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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