The Insurance Advocate published an article by Mr Lanzone of the New York Bar, which inter alia states ; "Insurers express dismay with a Tort system which seeks to impose unanticipated and unlimited liabilities on manufacturers who as insureds then proceed to transfer these liabilities to their insurers. Various insurers and reinsurers regardless of size and capacity must be deeply concerned with the potential consequences presented by the asbestos claims." And further on Under the heading "A Real Problem": "The problem is real. Legal commentators have fully discussed the exposure and the potential. All that remains for the industry to recognise the clear and present danger that has resulted from the delays in the disposition of these cases and the financial instability and uncertainty that will undoubtedly result should a solution not be promptly found and implemented." These warning bells about the possible consequences of asbestosis in relation to the solvency of the insurance industry itself came to be sounded more loudly, as Mr Lanzone further on stated: "In recent years I have heard various insurers throughout the world express their concern over the number of asbestos claims and the incalculable risk they presented to the insurance industry."

Lord, Bissell & Brook : Report number 2 from Attorneys to the interested reinsurers of the Home in respect of Johns-Manville and inter alia state:

We now attach as an Appendix to this report a copy of our report number ... which will provide some background information for the reinsurers through Sedgwick North America Limited ... 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 and there have been several large settlements made and verdicts returned against the insured which portend purely for future litigations. (And they refer to the Forty-Eight decision in favour of the exposure theory, and request each reinsurer to carefully consider his own reserve on these claims)

In addition the United States Court of Appeals for the sixth circuit handed down its decision last October in the INA- v- Forty Eight insulations case holding that liability coverage for the asbestos-related bodily injury claims attaches on the date of exposure to the products rather than on the much later date of manifestation of disease....

Recommendations for future handling: we request each reinsurer to carefully consider his own reserve on these claims. In this connection we should emphasise that the above recommended reserve does not attempt to include loss or expense reserves for future bodily injury claims that may subsequently be brought against the assured. Please refer to page 14 of our report number I where we set forth estimates of others indicating the possibility that a great number of claims maybe brought in the future.

(That is the Califano and Selikoff estimates, and from hereon the attorneys make it quite clear, quite rightly, that their loss reserves are simply predicted on the basis of claims about which they know).

LloydÆs UnderwritersÆ Non-Marine Claims Office (LUNCO) Circular no. l. Circulates reports of Attorneys asbestos related claim review correspondence.

R W Sturge & Co: Circular letter from D E Coleridge, chairman, to agency members

You will be receiving with your copy of the January issue of LloydÆs Log an invitation from the Steering Committee of the Association of External Members of LloydÆs to apply for membership of this Association which includes a subscription of ú50 for 1981 and, if you so wish, to contribute more by way of an interest free loan.

This Agency fully supports the sentiments expressed by the Chairman in his speech. We strongly believe that an External Name should not be regarded as a mere "Sleeping Partner" but that it is primarily the responsibility of the Agent to keep his Names informed of all matters which may concern them. As you are well aware, this Agency has always given special attention to communications with our names in particular through our Annual Meeting of Names, held in the CaptainsÆ Room , the reports of which are circulated and also through the regular personal visits made to our many Overseas Names in the United States. The result of having a special Association for external Members could prove to be confusing; there could well be a conflict of views expressed by the Agent and the Association on matters where the Agent is better qualified to advise in LloydÆs terms and, in any case, the Agent should retain a traditional and privileged link with his own Names.

I believe, therefore, that membership of this Association would not be in the best interest of our Names nor indeed of LloydÆs as a whole.

Thank you for your letter dated 22nd December, 1980. I shall of course be very interested to read the paper which you are having prepared for the Committee regarding Clause 11 of the Bill.

Lord Chief Justice of England: Letter to Major-General J M D Ward-Harrison

House of Commons: Letter from Nicholas Lyell, QC., MP.

I enclose a note on the problem of exercising discipline over fraud at Lloyds. In a recent letter to Peter Brooke MP in relation to clause 11 (immunities) the Chairman speaks of Fisher recommending immunity "on the grounds that the Council and the Committee should, in the future, intervene to a greater extent in the workings of the market in laying down and enforcing rules on the conduct of insurance business and to maintain standards by control over admission and discipline".

The object of the Bill is to provide a new and effective framework within which Lloyds can regulate its own affairs in accordance with present day requirements and practice and the interests of its policy holders.

a) The knowing presentation of fraudulent claims; and

It is fundamental that insurance is conducted on the basis of full disclosure and utmost good faith between the assured via his broker and the underwriter. If utmost good faith can be impeached the policy can be avoided. But anxiety for premium income has encouraged laxity and the connivance by some brokers, some company agents with authority to write business, and even perhaps some underwriters, in the introduction of business which ought to have been regarded with deep suspicion on account of the true nature of the risks being written or of the secret and untoward difference between the level of premium being charged to the insured and premium reaching the insurer or re-insurer.

It is not clear that the present draft of the Bill itself, schedule 2 of which describes the nature of the bye-laws which can be passed, or the draft bye-laws annexed to the Fisher Report adequately meet the problem. Paragraphs (14) - satisfaction of the committee as to character and suitability of individuals; (21) - power to acquire information; and (22) - power of disciplinary enquiry provide a potential framework. This could be adapted to meet the need. What appears to be missing is any clear statement of a basic requirement that it shall be the duty of anyone engaged in the market to inform the committee of such matters. I have written to the Chairman with a copy of this memorandum and hope to receive clarification. û Nicholas Lyell û 20^th January 1981.

R J Kiln & Co Ltd: Letter from C K Murray

I understand you invited me to lunch today in order to discuss why divestment should not be made mandatory in the proposed LloydÆs Bill, but that the nature of this meeting has been changed in that it will be used to draft a petition against the Bill and it would therefore not be appropriate for me to be present. If any of those present at the meeting would like to talk to me either before the meeting or after the meeting about divestment, or indeed any other matter on which you think I might have experience or knowledge, then I would certainly make myself available.

As you know this Company is a completely independent underwriting Agency, and I am personally responsible for the underwriting of one of the major Non-Marine Syndicates. I believe most strongly that it is in the interest of my Names and the future of the business that the Bill should go through as drafted. I believe also that this is the wish of the great majority of my Names. If a group of MPs wishes to change any part of the Bill (and this would apply to Clause 11 or anything else) then surely they must come up with a practical alternative to replace anything they wish to delete. In other words, if you wish to delete Clause 11 then I believe the onus is on you to recommend an alternative system under which the societyÆs Council and the society itself would have proper protection.

U.S. Federal Government publications: "Compensation for Asbestos-Associated Diseases: A Survey of Asbestos Insulation Workers in the U.S. and Canada" by P Barth; unpublished study for the U.S. Department of Labor.

P Barth found that only 16% of a sample of insulator fatalities resulted in asbestos liability suits over the period 1962-1976 (pp. 63 and 91). However, that figure conceals growth in the frequency of filings in recent years. Although only 3% filed in 1962-1968, 32% filed in 1975-1976, as is shown in Table 15. Moreover, since more suits filed have had an outcome favourable to the plaintiff, the frequency of filings can be expected to continue to grow.

The expectation is that eventually from 75 to 100% of eligible claims will be filed on cases involving manufacturing employees and other insulators. In addition, survivors of mesothelioma victims in industries are considered equally likely to bring suits. The experience of the insulators suggests that the probability of a suit increases by three or four percentage points per year. Four percentage points has been used here as the most likely claims growth rate in the liability projections. Lower and higher estimates, equal to two and six percent, have also been constructed for sensitivity analysis. For all other asbestos related mortality, the projections assume survivors are only half as likely to bring cases, since those individuals have not been subject to intensive publicity and investigation.

