It was hoped to monitor available information in the market. Clearly there were some major losses developing and it was important that some form of intelligence was established with a view to pooling all available information from all sources within the London Market.

PA

10/11/81

Minutes of an Advisory Panel of Auditors meeting held on Tuesday 10 November 1981 [in relation to the same meeting as the above two sets of minutes]:
Reserves: the Panel consider that the current reserves were reasonable.

Under "Any Other Business", there was a discussion of asbestosis. R J Kiln reported that claims being made on notices as far back as 1947 where underwriters had been involved in direct insurances or reinsurances of companies covering liabilities of companies subject to asbestosis claims. WNM Lawrence reported that a data bank was being produced which would contain details in respect of 10-12 major assureds with all years of cover. Loss adjusters would then be able to make some estimate of underwriters' lines on such risks. Projections of claims for 3 or 5 years hence would be made and predictions of loss expenses for 2 or 3 years hence (in both cases in respect of direct business only). From the data bank it would be possible to give a rough estimate as to the exposure in respect of reinsurance business.

"R J Kiln pointed out that he did not wish to see mention of these specific claims in the Audit Instructions."

W N M Lawrence said that a Lloyd's market meeting would be held soon to appraise everyone (including auditors) of the situation in respect of the data base. It was agreed that a further meeting of the Panel would take place early next year to consider asbestosis and any other unconcluded business.

11/11/81

Attorney G to Underwriters at Lloyds Re: Assured: Assured 5.
Recommends substantial reserve changes reflecting a huge increase in the number of claims brought against the assured since their last report (January 1980). Since then 3,753 new claims have been brought against this assured by individual claimants throughout the US. As of 1 November 1981 the attorneys had received notices of a total of 4,656 claims. That is not all. As at 30 June 1981 the assured has stated that a total of 6,210 suits involving 7,877 claimants have been filed against them. Moreover, since 30 June 1981 there have been an average of 300 new claims per month meaning a current total of approximately 9,000 claims filed against Assured 5.

Reports cases of Porter v American Optical and INA v Forty-Eight Insulations which support the exposure theory of coverage. Notes that more recently, the Federal District Court in Eagle-Picher v Liberty Mutual ruled in favour of manifestation. More recently still the Circuit Court of Appeals Washington DC has held in the Keene case that coverage attaches on all years of inhalation exposure as well as during the years when the fibres were present in the human body without inhalation (exposure in residence) as well as to the year of manifestation of the disease. All four decisions are being appealed. So coverage remains a "perplexing issue".

"... It is thus possible that the manifestation rule of coverage may yet prevail which we believe would relieve the London excess insurers here from any liability. On the other hand, if the exposure theory as opposed to the manifestation theory ultimately prevails in the American Court System then we believe that Underwriters here in the 1964-1967 years will be required to make substantial payments on behalf of this assured".

"... We should advise Underwriters that there are numerous well-informed people who profess to believe that claims filed to date represent only the beginning of a potential flood of asbestos litigation ... Although the assured's involvement with products containing asbestos does not appear to be as substantial as other defendants in these matters, it may be that in the future the assured regularly will be included among the growing group of frequently named defendants in these cases ..."

As usual excess insurers are warned that the reserves relate only to those claims known by the assured thus far. Underwriters should carefully consider all the factors when establishing their reserves for asbestos losses.

SI

23/11/81

Business Insurance: Asbestos makers increase claims against government.
There are more claims being made against the US government by asbestos manufacturers seeking a contribution to the massive settlements in respect of asbestos related diseases.

23/11/81

Attorney H to the Underwriters at interest Re Assured: Assured 13.
To establish a prima facie case an asbestos plaintiff merely needs to produce evidence that:
1. the defendants manufactured, marketed or distributed asbestos insulation products;
2. the products were defective and unreasonably dangerous;
3. the plaintiff was exposed to any of the defendants' products;
4. the plaintiff's exposure was sufficient to be a producing cause of certain asbestos related lung diseases;
5. the plaintiff has or had an asbestos related lung disease;
6. the plaintiff suffered damages.

The industry generally recognises that when these criteria are established a case should be settled rather than risk the uncertainty of jury trials (juries impose far greater damages). Settlement is therefore the "conduct of choice".

Cases:
Porter and INA cases in favour of exposure, Keene, in favour of "triple trigger". And one district court in favour of manifestation (Eagle-Picher v Liberty Mutual). The principal thrust on Keene is that if any of the three triggers (exposure, manifestation or exposure in residence) occurs during a policy period then coverage is triggered in full for defence and indemnity.

A trial Judge in the US District Court in Pennsylvania in the case of Commercial Union v Pittsburgh Corning noted "the indisputable scientific fact that cumulative physical damage resulting from asbestos inhalation occurs prior to manifestation. As a matter of law, such exposure is a covered occurrence during the policy which results in injury. At a minimum the policy language is ambiguous and must be construed against the insurer".

The attorneys recommend that underwriters establish a $125,000 per year reserve for claims servicing in addition to the indemnity and defence expense reserves.

SI

23/11/81

Attorney H to Underwriters at interest Re: Assured 7.
"As of the end of September 1981, Assured 7 reported to us that it had 11,315 open cases, and that new cases were being filed at the rate of approximately 100 per week ... It is our observation that in cases where the Plaintiff is able to make out a prima facie cause of action, juries do find liability...."

Reserves: Not accompanying this report, but being transmitted directly to underwriters are the reports of the "Asbestos Claims Information System"... We are pleased to report that these reports are the end result at this point of intensive efforts on the part of outside computer consultants, Alexander Grant and Co. Inc., and members of the Asbestos Claims Sub-committee, C J Ayliffe and K Rayment and J Heath, to achieve computerisation of all asbestos claims.

Two Circuits have adopted the "Exposure" concept and one Circuit has adopted an extension of that concept in Keene v INA. One District Court has held to the manifestation concept.

Recommend that Underwriters establish reserves for claims servicing at $125,000 per year, in addition to indemnity and expense reserves.

