The New Reality of Risk: Environmental Toxic Torts

May 2003

Toxic tort events can be devastating to a company's operations, brand, and bottom line. New environmental risk transfer products, including those being used to handle asbestos and mold, are now available, such as pollution legal liability coverage. The new reality of risk for environmental toxic torts includes insurance solutions that let insureds handle the risk before it happens and manage ongoing tort issues in situations that fall out of the purview of traditional risk transfer options.

by Carla Marino-Schwarz
Marsh Environmental Practice

Historically, corporations and their general liability insurers absorbed the costs of defending mass tort and environmental/toxic tort suits, ultimately paying millions of dollars in claim settlements and verdicts. For many corporations and some insurers, the expense of mass settlements left these entities with few financial alternatives for survival. For those that managed to survive, the long-term costs of claims and litigation are a continuing line item on their balance sheets.

In reality, toxic tort events can be devastating to a company's operations, brand, and bottom line. Litigation associated with asbestos, lead-based paint, pesticides, mold, toxic landfill waste, and industrial chemicals such as PCBs, have tarnished corporate reputations and left many companies with little hope of financial recovery.

Today, toxic torts have become very high profile, in large part due to Hollywood embracing the subject matter through films depicting true situations, such as Erin Brockovich and A Civil Action. The combination of increased media attention and the heightened awareness for safety and health issues across all industries, as well as an ever-changing regulatory landscape, presents enormous financial, social, and legal challenges to corporations in today's business world.

As plaintiff's attorneys aggressively and creatively seek out clients from potentially exposed populations, new toxic tort claims are expected to rise. Insurance coverage for these events, where it exists, is often rapidly exhausted or specifically excluded, forcing the company to fund present and future liabilities from its balance sheet. Such contingent liabilities can unduly burden a balance sheet for years. A more viable and comprehensive solution is necessary for a corporation to manage the liability associated with toxic torts.

Possible Solutions

Environmental risk transfer products can often alleviate the concern for toxic tort exposures and offer security to a corporation and its shareholders. Had the power company in the Brockovich matter purchased a pollution liability policy to address the possibility of claims for bodily injury and property damage associated with their activities at their site, the ultimate $333 million settlement may have potentially been absorbed by an insurer rather than the power company, and in reality, the rate payers.

Pollution legal liability (PLL) programs provide coverage on both a first- and third-party basis, for the immediate response to the bodily injury, property damage, and cleanup issues associated with a toxic event. PLL coverage can also be structured to address new claims for bodily injury associated with the toxic event, the cleanup, and the possible identification of new toxic substances outside of the remedial action plan.

Some toxic events are so extreme that they take decades to remediate. Similarly, claims resulting from the event may take a long time to develop. The combination of Cleanup Cost Cap coverage with PLL can be written as an alternative risk transfer program to manage the overall cost for cleanup as well as cover future liabilities and claims resulting from the toxic event.

Following are some examples of toxic situations and how they might be handled.

Asbestos Property Damage Claims

After 30 long years of litigation, it is very clear that asbestos is a toxic substance with potentially life-threatening consequences. Therefore, it must be removed in order to reduce the imminent threat to human health that it poses in situ. Asbestos abatement programs can be costly and carry with them the risk of bodily injury should asbestos be released into the atmosphere at any time during the abatement program.

Environmental risk transfer products can be built around asbestos abatement projects. These programs are designed to insulate a property owner from the apparent toxic tort bodily injury liability due to a release of asbestos, as well as manage the cost of the abatement project to its completion.

Asbestos Bodily Injury Claims and Lawsuits

Today, any entity that manufactured, supplied, distributed or in any way had an association with the creation or introduction of an asbestos-containing product into the stream of commerce, may expect to find itself named in mass asbestos lawsuits. Since the inception of the litigation 30 years ago, claims for asbestos bodily injury number in the hundreds of thousands—with no end in sight. The insurance industry continues to search for ways to cap these losses and offer stop loss coverage. However, at this juncture, these polices are very hard to come by, will be exorbitantly expensive, and will offer only limited coverage.

Thus, with limited risk transfer opportunities, asbestos clients will need specialized services to address litigation management issues, from the strategy and decision-making associated with the trial to the design of structured settlements that would afford the client the ability to reach a final resolution. An array of products and services are available to support asbestos clients in managing the expense of the litigation, the claim process, and the ultimate resolution and settlement payout.

Toxic Mold

Mold is perhaps the newest potential mass toxic tort. Since it is a naturally occurring phenomenon, it is an area that is not clear as regards causation. Unlike asbestos, for which there is a plethora of scientific studies and proven health issues that are directly linked to asbestos exposure, mold is a live organism that can exist naturally with the ability to grow and intensify in the presence of warm, moist conditions. The health issues associated with mold are not as clear, nor as defined, as those symptoms and disease processes that are the result of asbestos exposure.

The plaintiff's bar waits patiently for the smoking gun that will allow it to pursue mold-related mass bodily injury claims. In some states, pockets of litigation flourish; however no two suits are so substantially similar as to define a class of similarly situated plaintiffs. While the lawyers wait and hope, insurers are designing unique coverage grants to address certain mold issues.

New York State now has remedial standards for mold that provide parameters for remedial actions. These standards have been adopted by various other jurisdictions. With these standards in place, the insurance industry will offer coverage for bodily injury, property damage, and cleanup for mold. Thus, clients who own properties may now buy insurance coverage that addresses risks associated with this new type of toxic exposure.

Conclusion

The new reality of risk for environmental toxic torts includes insurance solutions that afford clients the ability to get their arms around toxic tort issues before the event happens, as well as manage its ongoing tort issues in situations that fall out of the purview of traditional risk transfer options.

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