While the number of asbestos-caused lung cancers can be estimated statistically, in an individual case it can be nearly impossible to determine whether the disease would not have occurred in the absence of asbestos exposure. Therefore, many cases will be brought by the victims of non-asbestos-caused cancer. To allow for this, non-asbestos-related lung cancer deaths in the heavily exposed population are added to the asbestos-related deaths in the projections of liability. These factors are summarised in Table Sixteen, to provide a frequency rate of claims for 1975 and thereafter.

1975 data from P Barth shown in Table Fifteen, used for insulators and mesothelioma. All other mortality assumed half as likely to lead to lawsuit as insulator deaths. Another factor determining the projected magnitude of compensation is the payment resulting from a successful case or settlement. Two approaches can be taken in estimating compensation per case. One is to examine actual court awards and settlements, and the other is to estimate the economic costs on the assumption that victims will be awarded those economic losses. The Insurance Services office conducted a survey of Products Liability Closed Claims in the United States, which indicates that for the period July 1976 to 15 March 1977, the average payment in an asbestos case (for settlements and jury awards) was approximately U.S.$170,000.

Keene Corp. -v- I.N.A., (Case No. 667 F. 2d 1034 D.C. Cir. 1981). In a memorandum Opinion filed on 30 January 1981, the District Court concluded that application of pertinent state law to this contract required adoption of the exposure theory of insurer indemnification.

Keene Corp. -v- I.N.A, 513 F. Supp. 47, District of Columbia Circuit Court, 30 January 1981. Revised, 667 F.2d 1034, District of Columbia Circuit Court, 1 October 1981. Cert. denied, 455 U.S. 1007, 8 March 1982. Rehearing denied, 456 U.S. 951, 26 April 1982. District Court applied exposure theory to trigger coverage. District of Columbia Circuit Court of Appeals applied the triple/continuous trigger of coverage and found a duty to defend and coverage for the over 6000 asbestos bodily injury suits against the insured. Court held that "INAÆs duty to defend Keene in underlying asbestos cases ceases upon the exhaustion of indemnity limits under the pre-1966 policies in question". Court found unambiguous policy language specifically limiting KeeneÆs duty to defend any suit "with respect to such insurance as is provided by the policy".

The largest ever oil rig insurance loss was confirmed at the beginning of last month when the Norwegian Oil Insurance Pool decided to pay out more than ú25m to the owners of the capsized accommodation rig Alexander L. Kielland. Some 62.4% of the total loss value is covered by reinsurance in the London market.

The Government has published the Insurance Companies Bill, designed to tighten up the regulations governing the industry and bring the UKÆs supervision arrangements into line with the rest of the EEC.

The legislation, which was given a formal first reading by MPs establishes the classification of insurance business in EEC terms and arrangements for authorising and supervising insurance undertakings. It also redesigns the conditions under which insurance firms have to operate.

The American Insurance Association stated that as of 1 February 1981, 25,000 individual plaintiffs have sued for asbestosis (with 500 additional suits each month); losses and adjustment expenses from these suits alone in 1980 are costing $1-35bn per year, compared with 6-35bn paid in liability premiums (excluding medical malpractice premiums), according to BestÆs Insurance Management Reports of 9 March 1981.

Letter from the Chairman of the Asbestos Working Party, EE Nelson, entitled "Asbestos", addressed to the Active Underwriter:

In August last you were advised that it was proposed that an inter-market Working Party should be formed to co-ordinate the handling of the steadily increasing involvement of the London Market in Asbestosis claims. Since its formation the Working Party has met frequently to consider the problems that arise and to determine, with the help of Counsel, how the Market should be recommended to deal with them.

Application has been made for a ruling on this matter in more than a dozen Declaratory Relief Actions presently before the U.S. courts, some of which directly involve the London Market. The expenses being incurred in these actions is substantial.

A significant decision was given recently in the appeal in one of such actions Insurance Company of North America -v- Forty-Eight Insulations, Inc. (U.S. Court of Appeals for the Sixth Circuit) which, in affirming the trial court judgement 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 as a "half-way house" between the exposure and manifestation arguments, a further complication of the issue.

Declaratory Relief Action by Johns-Manville Corporation, who probably have the largest involvement in the asbestosis problem of any insured is now expected to be heard next year.

Your U.S. legal representatives are now engaged in calculating potential loss figures on known claims in light of latest information available. It is anticipated that reports of their calculations will be available in London no later than Monday 23 February so that you may take account of that in calculating reserves. It cannot be emphasised too strongly that you should make yourself aware of the contents of these reports

Mr Christopher Moran came to see the Chairman, Peter Green, and a Deputy Chairman, A W Higgins. He informed them that he had evidence that Oakley Vaughan & Co Ltd, LloydÆs Brokers, had been netting premiums and claims on business underwritten 100% by Syndicate 862, an Aviation Syndicate managed by Oakley Vaughan (Underwriting) Ltd. Mr Moran handed over copies of slips (CO 176 and CO 177), a schedule, certain working papers and L.P.S.O. premium advice forms. He said that these documents came from Mr C D Mountain, an ex Oakley Vaughan employee currently employed by Mr Moran.

Hammond -v- North American Asbestos Co (Case No. 80-L-52) Circuit Court of McLean County, Illinois. Punitive damages have been awarded in few cases to date. In this case, the jury awarded $375,000 in punitive damages in addition to damages in the amount of $125,000.

LloydÆs: Circular letter from Peter Green, Chairman of :LloydÆs to membership

The Bill has been presented to Parliament and it is therefore an appropriate moment to let you know the detailed facts of our Parliamentary progress to date, and our hopes for the future. It is particularly important that I should do so at this juncture since some Press reports may have misled you. A Member could be forgiven for concluding from such reports that the Bill, for which you voted in November by such an overwhelming majority, has by February been drastically revised or seriously delayed. Neither is in accordance with the facts.

Sir Graham Page, who is promoting the Bill for us, has been the Member of parliament for Crosby since 1953 and has a distinguished record of service in the House of Commons; he has been particularly successful in the promotion of various Private Bills.

The basic purpose of the Bill is to provide for LloydÆs an effective system of self-regulation by means of an efficient and representative governing body. The Bill proposes as such a body a Council of 16 Working Members of the Society, 6 External Members and 3 Nominated Members. Representation of External Members is in effect an innovation but concern has been expressed as to whether the number, six, is adequate. This is the number recommended by the Fisher Working Party and the Committee believes it is about right, but if Parliament is persuaded to make a small adjustment of these figures, so be it. It is essential, however, that there should be a Committee consisting of the 16 Working Names to carry out such day-to-day work as the Council may delegate to them. The special resolution concept requiring separate majorities of Working Members of the Council on the one hand, and the External and Nominated Members of Council on the other, ensures that any matter of moment will receive proper consideration. It is well to remember in this connection that the interests of External and Working Names are indivisible; that without a properly regulated Society and Market, unchallengeable financial security for the policyholders, and the expectation of profit for its Members, LloydÆs cannot and will not prosper.

If the Council is to be given - and to use - the powers effectively to operate a system of self-regulation for LloydÆs then there is a good argument for affording it, its members and the Society a measure of protection against legal liability. Clause 11 deals with the difficult problem of how far it is proper for the Society (which is all of us), and the Council or Corporation Staff, when acting in pursuance of LloydÆs Acts, to seek a limited immunity from suit by individual members of the LloydÆs community. Your Committee remains convinced that some form of immunity will be needed to secure effective self-regulation. I stress that only the community of LloydÆs is involved. The proposed immunity affects neither the public nor LloydÆs policyholders. Moreover, the suggested clause would not bar a Member or group of Members from seeking an injunction from the Courts to prevent the Council from taking an unreasonable course of action.