SI

23/11/81

Attorney G to the Interested Insurers Re: The Assured 10.
"We are recommending in this report substantial loss reserves based upon an exposure theory of coverage. We do not believe the excess Insurers here should sustain a loss if the manifestation theory... is deemed to be applicable."

New claims are being filed at rate of approx. 500 per month and no decrease in number of new claims in reasonable future is foreseen.

This risk represents substantial exposure to the London Excess Insurers in the 1967-1972 period. The attorneys recommend substantial loss reserves based on an exposure theory of coverage.

Assured believes that if the US Government were judicially compelled to share in the asbestos related bodily injury loss payments then national legislation might be forthcoming to help avert the potential financial collapse presently being faced by many asbestos manufacturers and producers.

A figure of 9,955 individual claimants given as at 5 June 1981 may not be accurate because there may have been some duplication of claims. 1,945 additional claimants have brought suits as of 31 October 1981. The loss payment of the assured as of 16 September 1981 in respect of 897 individual claimant files closed since 1975 was $6,285,547 (or $7,007 per claimant).

The asbestos cases manifestly represent grave potential exposure to asbestos manufacturers and producers and the situation must be viewed as one of certain liability.

There are problems in establishing reserves:
1. the basis of liability coverage remains uncertain;
2. it is impossible to predict with certainty the number of product liability claims;
3. it is not yet known whether the underlying coverage was written on an aggregate or per occurrence basis.

Suggested reserves only refer to claims known to have been made against the assured to date and do not consider future bodily injury claims. Excess insurers are urged to consider these factors in establishing reserves to accommodate future claims.

SI

23/11/81

Attorney H to the Underwriters at interest Re Assured: Assured 1.
"We wish to advise that we have now received a 6th claim from Assured 1 seeking reimbursement from underwriters subscribing the policies for the years "7-1-52 to 6-30-60"."

The report discusses the case of Borel v Fibreboard and how a plaintiff can satisfy the burden of proof in an asbestos claim. Recommends that claims servicing reserves are increased to $125,000 per year, in addition to loss reserves.

SI

01/12/81

Letter from AWP to all Interested Underwriters containing a report by Elborne Mitchell summarising activities of the AWP since it was set up.
The report summarised some of the functions of AWP including to assist in the establishment and development of a database to provide claims information for reserve purposes. In this regard it noted that a database had been established with the assistance of Alexander Grant, computer consultant, and Toplis & Harding, Chicago. Further, that reports providing year end reserve information based upon the database output will be circulated to Interested Underwriters and that in the near future a room will be available at LUNCO for inspection of the numerous documents and computer printouts.

The report also noted that Assured 1 exhausted their primary cover with Travelers earlier in the year, but that a difficulty has arisen on the policies with the description of the underlying insurance on a number of years and that underwriters position has been reserved in this respect. That the broker has been unable to produce all the policies and slips for Assured 4, but that Assured 4 have sufficient proof to establish coverage in the London Market on all years from 1949 to 1960. Assured 7 has recently been reported as exhausting its primary domestic insurance cover with the result that claims will shortly be presented to Interested Underwriters in London.

As to the division between Underwriters and so-called manifestation versus exposure theories, the report stated that "it is not certain that the exposure and manifestation declaratory judgment actions are proceeding theories are either mutually exclusive or that they include all available alternative methods of allocation". Numerous in the US in which the manifestation/exposure issue is before the courts.

Four major cases have been decided:
(a) Eagle-Picher v Liberty Mutual (Court of First Instance) - decided in favour of manifestation.
(b) Porter v American Optical (Court of Appeal) - decided in favour of exposure.
(c) Forty-Eight Insulations v I.N.A. (Court of Appeal) - decided in favour of exposure.
(d) Keene v I.N.A. (Court of Appeal) - decided in favour of a combined manifestation and exposure.

The report said that "appeals are pending in each of these four cases and while Underwriters generally are looking to the Supreme Court of the United States for guidance it is not yet determined whether the Supreme Court will hear any one of more cases; nor is it clear to what extent a determination by the Supreme Court would assist in clarifying a different case on different facts".

Finally the report noted that the "database currently shows 14,526 individual claimants but on the basis of various projections which the Working Party is not in a position to verify, the total claimants will, in the end significantly exceed this number".

SI

04/12/81

Letter from Lloyd's Underwriters Non-marine Association.
Enclosing another position paper to be read in conjunction with the September position paper on US reinsurance contracts covering casualty business. "Obviously claims from the asbestos-related diseases are catastrophic and disastrous so far as whole the Insurance Industry is concerned but this fact alone does not automatically qualify them to be treated as "a catastrophe" or "a loss" within the definition or intent of the excess contracts."

SI

07/12/81

Business Insurance: Tobacco firms share asbestos liability.
This charts attempts by insurers and asbestos manufacturers to make the tobacco industry partly responsible for damages paid to victims of asbestos-related diseases.

12/12/81

Lloyd's List: Asbestosis may cost insurers more than $1 billion.
Insurers in London and the United States fear that compensation claims arising from the industrial disease asbestosis could well top $1 billion, making it the largest ever insurance loss. There is growing pressure on the insurers who include Lloyd's and the major companies to work together to handle the massive stream of claims from asbestos-companies in the US who are having to compensate workers suffering from inhaling the mineral. Beside the actual claims insurers are facing enormous costs by acting individually. A Lloyd's estimate is half as much again, but the major US Company Travelers calculates 77 cents in costs for every $ 1.00 in a claim.

14/12/81

Business Insurance: Supreme Court refuses asbestos policy cases.
"The Supreme Court's refusal last week to hear two appellate Court decisions on insurer liability for asbestos claims indicate that it will also refuse to hear the appellate Court decision in the far reaching Keene Corporation v INA case attorneys say."

14/12/81

Business Insurance: Settling asbestos claims.
Editorial: It now appears that the Supreme Court will not rule on coverage. Different coverage interpretations invites more costly litigation. BI encourages underwriters to heed the suggestion of R A G Jackson of Lloyd's that they adopt a clear policy on latent injury losses.

