How Much Will Silica Claims CostInsurers?

How much will commercial liability insurers ultimately end uppaying out on silica-related claims? So far, the usual expertsinvolved in asbestos analysis aren't willing to hazard a guess, andeven the number of claims that individual insurers already have hadreported to them remains a well-guarded secret.

The first mention of silica-related exposure by an insurancecompany that National Underwriter is aware of came duringan early 2003 investor conference call for Chicago-based CNA. Askedabout asbestos litigation trends at that point, Jonathan Kantor,general counsel for CNA, responded that in addition to asbestosclaims trends, his company was looking “very carefully” atsilica.

“We have seen quite a bit of activity in the area of silica. Itis obviously not asbestos, but it is considered part of our masstort book. So stay tuned for developments there,” he said.

More recently, CNA's 10-K filing gave this view of litigationactivity: “The company recorded $80 million in unfavorable masstort net prior-year development in 2003, due in part to theelevated volume of silica claimsThe most significant silicaexposures identified to date include a relatively small number ofaccounts with significant numbers of new claims and substantialinsurance limits issued by the company.”

Beyond that disclosure, commercial insurance companyrepresentatives contacted by NU either declined to beinterviewed or referred us to the Coalition for LitigationJustice.

The Coalition has reported that one large unnamed insurancecompany has seen a tenfold jump in claims since August 2002, with30,000 claimants now included on its books. While Mark Behrens,counsel to the Coalition, revealed that the insurer that collectedthe information did so under the condition that its identity wouldbe kept confidential, he did note, based on conversations withother insurers, “that data is representative of what othercompanies are seeing.”

“There doesn't seem to be anything unique about the policieswritten by that company to suggest that its situation is any worseor better than any other insurer,” said Mr. Behrens, who is also adefense attorney in the Washington office of Shook, Hardy &Bacon.

Jenni Biggs, a principal from the St. Louis, Mo., office ofTillinghast who evaluates asbestos liabilities, said that, for themost part, insurers and reinsurers she's talked with “haven't put alot of time and effort into silica claims experience.”

“In many cases, they don?t have separate computer coding forsilica,” she said, noting that while asbestos and pollution claimsare typically tracked separately from other mass tort claims,silica is often lumped into an “all other” category. “However,individual claims-examiners know which policyholders have beenimpacted to date.”

Giving a reason why separate databases haven't been put inplace, she said: “I think it?s an issue of materiality. At thispoint, I don't think the silica losses are significant enough toinsurers.”

Insurance experts agree that, at this point, silica is afrequency rather than a severity issue for insurers andreinsurers.

Robert Hartwig, chief economist for the Insurance InformationInstitute in New York, said: “We're more concerned about a rapidescalation in these claims. It's not something that's characterizedby many mega-awards.”

The most detailed disclosure of the size of individual awardsand settlements that NU has found is contained in reportsby 3M in St. Paul, Minn. The company, whose exposure comes frommaking respirator masks, reported in its 2003 10-K filing that its“vigorous defense” of both asbestos and silica suits resulted in anaverage settlement of less than $1,000 per claimant for allresolved suits (including those dismissed without payment), andjury verdicts for 3M in four of five cases tried to verdict.

With respect to 9,315 lawsuits pending at year-end 2003, 3Mdisclosed that plaintiffs asserted specific dollar claims fordamages in 5,569 of them. Among those 4,344 cases that involveclaims of $100,000 or more, 143 involve claims between $100,000 and$3 million, 69 involve claims of $7.5 million, 1,007 cases involveclaims of $10 million, and six involve claims of $50 million. Inaddition, the typical complaint asserts claims against an averageof 88 defendants, the filing said.

In spite of the low severity, “reinsurers actually are quiteconcerned about silica,” Mr. Hartwig said, explaining that “a sharpacceleration” in claims “from basically nothing” can burnimmediately through primarily layers of coverage.

Joanne McMahon, senior claims specialist for GE Reinsurance inBarrington, Ill., said that her company, which separately codessilica claims, has seen an increase in reported claims. “But, todate, the actual loss payments have not spiked.”

A good defense.

To keep future payouts down, insurers are banking on what theybelieve are a set of strong defenses that silica defendants can useto get out from under the mountain of case filings?defenses thatput defendants in a better position than asbestos counterparts.

The standard of strict liability applies for asbestos claims,said Charles Dal Corobbo, a Tillinghast consultant, noting that,“theoretically, all the plaintiffs have to show is that they wereexposed to the defendant's product and that they've developed anasbestos-related disease.” A strict liability standard isn't likelyto apply for silica, he said.

One defense against failure-to-warn allegations in silica suitsis that silica has been known to cause respiratory problems formany years, he said, noting that a series of government hearingstook place in the 1930s after some terrible silica incidents.

Tort law is very sensible, Mr. Behrens said. “You don't have togive a warning to people if the warning doesn't tell them anythingthey don't already know,” he said. “That's why there's no warningon your stove at home that says don't put your hand on thestove.”

Connie O'Mara, president of the Brandywine division of ACE USAin Philadelphia, listed the bulk supplier defense and the learnedintermediary defense among those that may help defendants. “Thosedefenses typically come out of cases where sand suppliers can'tlabel the sand with a warning because they're supplying it in bulk.Or they can supply a warning and are supplying it to asophisticated end-user,” she said.

“The defenses weren't written for silica. They just happen tofit very well in the silica context,” Mr. Behrens said, noting thatthe bulk supplier doctrine applies to anyone who supplies materialsin bulk steel, sand or a railroad car of chemicals where there maynot be a place to put the warning on the product because it's notin a bag.

As to the question of how successful these two defenses willactually be, Ms. O'Mara pointed to the latest state Supreme Courtruling by the Supreme Court of Minnesota to frame her answer. Thecourt, in Gray v. Badger Mining, found that “there has tobe a very specific analysis as to what any individual defendant didin terms of warning the end-user,” she said.

Specifically, with respect to learned intermediary andsophisticated user defenses, the March 18, 2004 ruling says: “Wheregenuine issues of material fact exist with respect to whether anemployee is a sophisticated end-user or his employer is asophisticated intermediary, and whether the bulk supplier's warningto the employer was adequate, the employee's duty to warn claimcannot be decided on summary judgment.”

Reacting to the decision, the Washington-based American TortReform Association said the Minnesota decision would make silicacases more costly to litigate, since plaintiffs and defendants willbe forced to go through extensive discovery to detail when and howthey learned about silica dangers.

“We have to look at the facts of each individual defendant'sdefenses and each plaintiff's alleged injuries and litigate them,probably one by one,” Ms. O'Mara concluded.

Reproduced from National Underwriter Edition, June 11, 2004.Copyright 2004 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.