The Fisher Report in Chapter 6 recognised that the Council, Corporation staff and the Society as a whole when honestly carrying out their responsibilities towards Names should be protected from suit for damages, by, for example, a Member, smarting under an underwriting loss, alleging that the Council is responsible. The effect of this could be to transfer the losses of the individual to the membership as a whole. This would threaten one of the most fundamental principles of LloydÆs in that we accept individual liability each for our own part and not liability on a mutual basis. This is the premise upon which we individually accept unlimited liability.

I would urge you, therefore, to contact your own M.P, and to request him to attend the debate and help to secure the passage of this important Bill.

LloydÆs has contributed to the well-being of this country over many years, not only through our outstanding contribution to the Balance of Payments, but also through the taxation paid to the State on MembersÆ profits and by the employment provided for thousands of citizens. Our record deserves the concern of MPÆs to assist the passage of a Bill which means so much to LloydÆs and which has the overwhelming support of the Members of our Society. If any Member of Parliament requires information which you are unable to provide, I shall be delighted to hear from him and will do my best to help.

I intend to keep you informed of our progress towards the new Council by means of letters such as this or more general news letters in LloydÆs Log.

Financial Times: LloydÆs members urged to lobby MPs on new Bill

LloydÆs List: LloydÆs Bill - chairman urges ælobby MPsÆ

Daily Telegraph: LloydÆs compromises on reform Bill issues

Sir Graham Page, Cons MP for Crosby, who is steering the Bill through Parliament for LloydÆs, gave the MPs four assurances. The much disliked legal immunity of LloydÆs Council is to be removed into a schedule to he activated by order in Council and affirmative order by Parliament.

Separation of the broking and underwriting activities will be forced through. though LloydÆs makes it clear this may not involve brokers selling their underwriting agencies. But Sir Graham explained to the MPs that it was not necessary to include the matter in the Bill since LloydÆs already had power to enforce its will.

Similarly, agreement has been reached between lawyer MPs and LloydÆs legal department not to include in the Bill a requirement for all members of LloydÆs to reveal to the council suspicions of fraud.

Instead there is to he a requirement for the council to keep information confidential, since that was reckoned the easiest way to encourage members to volunteer suspicions.

LloydÆs said it was open to persuasion on the number of eternal names to sit on the new council. Sir Graham gave assurances that all these matters would he discussed and introduced when the Bill is considered by a committee of the house.

In a letter to all LloydÆs members Peter Green, chairman, is unrepentant on the desire for total legal immunity for staff operating the insurance marketÆs self-regulation.

He argues that all members losing money might claim the council was responsible. leading to the council paying for membersÆ losses. But Mr. Green concedes its removal from the main body of the Bill.

Guardian: LloydÆs chief lobbies members

LloydÆs is prepared to accept limited changes in the Parliamentary Bill designed to modernise its procedures but the commitment cannot be open ended. That was the message from the chairman of LloydÆs, Mr. Peter Green in a letter sent out to the 16,000 members of the vast insurance market yesterday. Mr. Green said he thought it only fair that they should know the state of play on the bill as it now stood.

He sets out the LloydÆs position under four headings.- Immunity from Legal Liability: Mr. Green claims that LloydÆs still needs protection against legal action by any members of LloydÆs - but recommends that the immunity should not be part of the main bill. Instead, he says, it should be transferred to one of the schedules - so that it would be up to the new Council to bring it in. The Council could not do so, willy nilly. LloydÆs recognises that there are doubts about it and the immunity can only come in if both Parliament and the Privy Council accept the idea immediately before implementation.

Council Membership: The chairman claims that LloydÆs can accept more than the six "external names" to sit on the new Council though he is careful to limit himself to accepting "a small adjustment" only. The external names are the people who put up capital for LloydÆs but do not take a day to day part in its operations. Some of them have called for higher membership on the committee - but Mr Green is unlikely to accept more than eight external names. The rest of the Council would consist of 16 people in daily touch with LloydÆs - working names in the jargon - and three members chosen by the Governor of the Bank of England.

Divestment: Mr Green shows no signs of bending on the present LloydÆs position. The Fisher Report recommended that the giant brokers which own, or partly own, the management agencies - which in turn employ the u n d t r w r it e r s assessing each risk - should have to sell off their shares in these groups within five years. Brokers, who have to collect the best possible insurance terms for their clients, should not be in a position where they could bring pressure in the underwriters, said the report.

Fraud: Here the Committee looks as though it is changing its line. Originally it was completely opposed to the idea that brokers suspecting fraud should report it to the LloydÆs authorities. The Law of Agency, which made the broker responsible only to his client. made it impossible it said.

For the first time since he became Chairman of LloydÆs, Mr. Peter Green has undertaken a major overseas tour. His three-week itinerary covered 14,000 miles and included visits to New York, Washington DC, Chicago, San Francisco, Los Angeles, New Orleans, and Houston. He met most of the leading figures in American insurance and 200 or more senior executives from a broad cross-section of US industry and commerce, and delivered three major speeches including one to 800 members of the ExecutivesÆ Club of Chicago.

After his triumph last November at the Royal Albert Hall it seemed likely that the ChairmanÆs name might one day go up in lights. That the venue would be the Houston Astrodome and the occasion the 1981 World Rodeo Championships was not, however, seen as a serious possibility. But ChairmenÆsÆ tours are seldom short of surprises and Peter GreenÆs recent visit to the United States was certainly no exception.

Fortunately for the party which, in addition to Mr. and Mrs Green, comprised Murray Lawrence, a member of the Committee of LloydÆs and Mrs Lawrence, Joe Hodges, Secretary General to the Corporation and Mrs Hodges, Penelope Wyatt, the ChairmanÆs Personal Assistant and David Larner, LloydÆs Chief Press Officer, they were all pleasant ones, a fact remarkable in itself bearing in mind an itinerary which in three weeks covered seven cities and over 14,000 miles. It also says a great deal for the planning which had been done on both sides of the Atlantic that at no time was a plane missed, a bag lost or an appointment unkept. Even the weather which in some states in the middle of February can be decidedly inclement was exceptionally warm and remained so throughout reflecting the welcome that was extended at every port of call.

New York - February 17

The tour commenced with a meeting on arrival in New York with Ed Palmer and Tom Hitchcock of Citibank, custodian of LloydÆs American Trust Fund. Only two months before, this had passed the $3bn mark giving a clear indication of the enormous growth which has taken place in LloydÆs US dollar business since the fund was set up in 1939 with an initial capital of $40m.

A visit to Bob Tisdall of Toplis & Harding, LloydÆs Agents, New York, was to evoke headlines of nearly 30 years ago. There to meet the Chairman was the master of the Flying Enterprise Captain Kurt Carlsen who, in 1952, had been awarded LloydÆs Silver Medal for Meritorious Services "for his tenacity in remaining on board for twelve days in an attempt to save. his ship". Captain Carlsen remembered with pleasure receiving his medal from the then Chairman of LloydÆs, Sir Matthew Drysdale, and Mr. Green observed that no-one who was present in the Room on that occasion would ever forget it.

The ChairmanÆs next engagement, and the first of a number involving the so-called alphabet brokers was to address the board of Johnson & Higgins with their president, Bob Hatcher, Jr. That evening Mr. Green spoke at a reception at the British American Chamber of Commerce hosted by the president, Theodore Mander and was later guest of honour at a dinner given for the LloydÆs party by the British Consul-General and Mrs Hugh Overton.

Having visited the offices of Citibank Mr. Green had a meeting with Ken Soubry, chairman of Alexander & Alexander. Then, following a press interview at his hotel he went to a reception and dinner given in his honour by the president of Marsh & McLennan Inc. Robert Clements and by the chairman of the parent company Jack Regan.