28/12/81

Business Insurance: Defending asbestos suit pays off for UNARCO.
A US District Court in November 1981 absolved two asbestos manufacturers of liability in an asbestos-related claim, apparently vindicating UNARCO's decision to defend cases as vigorously as they can.

31/12/81

Syndicates 604/605 (1981 Report)
"As in previous years, provision for liability for various latent diseases especially Asbestosis, remains a major factor in the amount of premium required to assume the outstanding liability on prior years. In addition there is the Whole Account Excess of Loss reinsurance taken out last year giving additional protection to 1977 and previous years."

00/01/82

Paul W. McAvoy: The Economic Consequences of Asbestos-Related Disease.
By 2015 there will be between 154,000 and 450,000 excess deaths from asbestos. Future compensation would be between $8 billion and $87 billion, with most likely estimate being $38 billion. The large payments that will result from asbestos product liability suits are likely to go beyond the financial capacity of the insurance industry to meet them as well as their other financial obligations.

11/01/82

Minutes of AWP Meeting taken by Elborne Mitchell.
C J Ayliffe stated that "there might be some 150 insureds involved in asbestos-related claims but his view was that there were only 19 principal accounts placed in the London Market..."

AWP

15/01/82

Minutes of a Panel Auditors Meeting - Notes taken by Audit Department:
"The main purpose of the meeting was to inform Auditors of the latest position with regard to the large number of outstanding claims due to various latent diseases." E E Nelson then mentioned Agent Orange, Love Canal, DES and Asbestosis. "Mr Nelson briefly mentioned the first three but said that at present they were not significant compared with the problem of asbestosis .... A department had been set up within LUNCO premises ... all the details of the slips and losses etc. had been fed into a computer and auditors were advised that they should seek their clients' permission to access the information on this computer. The computer programme would give a fully computerised claims pay out breakdown.

E E Nelson than went on to explain that due to varying interpretations of where the liability should fall by way of the Courts, there was still great doubt as to which years of account were liable to pay the claims. There were two bases of liability: 1. Manifestation ... 2. The liability could be spread over all years on which the insurers were on the risk. In certain Court decisions in the US it has been decided that whichever route produced a greater settlement for the plaintiffs could be used, and this, E E Nelson said, was grossly unfair to reinsurers and was still being contested."

PA

25/01/82

Note of a Panel Auditors Meeting which took place on 15 January 1982.
Memo to Lloyd's audit partners and staff from P B Milne of Littlejohn Fraser.
Re: Lloyd's Audit of 31 December 1981
E E Nelson advised on asbestosis:

There is to be no specific audit instructions other than a reference to the incidents of late claims arising from product and disease insurance. There have been some 15,000 claims notified (increasing at the rate of 400 per month). By mid to end 1980s it is expected there will be some 25,000 claims in total. E E Nelson thought that the estimate by the Prudential of 2 million claims was well wide of the mark. The Committee of Lloyd's has set up a database whereby the full details of all known syndicates liable are stated. At present loss reserves have been based on an average cost per claim of $125,000 plus expenses of £10,000 per claimant. Currently this means a total claim of $2.025 billion. On an exposure basis 40% is with the London companies and Lloyd's, on a manifestation basis it is 10%. E E Nelson also reminded the Panel Auditors of three other product claims requiring consideration; Agent Orange; Love Canal; and DES.

Court actions to date have taken the form of 15 declaratory actions to determine whether insurers are liable to assureds. Courts have ruled in three actions;

1. INA v Forty-Eight Insulations (exposure);
2. Eagle-Picher (manifestation);
3. Keene (both exposure and manifestation to ensure that maximum benefit accrues to the claimant).

"Clearly, the foregoing decisions are a bit of a nonsense and the London Market is currently in the process of appealing to the US Supreme Court to obtain a sensible ruling".

PA

16/02/82

AWP Letter to Market (Mr Tayler)
"The arrangements are complete for the establishment of an office at LUNCO where documents and computer print outs can be inspected by underwriters. Your auditors may also want to see the information, however, in view of the need for confidentiality it will be necessary for them to be accompanied by your own representative".

"In view of the uncertainties of the future, it is difficult at this stage to provide the Market with any meaningful projection of the developments that are likely to take place over the coming years in regard to this problem. However, the number of claims is likely to escalate and for this reason, I must emphasise that future deterioration is inevitable."

24/02/82

The Neville Russell letter.

01/03/82

Minutes of an AWP Meeting.
"The Chairman stated he was concerned over the reaction from Underwriters regarding the opening of the Claims Office at LUNCO and thought it was fair comment to say there was some disappointment. In particular, many had envisaged the Office would be capable of informing them of individual syndicate participation in respect of the numerous Assureds. Mr Ayliffe stressed that the information would improve."

Panel Auditors. "The Chairman raised the question of the letters which had recently been circulated to Underwriters by the Panel Auditors. He believed the Auditors appreciated that it was not possible for Underwriters to be precise in their reply although he was disturbed at the ignorance displayed by certain syndicates on the question of Asbestosis generally."

AWP

02/03/82

Meeting of Lloyd's Audit Committee.
Mr Chester raised the question of the reinsurance of underwriters asbestosis liability in the Lloyd's market (i.e. effectively amounting to reinsurance of the asbestosis "tail") and expressed concern that such liabilities could fall on comparatively few syndicates. Mr Merrett considered that it would be inappropriate for such reinsurances to go unnoted and unreserved by Panel Auditors and that it would be improper for a syndicate taking such reinsurances without telling its own Names.

09/03/82

Meeting of the Lloyd's Panel of Auditors.
E E Nelson said that there were at present 400 new claims per month being advised. If this were projected over ten years it would lead to 50,000 claims. E E Nelson said that in his view a figure of 50,000 new claims over the next ten years was realistic but that the report of 2 million new claims could well be an exaggeration.

Mr Chester raised an ancillary matter which was the writing by certain Lloyd's syndicates of the reinsurance of other syndicates asbestos liability. He said that this could lead to the funnelling of a large amount of liability into a small number of names. He continued by saying that consideration was being given to asking the market to stop writing such reinsurances in the open years.