After a breakfast press interview, Mr. Green accepted an invitation to tour the New York Insurance Exchange before giving lunch to representatives of the major reinsurance brokers. After a further press interview the Chairman attended a dinner given by Al Tahmoush, chairman and president of Frank B Hall, the firm which in 1978 led the field in gaining direct access to the LloydÆs market by buying an interest in Leslie 8 Godwin.

Returning from a brief respite in Connecticut, the Chairman began the second week of his tour by visiting the offices of LloydÆs General Counsel, LeBoeuf. Lamb, Leiby and MacRae. This preceded a well attended press briefing at which, in addition to questions about insurance and on the progress of the LloydÆs Bill, Mr. Green was asked for LloydÆs reaction to the Thatcher government, more particularly since President Reagan had announced his intention of pursuing a similar economic policy.

At midday he was the guest of Charles OÆMalley, chairman of the executive committee of Fred S James and in the evening he and Mrs Green together with Mr. and Mrs Lawrence welcomed more than 350 guests at a LloydÆs reception at the Wall Street Club.

Repairing to the Union Club the LloydÆs party again became the guests, this time at a function hosted by Robert Corroon, chairman of another of AmericaÆs leading broking houses, Corroon & Black.

February 24

Having spent a week in New York the travelling now began in earnest. Catching the 8am shuttle from La Guardia to Washington DC, the Chairman accompanied by Mr. Lawrence and Mr. Hodges, paid a courtesy call on Roland de Kergorlay, head of delegation of the Commission of the European Communities thence to a luncheon given for the Chairman of LloydÆs by John Fretwell, minister at the British Embassy, and attended by many distinguished guests.

Before returning to New York for a dinner arranged for the LloydÆs party at the "Windows on the WorldÆÆ by Taylor Briggs and Donald Greene together with other partners of LeBoeufÆs, the Chairman held a press briefing at which he was again questioned about BritainÆs economic outlook ahead of the Prime MinisterÆs own visit to the American capital which was scheduled for the following day.

Chicago - February 25

On landing, a full and varied programme at once got under way starting with a LloydÆs reception which was attended by over 250 guests representing a broad spectrum of the Chicago business community. Included were members of the Association of LloydÆs Brokers whose executive committee hosted a dinner for the Chairman and his party at the Carlton Club.

The day began with a visit to the Chicago Board of Trade, perhaps the worldÆs most frenetic exchange, where Mr. Green was welcomed by the president, Robert Wilmouth and the chairman, Leslie Rosenthal. The morning ended with calls on William Coakley and Walter Remdt of Toplis & Harding, LloydÆs Agents, Chicago.

After lunch with a group of insurance leaders, Mr. Green visited the Illinois Insurance Exchange where he was greeted by the chairman Donald Montgomery. That evening the LloydÆs party divided its forces with the Chairman and Mrs Green and Mr. and Mrs Lawrence attending a dinner given by the British Consul-General and Mrs George Chalmers, while Mr. and Mrs Hodges were hosts to Mr. and Mrs Larry Kochan and the staff of the Attorney-in-FactÆs office.

Came the dawn and Mr. Green arrived at the studio of Channel 26 to be interviewed by Ben Larson for the television programme Business Newsmakers following which he paid a courtesy call on the Director of Insurance, Philip OÆConnor. The ChairmanÆs next engagement was to attend an informal gathering of business students at the Bismarck Hotel prior to addressing an audience of some 800 at a lunch-time meeting of the ExecutivesÆ Club. his subject being "A view from London of the international insurance scene". A press briefing. a visit to the offices of Lord, Bissell 8 Brook. LloydÆs Attorney-in-Fact in Illinois and a reception given by the partners accounted for the afternoon.

San Francisco - February 28

With the tour at the halfway mark, the LloydÆs party flew to San Francisco where the following evening, they were guests at a dinner given by Hartley Cravens, chairman of the Surplus Line Association of California and of the Executive Committee of the Northern Division.

Another busy schedule began with a series of calls first on Alan Rees, LloydÆs agent and Salvage Association representative, then on the offices of the Surplus Line Association of California where the Chairman was greeted by Ben Herrick and Mr. A. Freeman. A lunch-time meeting led by Hartley Cravens afforded Mr. Green, Mr. Lawrence and Mr. Hodges an opportunity to meet local industrial leaders before resuming their programme which, in the afternoon, included a courtesy call on Mr. Armacost, president-designate of the Bank of America and a visit to the offices of Cravens & Co. The day ended with a dinner given in Mr. GreenÆs honour by the chairman and president of the FiremanÆs Fund, Myron F. Du Bain.

At 2am San Francisco experienced a tremor which registered 4 on the Richter scale, an event which went unnoticed by the London contingent though not by the media which gave it considerable coverage. Earthquake insurance was, therefore, high on the agenda at a press Interview given by the Chairman before he left for a tour of the Bay Area Rapid Transit System (BART) organised by Bob Nevins. During a luncheon given for the LloydÆs party by the president. John Glenn and the board of directors, reference was made to the links which have long-existed between LloydÆs and his undertaking and at a subsequent press briefing Mr. Green cited BART as an example of the type of risk which LloydÆs is proud to be associated. Having hosted a reception for 250 guests in the ballroom of the Stanford Court Hotel, the Chairman and his party flew to Los Angeles where they arrived shortly before midnight.

Los Angeles - March 4

Following a press interview at 9.30am. Mr. Green attended a luncheon given by Lew Wasserman, senior executive of MCA at Universal City Studios. He later toured the sets and watched a film being shot before giving a reception for over 300 guests at the Wiltshire Country Club. That evening the LloydÆs party were the guests at dinner of the executive & stamping committees of the California Surplus Line Association. southern division.

What was, perhaps, the most concentrated day of the tour commenced with a visit to LloydÆs agent, Don Maxson of Toplis and Harding and continued with a press interview. This was followed by a reception and luncheon hosted by the Los Angeles Chamber of Commerce at which the Chairman spoke pointing out, among other things, the need for insurers world-wide to reduce their reliance on investment income. After lunch the Chairman visited the offices of the Los Angeles Times for a meeting with the editor, Bob Erburu and his financial staff followed by a drive across town to the Los Angeles Herald Examiner for an interview and meeting with the publisher, Francis Dale. Next there was a reception at the California Club given by Mr. Dale and Mr. Erburu for the Retail Brokers and their clients and finally a farewell dinner given by the Chairman for the California Surplus Line Association at which he presented the association with an Armada dish engraved with LloydÆs coat-of-arms.

New Orleans - March 6

Heading south on the last leg of the tour, the Chairman and his party left for New Orleans where, on arrival, their motorcade was escorted into the city by police outriders complete with sirens and flashing lights. Fear of arrest soon turned to gratitude as without their assistance it is doubtful if the hosts would have been on time for a LloydÆs receptioned from Turin by the Italian State Prosecutor.

So Savonita has resurfaced only to coincide with the troubled passage through Parliament of the private Bill aimed at improving LloydÆs self regulation.

Widespread criticism over LloydÆs handling of the Savonita row between insurance brokers Willis, Faber and Pearson, Webb, Springbett, dealt a shattering blow to LloydÆs reputation.

Then came the Sasse affair, in which the 110 members, facing losses of ú21.5 million, had to be rescued by LloydÆs, alone with a spate of disastrous losses on computer leasing insurance.

It was against this background that LloydÆs commissioned the " Fisher " report which found Lime Street wanting in many aspects of self-regulations and formed the basis of the Bill.

But Savonita set the seeds. The row centred around the refusal of Malcolm Pearson, chairman of Pearson, Webb, Springbett to pursue a $711,000 claim against LloydÆs over 301 fire damaged Fiat cars bound for the United States aboard the cargo ship Savonita.