PA

11/03/82

E&W internal letter from MA Bolger to Partners and Managers involved in Syndicate Audits.
In the white letter accompanying this year's Lloyd's audit instructions the attention of auditors is drawn to risks which include liability for latent diseases and products liability when assessing the adequacy of reserves. The fact that there are major losses under these categories has been known in the Lloyd's Market for some time and syndicates have created reserves in respect thereof. The subject was raised at a meeting of advisory panel of auditors in November 1981 at which it was decided to hold a special meeting to provide further information for auditors. The special meeting was held in January under the chairmanship of RJ Kiln and auditors were addressed by E E Nelson, the immediate past chairman of a Lloyd's Committee set up to investigate asbestosis losses. The meeting was told that asbestosis was one of a group of diseases which are referred to as latent diseases. These comprise Agent Orange, Love Canal, DES and asbestosis. These losses are principally in US $ and can mainly be classed as products liability claims. The Lloyd's Market is meeting claims in non-marine syndicates, in marine-syndicates writing non-marine business and also in aviation syndicates. The losses can arise from direct writings, from the reinsurance of particular US companies, from other reinsurance contracts and in some cases by the acceptance of running-off accounts ... It is understood that there are 40 insureds of which 19 are direct in the London Market. In respect of 15 of these, all the slips placed in the London Market have been found. The total number of cases in litigation is in the region of 15,000 and this number is growing by approximately 400 per month. The product was readily available between 1945 and 1975. The pattern in Lloyd's is that up to 1962 syndicates have insured American carriers direct, and thereafter they have covered American companies by reinsurance in the London Market. The current state of litigation suggests some uncertainty as to who is liable, Courts in the USA having settled cases on both an "exposure" and a "manifestation" basis. There is apparently the possibility of an appeal being made to the Supreme Court but this has, so far, been turned down. The size of the asbestosis problem became apparent some 2 years ago when it was agreed that normal assessments of settlements were not suitable. A committee was set up and in April 1981 a data base was established on computer ... Estimates have been made on the basis of an average cost per claim together with an estimate of expenses. The average was said to be $125,000 plus $10, 000 for expenses ... an office has now been established within LUNCO and the records can be examined by auditors provided they are accompanied by an underwriter ... In compiling reserves for asbestosis reports have been made available to underwriters by brokers in the usual way setting out policies which have covered the various asbestos insureds ... this information has enabled underwriters to calculate their maximum exposure on direct writings. The data base which is also limited to direct writings is available as a back-up to records compiled by individual underwriters. Syndicates will have to assess liability on facultative and treaty reinsurance and on any run-off business accepted, and then see what reinsurance protection they have available. In the office, a questionnaire has been prepared which has been sent to clients, there having been some liaison between firms following the Panel Auditors meeting. As a result of problems that have arisen in quantifying reserves for asbestosis, further meetings between Panel Auditors and the Audit Committee at Lloyd's have taken place.

18/03/82

The Murray Lawrence letter.

19/03/82

Ernst & Whinney internal memo from NF Holland to Insurance Partners and Managers Underwriting Department.
"Herewith the latest epistle on asbestosis. I cannot believe that at some stage we are not going to find a syndicate where there is a major problem. If any partner is unhappy about a particular situation I suggest he lets me know and we will try and organise a PSP type meeting so that a view can be formed and the partner can then talk to his clients knowing he has the full backing of his colleagues".

PA

22/03/82

Minutes of an AWP Meeting taken by Elborne Mitchell.
"The Chairman reported that up-to-date computer printout information was expected at the claims office shortly and that this indicated a 22% increase in asbestos related claims for the current quarter. It was agreed that this information should be released to the Market promptly. No Insureds, in addition to those already known, are shown in this latest information".

AWP

16/04/82

Ernst & Whinney internal memo from NF Holland to Insurance Partners.
Asbestosis. Comments that in view of the well publicised problems in estimating outstanding liabilities in respect of asbestosis claims, and the subjective judgments involved therein, it is imperative that audit files are accurately documented this year. In particular, auditors must insist on syndicates supplying specific information in relation to asbestosis and other latent diseases in view of the letter issued by Lloyd's on 18 March 1982. Insofar as this letter goes beyond the information requested by auditors in their letter this additional information should also be recorded on the auditors file.

PA

27/04/82

The Washington Post: The asbestos mess.
"The likelihood of bankruptcies among manufacturers and insurers, the lack of remedy for the victims and the unmanageable legal mess that is burdening court schedules make it imperative for Congress to stop its endless studying of the problem - this has been going on for years - and take action."

28/04/82

Letter from Chairman, AWP and Chairman, Non-Marine Reinsurance Sub-Committee to Market.
"The Non-Marine Reinsurance Sub-Committee has recommended that the Asbestosis Working Party make arrangements to add treaty reinsurance asbestosis related claims to the existing computer programme. As the Working Party has no authority to handle treaty reinsurance matters, this will be a record keeping exercise only".

00/05/82

Syndicates 418/422/417 (1981 Report):
"During the year there have been significant developments in the United States which have led us to increase the very substantial provision already made for claims as a result of asbestosis and after latent diseases. There has been a substantial increase in the losses advised, both in terms of total numbers and in the anticipated average settlement of such cases as may be proved: the legal charges are very considerable. With more information available, reinsurance claims are also higher. Perhaps of greater significance has been the thrust of judgments in the United States Courts. It has become necessary to review our exposure not merely on the basis of exposure (those years when the plaintiff was exposed to the noxious substance) or manifestation (that year when the disease was detected), but an aggregation of both plus all the years in between. It is too early to estimate (in public) what the consequences of the development of this approach of the Courts might be. Unfortunately such reinsurance as the syndicate carried in some of the years has already been exhausted by earlier recoveries. Our annual review of other continuing liability on old years has shown some need for increase, not unexpected where awards will see some inflationary effect."

00/05/82

Syndicate 553 (1981 Report):
You will be reassured to learn that I have no reason to believe that the syndicate is heavily involved with asbestosis claims."