Pearson, WebbÆs allegations that the claim might be fraudulent was based on loss adjuster Bob BishopÆs report that the cars had been sold to a Fiat dealer in Naples at 15 per cent of their new value and subsequently resold at 80 per cent of that value.

The primary insurer was SIAT (then, but no longer a Fiat subsidiary) which transferred its account from Pearson, Webb to the much larger firm of Willis, Faber, which collected 96 per cent of the claim in 1978.

The decision by Jonathan Aitken MP to air events in the House of Commons led to wide-spread publicity which forced LloydÆs to produce its own report. This inconclusive document referred to "unsatisfactory aspects " of the claim.

But, despite the crucial questions raised by the Savonita affair over the responsibilities of a member of LloydÆs who suspects the possibility of a claim being fraudulent there was, amazingly, no reference to fraud in the proposed Bill which signals the most important legislative change at LloydÆs for more than a century.

This is one of several major criticisms levelled against the Bill by a number of Conservative MPs with pressure also being exerted by the newly formed Association of External Members of LloydÆs, led by Lady Middleton, a magistrate and one-time member of the ill-fated Sasse syndicate.

The emergence of Lady MiddletonÆs 200-strong association (two members of which have petitioned against the Bill) reflects the new-found muscle of the 16,000 individual members of LloydÆs (80 per cent of total membership) who, although not actually employed in the market, accept Lime StreetÆs traditional principle of unlimited liability.

Controversy has raged over the structure of LloydÆs new ruling council (dominated by " working " members); the councilÆs proposed legal immunity; the conflicts of interest brought about by brokers owning underwriting agencies and the need for positive guidelines concerning fraud.

Sir Graham Page, who .is steering the Bill through the Common, claims to be close to compromise agreements on these counts with the MPs but, last week, Green was anxiously urging members to seek their own MPsÆ support for the Bill, which could yet be " talked out " of Parliament.

The ghost of Savonita haunts the subject of whether doubtful or suspect claims should be notified to LloydÆs new council and, if so, whether confidentiality will be observed regarding information provided by a broker or underwriter which might be passed to the police.

Any developments on the Savonita front in Turin will clearly intrigue MPs who are now bracing themselves for next monthÆs debate.

The Italian authorities, as we reported last week, have seized the passport ofÆ Sig. Walter Fenoglio, a former senior executive of Fiat, who has been informed that be may face questioning.

Various parties who have been briefed by Green on LloydÆs agreement to help the Italian authorities are understood to include Pearson, Bishop, Willis Faber and Roy Hill, the lead underwriter on the Savonita slip.

The Times: LloydÆs of London

Sir Graham Page, Conservative MP for Crosby, Merseyside, and noted promoter of private parliamentary Bills succeeded in getting a Lloyds Bill through "on the nod" last week.

That news, however, will not lead to scenes of wild jubilation in the committee room at that elite underwriting club in LondonÆs Lime Street known as LloydÆs. For the Bill concerned that other unappostrophied Lloyds - the clearing bank - and was little more than the rubber-stamping of a minor take-over.

The other LloydÆs Bill, which Sir Graham is handling is proving an infinitely more daunting task to steer through the House. Sir Graham, whose past successes as a promoter include the 1957 Cheques Act and the 1960 Pawnbrokers Act has found himself having to negotiate through a minefield of Tory criticism about different aspects of the Bill.

Ironically most of the critics are in favour of the Bill in essence. Designed to improve self-regulation in the market, it represents a bold action by LloydÆs to tighten its rules in the wake of a series of scandals and disputes.

But the rebels are hotly opposed to several aspects, not least clause 11, which would give the new ruling council envisaged under the Bill an indemnity against legal action.

Debate over the LloydÆs Bill is many-sided but at its centre is the question of just who holds the control of one of the worldÆs most famous institutions - an insurance market handling insurance premiums of almost ú2,000m.

Almost 20,000 individuals now put up their belongings "down to the last gold cufflink " as security against the risks LloydÆs underwriters take. But 16,000 of this total have virtually no involvement in the market.

This " dormant " body of underwriting " names", who have one possession in common - wealth, have been sharply awakened in recent years by a series of disputes, scandals and worse still losses, culminating in the notorious Sasse syndicate affair

These members snag have been soothed by the news that Lloyd s was to put its house in order through an independent inquiry headed by Sir Henry Fisher and following from that a draft parliamentary Bill. This would keep the professionals who used the market in check.

But, who an increasingly vociferous minority of names has been asking, will keep the rule makers in check? The problem is that LloydÆs has become increasingly dominated by big insurance brokers. They produce the business and their employees hold sway in the committee room. To outsiders there seems an obvious conflict of interest between the duties of these employees to the underwriting names and the companies they work for.

So far the debate has brought an interesting cross-section of establishment figures into the public glare. There is for example Lady Janet Middleton, wife of the 12th Baron Middleton of North Yorkshire, and a generalÆs daughter and magistrate. Stung into action possibly by an expensive experience as one of the names on the hapless Sasse syndicate she now heads an Association of External Names which is campaigning vigorously against various Aspects of the Bill.

Secretary of this new association, David Watkins-Cronin, an Irish barrister and architect, became a LloydÆs name only last year but has become sufficiently alarmed about what he has learned since then to campaign for a redrafting of - or, at least, to see substantial changes inù - what he regards as a " thoroughly bad Bill "

In the House of Common the debate has drawn a fairly spectacular cross-section of Tory thinking to one common purpose. From the right in the shape of Archie Hamilton (Epsom & Ewell) to the near left in the form of Richard Needham (Chippenham) eschewer of his inherited title Earl of Kilmorey, well over 20 MPs have become loosely enjoined to thrash out the issues with sir Graham

Many like Needham, Alastair Goodland (Northwich), Peter Lloyd (Fareham), John Watson (Skipton) and Richard Body (Holland with Boston) have an obvious interest in that they are among the 55 Conservative MPs who provide security at LloydÆs.

Others like the quixotic Jonathan Aitken (Thanet East) would claim perhaps to have a more distant interest, viewing LloydÆs as an important British institution in danger of careering out of control

Aitken, of course, has already had one tilt at the windmills of LloydÆs when he brought to the attention of the House and the press the now famous " Savonita" affair,

Meanwhile, the debate among LloydÆs names is becoming increasingly fiery with signs of a split even within Lady MiddletonÆs committee between those who would like to see the Bill go through after important surgery and those who would like it to be withdrawn altogether and rewritten at a more leisurely pace.

And a great many other LloydÆs names cannot see what all the fuss is about anyway. One of them, Colin Baillieu, fired off a letter to the Times only last month to declare " Lady Middleton and her associates want protection but if that is what they want they should not be in LloydÆs in the first place".

Financial Times: New association at LloydÆs split over policy

A SERIOUS rift has opened up between members of the committee of a new association at LloydÆs of London which has been formed to represent the interests of the 16,000 members who do not work at LloydÆs.

The committee has called a meeting for March 11 of the 270 or so members of the new association - called the Association of External Members of LloydÆs - at which a new committee is likely to be elected.

The committee, chaired by Lady Janet Middleton, a former member of the ill-fated Sasse underwriting syndicate, has split into two camps. The three executive officers, including Lady Middleton, face opposition from a group of co-opted members.

The row is essentially over policy matters. T here has been some argument over whether the emerging association should associate itself with a petition lodged with Parliament by two underwriting members of LloydÆs for amending LloydÆs new Bill improving self regulation within its market.

Although Lady Middleton can muster the support of three of her committee, her camp is outnumbered by five to four.

The LloydÆs establishment is violently opposed to the new association, which seeks to represent the interests of the 80 per cent of the total 20.000 membership which does not work at LloydÆs.

LloydÆs feels that the new association could usurp the function of managing underwriting agents, who look after the affairs of all LloydÆs members in the market.

But the new association argues that it wants to represent the collective interests of the members, not just the individual interests, which are attended to, by the agents. Some underwriting agents have warned overseas members who may be seeking to join the new association that if they are unhappy with. the services they are getting and are considering joining the association they should change their underwriting agent.

Overseas members account for over 10 per cent of the membership of the external members association.

Financial Times: CMG names Names at LloydÆs of London

OFFERED BY CMG (City of London) is a real time inter-active package to run on an IBM System 34 computer that quill provide Names Agents and Managing Agents at Lloyds with instant up-to-date informal on Names and Syndicates.

At Lloyds, "Names " are individuals in a position to bear risk financially in insurance while "Names Agents" are those who look after the affairs of such individuals and place them on syndicates,

" Managing Agents " are responsible for appointing the active syndicate underwriter and managing the affairs of the syndicate.

Each of these agents needs up-to-date information about Names and Syndicates with which he is connected and this is the data that is held in store and provided by the new CMG system.

Called NAMIS (names agents and management information system), it is the result of some 18 months of studies and discussion with presentations to many of the 270 Agents at Lloyds.

NAMIS will assist the Agents to monitor Names and Syndicate business and dramatically reduce the task of correlating Names data.

In addition to containing personal financial data on each Name, the system will record details such as the NameÆs interest in each syndicate, information on his syndicateÆs underwriting figures and results for the past 11 years, and his historical limits. CMG is on 01-481-3881.

An Unlimited xs $2,500,000 run-off reinsurance placed for the General & European Insurance Company to incept at 1 April 1980 covering the years 1978 - 1980. Outhwaite 317/661 wrote 100%.

The United States Court of Appeals for the First Circuit entertained oral arguments in Eagle-Picher Industries -v- Liberty Mutual. Attorney Malcolm Roscow of Standard, Weisberg, Heckerling & Roscow presented the position of the exposure Underwriters and believe that we were able to raise a question as to KeeneÆs applicability to Eagle-Picher. While Eagle-Picher had urged the manifestation construction, it now has urged adoption of the broader approach as enunciated in Keene -v- INA.

Insurance Co. of North America v. Forty-Eight Insulations, Inc., 633 F.2d 1212, 6th Circuit Michigan, October 21, 1980. Opinion clarified, 657 F.2d 814, 5 March 1981. Cert. denied, 454 U.S. 1109, 7 December 1981. Rehearing denied, 455 U.S. 1009, 8 March 1982. Court of Appeals for the Sixth Circuit applied exposure theory and concluded insurers have duty to defend asbestos bodily injury claims brought against the manufacturers of asbestos. Court held that insurance liability would be prorated among all insurers on risk during exposure period.

Letter from Mr EE Nelson, Chairman of the Asbestosis Working Party to participants on the Johns Manville risk. (stressing the absolute necessity of reviewing certain papers at Elborne Mitchell). Reports and recommendations have been deposited at the offices of Elborne Mitchell. Will you please arrange for a representative who has overall authority to make a commitment to review the documents at the earliest opportunity.

Lord, Bissell & Brook: Report to the Interested Reinsurers C/- of Ellinger Heath Western.

Reinsured: North Star Reinsurance Corporation

Assureds: Various Asbestos Producers and Manufacturers

Claims: Various Asbestos-Related products Liability Bodily Injury Claims

ReinsuredÆs Coverages: Various Products Liability Coverages between 1966 - 1979.

1. Excess of Loss Treaty for five periods between July 1, 1966 and July 1, 1971 with limits of $750,000 Ultimate Net Loss each and every accident excess of $250,000 Ultimate Net Loss each and every accident;
2. Excess of Loss Treaty for the period July 1, 1971 to July 1972 with limits of $700,000 Ultimate Net Loss each and every accident excess of $300,000 Ultimate Net Loss each and every accident;
3. Excess of Loss Treaty for three periods between July 1, 1972, and July 1, 1975 with limits of $750,000 Ultimate Net Loss each and ever accident excess of $500,000 Ultimate Net Loss each and ever accident
4. Excess of Loss Treaty for three periods between July 1, 1975 and July 1, 1979 with limits of $500,000 Ultimate Net Loss each and every accident excess of $750,000 Ultimate Net Loss each and every accident.

1. Excess Loss of Treaty for six periods between July 1, 1966 and July 1, 1972 with limits of $2,000,000 Ultimate Net Loss each and every accident excess of $1,000,000 Ultimate Net Loss each and every accident.
2. Excess of Loss Treaty for six periods between July 1, 1972 and July 1, 1978 with limits of $2,000,000 Ultimate Net Loss each and every accident excess of $1,250,000 Ultimate Net Loss each and every accident.

1. Excess at Loss Treaty for two periods between July 1, 1970 and July 1, 1972 with limits of $2,000,000 Ultimate Net Loss each and every accident excess of $3,000,000 Ultimate Net Loss each and every accident
2. Excess of Loss Treaty for three periods between July 1, 1972 and July 1, 1975 with limits of $2,000,000 Ultimate Net Loss each and every accident excess of $3,250,000 Ultimate Net Loss each and every accident.
3. Excess of Loss Treaty for three periods between July 1, 1975 and July 1, 1978 with limits of $3,000,000 Ultimate Net Loss each and every accident excess of $3,250,000 Ultimate Net Loss each and every accident.

London Broker: Ellinger, Heath, Western & Company

We wish to submit our first report to the London Reinsurers of the North Star Reinsurance Company concerning the asbestos -related bodily injury claims brought against nineteen of its assureds companies in multiple jurisdictions throughout the United States.

We have reviewed all of the ReinsuredÆs Home Office files and we have undertaken a substantial independent investigation in an attempt to gather sufficient information to enable us to evaluate the ReinsuredÆs exposure in these matters.

It is our present opinion that several of the assureds involved here present potential exposure to the excess reinsurers on each of the reinsurance contracts covering the periods l966 - 1978. We are recommending loss and expense reserves in this report.

We are certain the excess Reinsurers are aware of the continuing controversy between insurers and insureds in the United States as to whether products liability insurance applies to asbestos related claims during each year of the insured party's exposure to asbestos fibres or upon the manifestation of the resultant asbestos-related disease many years later. Therefore, our recommendations in this report are predicated upon both the manifestation and exposure theories of coverage.

NOTICE TO REINSURED:

The Reinsured has received formal notice of asbestos claims against nine of its assureds. These include; Celotex Corporation; Dana Corporation; Flintkote Corporation; GAF Corporation; General Dynamics Corporation; Owens-Corning; PPG Industries; Shook & Fletcher Insulation Company and Studebaker-Worthington.

The Reinsured, in addition, advises that it is on risk with ten other companies which have been sued as either producers or manufacturers of asbestos products. These are: Armstrong Cork, Atlas Chemical, Combustion Engineering, Hooker Chemical, Mundet Cork, Porter Hayden, Raybestos Manhattan, Ryder Industries, J.P. Stevens and Uniroyal.

General Review of the Asbestos Problem:

We believe it might be useful here to review the magnitude of the asbestos claims situation in the United States in order to provide the excess Reinsurers with a framework within which to evaluate the particular assuredÆs individual situation. It is generally accepted that asbestos liability will be the most significant legal and loss cost issue in the history of the insurance industry. This is due to the pervasive industrial and commercial use of the mineral with its unique combination of heat resistant and tensile strength characteristics. There are perhaps as many as 3,000 different products in daily use throughout the world which contain asbestos. Despite recent efforts by manufacturers to develop substitutes for the mineral, apparently there is no reasonably priced material which can presently outperform asbestos. Although it is perhaps the largest single occupational health problem of our time, its use as of yet has not been totally banned by the United States Government.