00/05/82

Syndicate 219 (1981 Report):
"Last year I referred at some length to the "Asbestosis" problem which, as anticipated, has worsened during the year and will continue to do so for quite a while to come. The situation is further confused by the total failure of American Courts to decide which insurers should pay what and, with the Supreme Court declining to intervene, it is difficult to see a speedy solution being found."

00/05/82

Syndicate 367 (1981 Report):
"Another factor which affected the 1979 Account adversely was Asbestosis, about which a lot has been written in the National Press. This has produced potential claims going back about 30 years. Though in themselves, our losses are relatively small they do accumulate into quite a substantial figure. It is very difficult to predict the outcome of these, but we have carried forward a considerably higher figure then the claims advised to take care of Asbestosis and other latent disease claims."

00/05/82

Syndicate 918 (1981 Report):
"The 1979 account of Syndicate 918 has been left open because of the uncertainties surrounding the ultimate liabilities with regard to "Asbestosis" claims, for which a specific provision amounting to £747,813 has been made in addition to our reinsurance to close ..."

00/05/82

Syndicates 112/114/316 (1981 Report):
"You should know the position we have taken with regards to claims on Asbestosis. We have put into reserve a sum in excess of $300,000, [sic] which is the amount of expected claims that we anticipate may be settled. There are figures given to us which are in excess of this amount but I am unable to give credence to such figures ..."

00/05/82

Syndicate 34/652 (1981 Report):
"In view of the potentially serious situation which is developing in connection with claims being made in the USA by sufferers of asbestosis, it is the wish of the Committee of Lloyd's that any involvement in these policies should be made known to the Names concerned. We did write a number of such policies between 1959 and 1969 in our Incidental Non-Marine Syndicate. At this stage, the extent of the losses is far from clear; however we are confident that, in the light of the knowledge we have at present, the reserves that we have set aside are more than adequate for the worst eventuality."

00/05/82

Syndicates 310/236 (1981 Report):
"We have been advised of, and have settled, one asbestosis loss this year ... The figures involved are small but I think it wise to establish a fund for this type of claim and, accordingly, I have increased our reserves to cover this unknown and un-noted contingency."

00/05/82

Syndicate 342 (1981 Report):
"The Committee of Lloyd's has strongly advised us to inform Names of any involvement in Asbestosis claims and the manner in which the Syndicate's current and potential liabilities have been covered. I have no reserves or claims as such, but I do have one policy where an involvement is remotely possible. I have made provision in my reinsurance to close for that policy to be a loss."

00/05/82

Syndicates 584/667 (1981 Report):
"The most remarkable and dangerous event of the year [1979 and previous] was the flood of claims for asbestosis ... Many of these claims relate to insurances which expired 20 or 30 years ago and the complications are considerable, so far this Syndicate has not been deeply affected, but I have thought it right to provide for possible future exposures. For the first time the total Syndicate carry forward exceeded £10 million."

00/05/82

Syndicate 183 (1981 Report):
" Turning to the Accounts, it is worth noting the dominant effect our reinsurance to close has on the result for the year. With the problems of asbestosis, and the like, very much in all our minds, we clearly cannot afford to underestimate the value of claims still to be reported. On an account such as ours we have only seen the tip of the iceberg to date and we have done our best to make a realistic assessment."

00/05/82

Syndicate 810/840/930 and 618/408/346 (1981 Report):
"The 1979 account of syndicates 618, 408 and 346 has been left open owing to the uncertainties surrounding the ultimate liabilities with regard to "Asbestosis" claims, for which a specific provision amounting to £1,882,964 has been made in addition to our reinsurance to close. These funds and the investment income earned thereon will be available to meet losses when they arise."

00/05/82

Syndicate 918/940 (1981 Report):
"The 1979 account of syndicate 918 has been left open because of the uncertainties surrounding the ultimate liabilities with regard to "Asbestosis" claims, for which a specific provision amounting to £747,813 has been made in addition to our reinsurance to close. These funds and the investment income earned thereon will be available to meet losses when they arise."

00/05/82

Syndicate 471 (1981 Report):
"Claims arising from Asbestosis are being incurred on the Liability Account, but at present, are not of great frequency or size to the Syndicate and special reinsurance arrangements have been made to limit any future changes in this situation to amounts which should be easily contained within the normal operation of the Account."

00/05/82

Syndicate 947 (1981 Report):
"As predicted in my Report last year, 1979 has closed with a loss. The fall in the value of the pound against the US Dollar during the year, which increased the loss on U.S. Dollar business in terms of Sterling, cost no more than expected. However, the purchase of reinsurance has relieved the necessity of making substantial reserves to cover losses arising from past underwriting years, in particular those associated with latent disease claims. All years prior to 1976 have been reinsured in full, with Lloyd's Syndicates providing unlimited reinsurance in excess of a policy placed with an insurance company. I am hopeful that the problems of the casualty account are now behind us".

13/05/82

The Financial Times: Perils of US Asbestos litigation.
"Asbestos claims are the latest and fastest-moving product of the US litigation industry. They run into tens of thousands, necessitate the appointment of additional judges to deal with them, and present a potential threat to [the solvency?] of manufacturing and insurance companies alike. The legal issues generated by these claims are largely unresolved - or, to be more exact, have been resolved differently by different appellate courts ... The refusal of the Supreme Court to review the [Keene] case leaves the lower courts free to go their own way, and manufacturers and insurance companies uncertain about their liabilities and claims ...That decision represents a financial threat to industry and insurers of such a magnitude that it could be handled only within the assistance of public funds. Commercial Union estimates that, as a result, liability over the next 20 years connected with deaths caused by previous exposure of former asbestos workers could amount to some $38 billion. To this would have to be added claims for injuries that do not result in death, and claims by others, for example those using asbestos products. The combined assets of the asbestos industry and of their insurers would, it is evident, not be enough to meet such claims .... The Court [in Keene] went so far as to say that insurers were liable to Keene even during the period its insurance may have lapsed."

27/05/82

Order made by the US Environmental Protection Agency ("EPA") in May 1982.
Required that all schools and similar public buildings constructed prior to January 1979 be tested within 12 months to determine the presence of friable (i.e. flaking) asbestos. There may have been isolated instances of property damage claims before this order, but this was the origin of the bulk of the subsequent property damage claims.