The number of potential future asbestos claims is alarming. In April 1978, the secretary of the United States Department of Health, Education and Welfare estimated that eight to eleven million American workers have been exposed to asbestos since the beginning of World War 2. A study by three agencies of the United States Government projected in 1978 that over the next 30 years, 13% to 18% of all cancer deaths would be asbestos related. In April 1980, the Director of the National Institute for Occupational Safety and Health (NIOSH) concluded that tens of thousands of asbestos related deaths occur annually upon a six month study of asbestos fibre exposure in the workplace.

It would appear reasonable to expect hundreds if not thousands of new asbestos claims at least into the 1990Æs. This is because it does not appear that any strict safety precautions were taken in the insulation of shipbuilding trades or asbestos manufacturing industries prior to the late 1960Æs and early 1970Æs. We believe this generation is applicable to the assureds here.

Our evaluation of asbestos--related claims nation-wide indicates that the typical lawsuit is brought by a construction or shipyard worker employed for several years installing products containing asbestos against all manufacturers whose asbestos products were allegedly used at any of the job sites where he was employed. The amount of asbestos dust from each manufacturerÆs product to which the worker was allegedly exposed or the amount of asbestos dust inhaled during any period of exposure cannot be determined with any precision. Asbestos exposures range from a few years to as many as forty or fifty years.

The inhalation of asbestos fibres can cause at least three diseases: asbestosis, mesothelioma or bronchogenic carcinoma (also known as lung cancer). Asbestosis is a non-malignant disease acquired from inhaling asbestos fibres of a certain length over a long period of time. Normal body defence mechanisms cannot expel asbestos fibres of a certain length and the fibres become imbedded in lung tissue. The body's reaction therefore is to wall off the fibres by a proliferation of fibrous cells that eventual produce dense scar-like tissue in functional areas of the lungs. This process takes approximately six months and is irreversible. Asbestos increasingly impedes the transfer of gases in and cut of the blood in the lungs which eventually become inadequate to support normal activities, Asbestosis symptoms only become noticeably after many years of scar-like tissue build-up; this is typically twenty years or more after exposure. The symptoms can be manifested many years later even after very limited inhalation with no additional exposure.

Mesothelioma is a malignant condition of the cells lining the chest wall which eventually produces a tumour. The incidence of mesothelioma is almost exclusively among people exposed to asbestos. Tumour growth follows a latent period of more than twenty years of no additional exposure. Death generally follows within two years of diagnosis.

The third asbestos-related disease, bronchogenic carcinoma is a malignancy associated with people exposed to asbestos who also inhale smoke into their lungs. Its latency period before manifestation is between fifteen and twenty years following initial inhalation

ALLEGATIONS AGAINS ASSUREDS AND DEFENCES RAISED:

The theories of liability asserted against the assureds usually lie in negligence and strict products liability. The assuredsÆ defence has been that it was not aware that illness or disease was caused to non-employee users by exposure to asbestos insulation products until the mid 1960Æs. The defence continues that when the assureds learned that asbestos dust from insulation products could cause injury they immediately put warnings on the labels of their products. We note, however, that some courts have suggested that the mild warning that inhalation of asbestos in excessive quantities over a long period of time could cause injuries conveyed no idea of the true extent of the danger.

In addition to state of the art defences, the assureds frequently argue that smoking habits of claimants and their failure to observe safety precautions contributed to their disease. Further, the assureds are appealing adverse decisions from arguments that the united States Government itself should be held primarily responsible particularly in the naval shipyards cases where the Government specified the asbestos products used and in fact did not change its regulations as to the safe use of asbestos for 31 years until 1969.

However, the courts normally have permitted recoveries for asbestos-related claims if claimants have offered testimony to demonstrate exposure to a particular asbestos manufacturer or producerÆs asbestos products and the existence of disease. The claimantÆs inability to fix the exact time of exposure to particular asbestos products will ordinarily not bar recovery. That inability as well as the considerable time lapse between exposure to asbestos fibres and the resultant manifestation of illness have created two theories of insurance coverage: the exposure theory as to date of loss which is based on the idea that a separate injury occurs each time an asbestos fibre is taken into the lungs and the manifestation theory which is based upon the concept that coverage attaches only on the one date many years later when the disease manifests itself.

CLAIMS AGAINST INDIVIDUAL ASUREDS:

We now submit a summary of our review of claims brought against each of the nineteen individual assureds at risk with the reinsured together with a description of the pertinent coverage and our evaluation as to loss and costs reserves.

1. Armstrong Cork and Insulation Company:

This assured is a major defendant in the asbestos litigation. It is a Pennsylvania corporation with its principal office in Lancaster, Pennsylvania. It had 1980 sales of $1,244,000. Its 23,100 employees are variously engaged in the manufacture of interior furnishings including floor coverings and insulations and speciality products for the building, automotive and textile industries.

The ReinsuredÆs involvement stems from its three facultative reinsurance agreements with the Home Insurance Company. Under contract NSF 7498 the reinsured carried a $3,000,000 p/o $l5,000,000 p/o $30,000,000 excess of $10,000,000 excess of a $1,000,000 aggregate carried by the Aetna in the January 1, 1969 to January 1, 1972 period. We are advised that for the period between April 1, 1972 to April 1, 1974 the ReinsuredÆs contract NSF 10436 carried $3,000,000 p/o $30,000,000 excess of $10,000,000 carried by the I.N.A. excess of a $1,000,000 products aggregate carried by Liberty Mutual. Finally, the assuredÆs contract NSF 12047 carried $3,000,000 p/o the HomeÆs $15,000,000 p/o $30,000,000 excess of $10,000,000 carried by Liberty Mutual in the April 4, 1974 to January 1, 1977 period.

Our review of this assuredÆs situation indicates that as of present there have been 4,600 claims brought against this assured by individual claimants for alleged asbestos-related bodily injuries. We have also ascertained that this assuredÆs average loss payments and costs to date for each claim amounts approximately to $10,000 per claim.

This assuredÆs substantial involvement is corroborated by the results of several cases that have received publicity in the past few months. Thus we note that the assured has contributed with several other asbestos products manufacturers to several large settlements in various jurisdictions. In March, 1980, it contributed toward a $215,000 settlement in an action brought by a 52 year old insulator in Beaumont, Texas. It also contributed toward a $141,750 settlement with an Oklahoma insulation installer. The assuredÆs contribution was between $8,000 and $18,750. The only non-settling defendant in that case sustained an adverse jury verdict of $450,000.

In November, 1980, the assured contributed with five other asbestos manufacturers toward a $230,000 settlement with a former insulator and it also was a participant with thirteen other asbestos manufacturers in settling six actions recently in Dade County, Florida for a total of $1,200,000. Finally, the assured contributed $12,500 toward a $1,470,570 settlement reached by fifteen asbestos manufacturers with 42 asbestos plaintiffs in Cleveland, Ohio. That settlement included a single claim settlement of $477,250 to the widow of a 46 year old pipe covering insulator of 29 years who died of pleural mesothelioma.

Reserve on Exposure Basis:

Our review of several thousand asbestos-related bodily injury cases indicates that the following percentages of these cases involve allegations of asbestos fibre exposure during the indicated years; 1969: 3.15%; 1970: 3.15%; 1971: 3.01%; 1972: 2.95%; 1973:2.90%; and 1974: 2.69%.

Therefore our per year ground up toss and costs reserve recommendation on an exposure basis for the 4,600 claims filed thus far would be predicated upon 4,600 times the $10,000 approximate average cost per claim equals $46,000,000 times the percentage of cases involving an alleged exposure for that given year. Our per year ground up loss and costs exposure reserves for this assured are thus the following: 1969: $1,449,000, 1970: $1,449,000; 1971: $1,384,600; 1972: $1,357,000; 1973: $1,334,000 and 1974: $l,237,000.