00/06/82

Syndicate 707 (1981 Report):
"Members of this Syndicate will probably wish to know of their involvement in Asbestosis. The claim situation concerns persons working in the asbestos industry and the alleged death and disability resulting from their exposure to asbestos dust. The policies on which we are concerned go back many years, in some cases thirty years ... we have ... allocated reserves for this situation and these retentions have been increased this year. This loss is being closely monitored and I am convinced sufficiently protected ..."

00/06/82

Syndicate 90 (1981 Report).
"...The small loss on underwriting was mainly due to additional provision for possible claims relating to asbestosis and other types of latent disease on old year policies and reinsurance contracts ..."

"Our last two reports have mentioned asbestosis and we feel that our Names would like a summary of the position..." [a summary of the syndicate's position follows].

00/06/82

Selikoff Report - Disability Compensation for Asbestos-Associated Disease in the United States.
Dr. Selikoff issues a further report for the US Department of Labor. The report, running to 650 pages, describes in detail the effects of exposure to asbestos and projections of death and partial incapacity which were to be expected as a result of exposure to asbestos.

From 1940 through 1979, 27,500,000 individuals had potential asbestos exposure at work. Of these, 18,800,000 had exposure in excess of that equivalent to two months employment in primary manufacturing or as an insulator. 21,000,000 of the 27,500,000 and 14,100,000 of the 18,800,000 are estimated to have been alive on January 1, 1980.

Approximately 8,200 asbestos-related cancer deaths are currently occurring annually . This will rise to about 9,700 annually by the year 2000. Thereafter, the mortality rate from past exposure will decrease, but still remain substantial for another three decades.

One of a number of reports produced by Dr. Selikoff.

14/06/82

The Wall Street Journal: Suits Over Asbestos Touch Off War Among Insurance Firms Over Who Will Pay Billions.
Some 16,000 damage suits already filed against asbestos companies, with new cases arising at a rate of more than 450 a month. A few experts contend that some insurers could collapse under the weight of asbestos claims. The flood of legal cases is likely to grow. Selikoff has estimated that 8,500 workers will die each year until the end of the century from asbestos-related cancer. The fight among insurance companies is likely to get worse. The US Supreme Court has refused to decide between conflicting theories of liability. This leaves standing a series of often contradictory State and Federal Court decisions. Paul W McAvoy, a Yale University Economist, predicts that payments to asbestos disease victims are likely to exceed $38 billion and could go as high as $90 billion over the next 35 years. He argues that some insurers may face financial ruin. Others think that such talk is "nonsense". However critics of Mr McAvoy have failed to come up with their own figures. Insurers are wrapping their asbestos liabilities in an "veil of secrecy". It is unclear how many claims are going out of the back door to reinsurers. Only 30% of asbestos claims are filed under Workers' Compensation schemes since their awards do not match the hefty awards made by some juries.

14/06/82

The Wall Street Journal.
"U.S. schools are facing the costly task of locating (and), fixing asbestos hazards. The EPA estimates that up to 14,000 public and private schools may have potential asbestos hazards ... Estimates of the cost of either covering up or removing potential asbestos hazards in the nation's schools run as high as $400 million to $900 million ..."

27/06/82

Financial Times: Assured 1 overwhelmed by law suits.
"Assured 1 yesterday petitioned for protection under Chapter 11 of the Federal Bankruptcy Code. It is the first time in memory that a constituent of the Dow Jones Industrial Average has taken this step ....The Company is now forecasting at least 32,000 more law suits. Mr McKinney said the total costs could exceed $52 billion."

16/07/82

Letter HR Rokeby-Johnson to Winchester Bowring for Sturge.
The claims arising from the ingestion of asbestos fibres by all those involved in handling this material seem likely to be the biggest claim ever to confront the Insurance Industry not only in the United States but also throughout the world. Various attempts have been made to quantify the potential final sum of all payments and some very large figures have emerged. Over 7,000 people actually die each year in the United States from asbestosis and it is expected that this figure will soon increase to 9,000 or 10,000 these deaths and disablements will continue to be reported for the next decade or more and if it is reasonable to suggest that the average settlement of each claim is of the order of $100,000 including costs and expenses and that the number of serious claimants may reach 100,000 or more the final claim would be $10 billion at least. On these figures it is not impossible to forecast the Sturge gross involvement at $40,000,000 - $50,000,000.

26/07/82

The Financial Times: Underwriters prepare for huge asbestosis claims.
Insurers are facing the largest series of claims in their history as victims of asbestosis file suits. Estimates are that claims could amount to $150 billion (£85 billion) by the end of the century. Insurers, including Lloyd's, are already involved in more than 15,000 legal actions. Special reserves are being created by underwriters.

"The exposure of Lloyd's on the asbestosis problem is by no means as great, although underwriters there might be liable for anything up to a quarter of whatever is claimed". Although claims will exceed by a great margin those paid out on computer leasing liability the asbestosis claims will be mitigated by being spread over many years. Lloyd's identified its difficulties over asbestosis three years ago. It faces a double problem: it insured industrial companies and it also reinsured other insurers who had offered liability cover. The main problem for underwriters is extensive litigation, as asbestosis victims claim compensation in the courts. One underwriter reports that the problem "gives us enormous difficulties in identification of who is responsible for indemnifying the assured". Insurers are finding it difficult to arrange retroactive reinsurance cover on their outstanding asbestos liabilities.

30/07/82

WIR: Commercial Union Assurance Co. Ltd. London, considers asbestos litigation a major threat to the property and liability industry.
It estimates liability over the next twenty years connected with deaths caused by exposure of former asbestos workers could amount to $38,000 million, and that the combined assets of the asbestos industry and their insurers would be insufficient to meet such claims. An average of $233,000 per claim settled has been estimated by a Yale University study partly financed by Commercial Union.

02/08/82

A M Walker. Projections of Asbestos-Related Disease 1980-2009. Final Report.
Epidemiology Resources Inc. The study foresees between 18,700 and 21,500 new mesothelioma cases, 55,000 new lung cancer cases and 135,900 to 178,100 new asbestosis cases of which 41,900 would become suits. Relied on Assured 1 by its bankruptcy petition. Estimates between 30,000 and 120,000 new lawsuits related to asbestos; likely figure to be 120,000.

26/08/82

Assured 1 and most of its subsidiaries file for Chapter 11 bankruptcy.

28/08/82

Financial Times: Assured 1 claims $5 billion.
Assured 1, the world's biggest asbestos company, filed for protection under the US Bankruptcy Code on Thursday. It is seeking punitive damages of $5 billion from insurance companies alleging that, by denying insurance coverage for claims over asbestos-related diseases, the insurers forced Assured 1 to file for relief under the bankruptcy law. The Defendants include various Underwriters at Lloyd's of London.

[Claim against Lloyd's settles in May 1984 - see below.]

31/08/82

Lloyd's List: Assured 1 faces $2 billion asbestosis liability.
"Assured 1 the world's largest producer of asbestos, has a potential liability of 52,000 lawsuits costing $2 billion ... last week the company sought the protection of United States Chapter 11 bankruptcy proceedings because of the possible burden of litigation costs in asbestosis cases ..."

00/09/82

Report by Conning & Co: Potential impact of asbestos on the insurance industry.
The insurance industry's ultimate liability is estimated as between $4 billion and $10 billion with the lower range appearing most probable at present. The exposure theory seems to have been accepted by the Courts. The impact on the insurance industry is not expected to be catastrophic because of the long period over which the claims will be experienced. However, individual companies may be severely affected and some have already significantly strengthened their reserves.

Additional reserve strengthening may be required. It is also possible that "numerous excess and reinsurance carriers may be greatly understating their potential liabilities." Although the Courts have tended to maximise available insurance coverage many legal questions still need to be resolved. This makes projecting with any accuracy very difficult. Current estimates of claimants vary between 25,000 and 50,000. Insurance company officials think the latter figure is closer to the truth but the figures may be misleading because of multiple counting. Reports estimate there are currently between 15,000 and 20,000 claimants involved in asbestos litigation. Assured 1 have reported that they have 16,000 claimants and they have been subject to the bulk of the litigation. This ignores expected future claims which are difficult to project due to the long latency period for asbestos related diseases. Claims against Assured 1 are currently increasing at a rate of about 400 per month. Conning & Co believe that claim incidence rates will not be as severe after 1990 but that new claims will none the less continue to be reported. They believe that between 83,000 and 178,000 asbestos claims can be expected during the next 28 years. Assuming that approximately 50% of these claims will fail this leaves between 40,000 and 90,000 successful claimants.

24/09/82

W.I.R. Asbestos: US Government refutes liability.
"Assistant US Attorney General told a House of Representatives labour standard sub-committee that the Federal Government "will refuse to accept any legal responsibility" for compensation of asbestos victims. Representatives of George Millar, from the sub-committee, said the industry could afford the cost of providing care for asbestos harmed workers ... Assured 1 has released further details of a study which was used to justify its bankruptcy filing last month. The study, by Epidemiology Resources Inc., Boston, estimated a low figure of 30,000 and a high one of 120,000 new law suits related to asbestos health. Manville's estimate of 52,000m based on the lower estimate could go as high as 55,000m based on the higher figure. ... Dr Irving Selikoff, Cancer Expert at Mount Sinai School of Medicine, New York, has said that the Assured 1 study results were too low."

30/09/82

Syndicates 604/605 (1982 Interim Report):
"The legal wrangles over the settlement of latent disease claims, especially asbestosis, continue to persist. The main argument has centred round whether policies in force when the plaintiff was exposed to certain conditions respond or these policies in force when the disease manifested itself. There is even a court decision in the USA which has the effect of making payment possible under both sets of policies."

01/10/82

Chairmanship of AWP.
HR Rokeby-Johnson succeeds D. Tayler.

09/10/82

Lloyd's List: Assured 1 used two claim assessments.

03/11/82

Lloyd's List: Company files for protection from asbestos claim deluge.
Assured 21 has filed in Philadelphia for protection under Chapter 11 of the Federal Bankruptcy Code from a deluge of asbestos-related damage suits bought before the company since the mid - 1970s.

08/12/82

Lloyd's List article by David Mann, Director Merrett Syndicates:
Asbestos Presenting a Growth Loss Potential. Asbestos claims will have a dramatic effect on the results of insurance and reinsurance markets world-wide. Settlements of claims will undoubtedly stimulate more claims related to this and other environmental or product related causes (e.g. Agent Orange, DES or Love Canal). Although many insurers, especially Lloyd's, have established reserves, the loadings for adverse deterioration may be tested. Markets will probably not have anticipated the measure of likely asbestos claims. It remains to be seen where deficiencies may exist.

"Within the Lloyd's market, where very strong opinions are usually to be found, conjecture regarding the ultimate quantum of asbestosis and other latent disease losses have stimulated a relatively new and fascinating level of reinsurance trading." The "run-off" reinsurance policies are mentioned as an example of such unusual innovation.

"The syndicates in Lloyd's which have recently chosen to assume the worst potential of the latent disease phenomenon demonstrate that London is still the source of the most interesting and speculative initiatives - Very few reinsurance markets have found themselves able to apply rating judgment to these most volatile risks except on the basis of a limited liability. The consensus of opinion, even in London, appears to judge the unlimited aspects of such risk assumption as involving totally unacceptable long-term characteristics in view of the premiums available."

22/12/82

Letter from Attorney H to C J Ayliffe Re: Property Damage Litigation against Assured 3B.
Reports class action suits pending against Assured 3B and other defendants in Pennsylvania arising out of the presence of asbestos materials in schools and other public buildings. Status of these claims at the present time is uncertain. But separate reserve provisions should be established once additional details of potential exposure become known. In the meantime, confirmed recommendation of an expense reserve of $125,000 per year for each policy year.

31/12/82

Syndicates 604/605 (1982 Report):
"The closed year Account continues to be dominated by the Industry's problem with Asbestosis. There is very little of consequence to say since our interim report except perhaps to mention that the legal expenses are mounting at an ever increasing rate. The position continues to be monitored very carefully."

00/01/83

Munich Re: Asbestosis, liability loss of the century ...
"Extrapolating the current figures up to year 2010, when the dormant period for the presently employed expires, we obtain a total loss amount of at least $4 billion. That does not mean, however, that losses of this amount are also covered by liability insurance ... Is asbestosis really the liability loss of the century? For all insurers and reinsurers operating in the USA it certainly is the liability loss of the 80s, a very costly experience ..."

11/01/83

Press release agreed at meeting of Asbestos Claims Council.
To co-ordinate processing the mounting number of asbestos related claims and then speed their disposition, 11 major asbestos insurers and Lloyd's of London have formed the Asbestos Claims Council. "The insurance industry faces overwhelming litigation" said Ray Stahl, chairman of the Council, "with 20,000 claims pending and tens of thousands more expected over 30 years. The flood of asbestos litigation is adversely affecting not only asbestos claimants but others seeking civil resolutions ... The ultimate cost in insurance payments will be in billions of dollars ... and, if past experience is repeated, half the insurance payments will be spent on legal fees and related defence costs.

The Council, comprising senior claims executives of the insurers, formalises the objectives they have been pursuing informally: (1) Identification of the objectives as "We are prepared to move rapidly to help solve the complex asbestos claims problems, starting with co-ordinating claim processing decisions and actions among the insurers". (2) Paragraphs on the people (a long list) with whom the Council will work. Members of the Council and the insurers they represent are, inter alia, James Ayliffe, Lloyd's of London. Raymond Stahl, The Travelers Companies."

20/01/83

Attorney H to the Chairman, AWP (Rokeby-Johnson) Re: AWP's Activities During the Past 12 months in Asbestos-related Problems.
Notes the continuing increase in suits arising from asbestos related claims and the greater involvement of the London market. On coverage, the US Courts have emphatically demonstrated the desire to maximise coverage. Notes the decision of the US Court of Appeals District of Columbia in October 1981 to expand the scope of the judgment of the lower court in Keene v INA.

"... it has become the demonstrated goal for insureds in order to secure maximum possible benefits from their coverage."

Suits continue to be reported at approximately 500 per month but there are some indications that the severity of injury/disease is less serious. Too early to draw any firm conclusions. The filing of chapter 11 proceedings by Assured 22, Assured 1 and Assured 21, clearly created many problems for plaintiff and defendant alike. All suits being recorded in the data bank (which is now being extended to cover reinsurance). The AWP has established an information office and participants can inspect the print-outs produced by appointment. There is also the fortnightly publication "Asbestos Litigation Report".

During the past twelve months there have been few developments in the actions in which London are involved: no consistency in decisions to date.

Consideration being given to coordinated defence by defendants in U.S. (e.g. single counsel) given that there are 20,000 claims in litigation.

"Per case indemnity and defense cost reserves used on each insured account are adjusted annually to reflect the potential cost of known claims based on the experience of the previous twelve months."

Attorney H note that underwriters should be aware as a result of an order issued by EPA in May 1982, it is likely that considerable activity will develop in regard to property damage. The EPA has mandated that all public buildings constructed prior to January 1979 must be tested for friable asbestos. This raises substantial questions as to coverage and the date of attachment.

AWP

24/02/83

Minutes of a Panel Auditors' Meeting.
In June 1982 US Labour Department statistics estimated that 21 million workers has been exposed to asbestos in the last 40 years. Estimated that 8,200 to 9,700 deaths attributed to asbestosis would occur over the next 20 years. $38 billion worth of claims expected. Alexander Grant of New York to manage a data bank for direct asbestosis claims. The input would come from claims attorneys. At present there are 25,000 or more claims on the database. Information is available at Bankside House. Assured 1 went into chapter 11 bankruptcy on 26 August 1982 with 4,000 closed cases and 17,000 other cases. They are expected to get 52,000 cases by the end of the century. Assured 7 have 10% of the US market. No agreement on coverage. It is possible that other claims may be made (eg downwind claims or claims related to asbestos in buildings). Auditors have available to them the Attorney H year end report and the AWP report.

PA

04/04/83

Business Insurance.
Reviews the asbestos crisis

00/05/83

Syndicates 34/652 (1982 Report):
"Names will recall my reference in last year's report to reserves we are carrying in respect of Asbestosis and other latent disease claims on years prior to 1970.

Although many of these claims will undoubtedly be settled eventually, it is heartening to report that new advices have dwindled to a trickle, and that our conservative policy of reserving has virtually obviated the need for any further loading on this front."

00/05/83

Syndicate 219 (1982 Report):
"I have referred in my last two Reports to the problems brought about as a result of asbestosis claims. These are growing and will continue to grow as time goes by. The American state courts come up with a bewildering series of totally contradictory verdicts which seem to be largely dictated by what basis gives the claimants most compensation rather than any real attempt to interpret the Law. Underwriters are anxious to get money to the claimants rather than solely to the lawyers as at present, but with the Supreme Court refusing to give any sort of lead, it is difficult to see any solution. All parties concerned are attempting to join together to form an "Asbestosis Claims Council". Whether this idea will get off the ground I don't know, but possibly this body plus ultimately some Governmental involvement is the only way forward."

00/05/83

Syndicates 310/236 (1982 Report):
"I have continued to reserve on a conservative basis. With a long-tail account, estimating a proper future to cover outstanding claims is at best an inexact science, and it is box policy to reserve with a certain amount of pessimism. To this end, I have increased our fund to cover those well known and un-noted claims on the so-called "health hazards" which I believe will be a feature in our products accounts in future years, if such hazards are ever manifested as illnesses."

00/05/83

Syndicates 584/667 (1982 Report):
"1980 has been closed with a result slightly below expectations; this was due to two factors:-

... 2. There is a general fear of the eventual magnitude of asbestosis claims.

3. In consequence of (2) and of the adverse publicity on Lloyd's accounting methods, it seemed wiser to take a very conservative view of the Syndicate's outstanding liabilities."