These reserve estimates calculated on an exposure basis are grossly less than the $11 million underlying aggregate product limits beneath the ReinsuredÆs layer here and we therefore do not recommend an exposure reserve for the cases filed thus far against the assured

Reserve on Manifestation Basis:

In the event that the date of loss in the asbestos cases is ultimately determined to be triggered by the date when the disease first manifested itself, please be advised that our study of several thousand asbestos-related bodily injury cases indicates that the following percentages of these cases involve allegations of manifestation within the indicated years: 1969: 0.21%%; 1970: 0.45%; 1971: 0.36%; 1972: 1.51%; 1973: 2.91%; 1974: 3.90%; 1975: 6.00% and 1976: 9.18%.

Thus our per year ground up loss and costs reserve recommendation on a manifestation basis for the 4 ,600 claims filed thus far is based upon 4,600 times the $10,000 approximate average cost per claim equal $46,000,000 times the percentage of cases involving an alleged manifestation for that given year. Our per year ground up loss and costs manifestation reserves for this assured are thus as follows: 1969: $96,600; 1970: $197,800; 1971: $395,600; 1972: $694,600; 1973: $1,292,600; 1974: $1,794,000; 1975: $2,760,000 and 1976: $4,406,400.

Each of these ground up reserve recommendations on a manifestation basis would therefore fall within the $11,000,000 underlying products aggregate beneath the ReinsuredÆs layer here and we therefore do not recommend a manifestation reserve for the cases filed thus far against this assured

2. Atlas Chemical Industries. Inc.:

The Reinsured is attempting to acquire information as to this assuredÆs asbestos claims and has also requested this assured to advise as to its other insurers. Meanwhile we can advise that under its policy NSF 9102, the Reinsured carried 95% part of $2,000,000 part of $10,000,000 excess of $10,000,000 primary coverage on this assured from January 29, 1971 through January 1, 1972.

3. Celotex Corporation:

Celotex Corporation is a wholly owned subsidiary of the Jim Walter Corporation which is one of the 200 largest industrial companies in the United States. Jim Walter Corporation is primarily involved in residential and non-residential construction renovation, remodelling and building materials production. Its annual revenues for fiscal 1980 were $1,984,235,000 with net earnings of $84,202,000. Its products include gypsum wallboard, asphalt roofing, hardboard materials, asbestos pipe, insulation and cements as well as asbestos block and corrugated asbestos paper for insulation purposes.

It appears that Jim WalterÆs asbestos-related interests derive from its 1962 acquisition of majority control of Celotex, which is now a wholly owned subsidiary. In 1972, Celotex purchased a controlling interest in the Panacon Corporation previously know in succession as the Philip Carey Manufacturing Company and the Philip Carey Corporation. The purchase likely included liabilities as well as assets. Between 1906 and 1960, Philip Carey Corporation fabricated asbestos corrugated paper and between 1930 and 1960 it produced several asbestos product lines including asbestos sponges. asbestos cement and block, asbestos tank jackets, asbestos felts and asbestos rope. By 1969, however, the Philip Carey Company had removed asbestos-related products from its main product line but continued to use the mineral asbestos in other products. The 1972 purchase of Panacon Corporation by Celotex also included Carey-Canadian Mines, Ltd., a producer of raw asbestos.

The ReinsuredÆs coverage of Celotex Corporation under Policy NSX-12752 was effective March 1, 1975 through October 1, 1977 with limits of $5,000,000 part of $15,000,000 per occurrence and in annual aggregate in excess of $10,500,000 per occurrence and in annual aggregate carried by Kemper in excess of a $500,000 occurrence/aggregate policy issued by Aetna, which was the Primary insurer of this assured between 1972 and October 1, 1977. While Kemper is an exposure carrier, the Aetna has adopted a manifestation view of coverage and apparently has been allocating its loss payment on this basis. We understand the Aetna maintains that it has expended more than $300,000 on a manifestation basis in the 1976-1977 period.

Because of these differences in Views as to coverage, Celotex as a wholly owned subsidiary filed a Declaratory Judgment Action in 1979 against the Aetna and all of its insurers in Hillsborough County, Florida seeking judicial determination that the exposure interpretation of coverage should govern the policies issued to Celotex, Philip Carey, etc. From this suit we understand that Celotex has been self-insured since October 1, 1977. We also understand that this assured does not have any rds from the 1940s, 1950s or early 1960s regarding its insurance coverage.

Our investigation of Celotex indicates that it is a major defendant in the asbestos-related bodily injury litigation. A recent review of the assuredÆs files indicate that there are presently 9,800 claims in suit against this assured. While the assured and its counsel maintain a very aggressive defence approach, we note that the assured has now concluded 458 settlements at an average loss payment of $9,000 per claim. Most of these settlements have occurred in the past two years, In addition, it appears that the average expense factor per closed claim equals, $1,000 and thus we believe the approximate average cost per claim has been $10,000. We therefore believe it proper to assume that the assured will be able to continue to dispose of cases at this average $10,000 figure.

Finally, our review of several thousand asbestos-related bodily injury cases reveals that 2.5% of all the cases involve allegations of exposure in 1975 and 2.3% of all cases involve allegations of exposure in 1976. Therefore our ground up reserve recommendation on an exposure basis for the claims filed thus far would be based on 9,800 claims times $10,000 average cost per claim equals $98,000,000 times 2,5% for the March 1, 1975 - March 1, 1976 year equals $2,450,000. Our ground up loss and costs reserve on an exposure basis for the March 1, 1976 to March 1, 1977 year equals $2,254,000 for the claims filed thus far. And our exposure ground-up reserve for the seven month March 1, 1977 to October 1, 1977 period would be based on $98,000,000 times 2.08% (the percentage of asbestos-related cases involving allegations of exposure in 1977) equals $2,038,400 divided by seven-twelfths of a year equals $1,189,066.

These figures calculated on an exposure basis are substantially less than the underlying aggregate limits carried by Kemper and Aetna and we therefore are not recommending an exposure reserve at this time for the cases tiled thus far.

In the event that the date of loss in the asbestos litigation is ultimately determined to be calculated on the manifestation of disease basis, please be advised that our review of several thousand asbestos-related bodily injury cases reveals that 1975 is set forth as the year of manifestation in 6% of all cases where dates of manifestation are alleged. Similarly, 1976 is set forth as the year of manifestation in 9.18% of the cases and 1977 is alleged in 20.39% of the cases.

Therefore our ground up reserve recommendation on a manifestation basis for claims filed thus far is predicated on 9,800 claims times $10,000 average cost per claim equals $98,000,000 times 6.0% for illnesses manifested in the March 1, 1975 to March 1, 1976 year equals $5,880,000. Our manifestation reserve for the March 1, 1976 to March 1, 1977 year is based on $98,000,000 times 9.18% equals $8,996,400. Finally our manifestation reserve for the seven month March 1, 1977 to October 1, 1977 period would be predicated on $98,000,000 times 20.39% times seven-twelfths equals $11,656,282.

Each of these ground up reserve recommendations on an manifestation basis would therefore fall within either the underlying aggregate limits carried by Kemper and Aetna or, as in the 1977 period, within the ReinsuredÆs retention under Contract No. 721-0002. We therefore are not recommending a reserve to Reinsurers at this time but we do caution that these reserves are predicated only on claims that have been made as of this time. In this connection we can advise that the primary carrier Aetna has established a $9,000,000 manifestation reserve on the 1976-1977 year.

4. Combustion Engineering, Inc.:

This assured as incorporated in Delaware in 1912 and maintains its general offices in Stamford, Connecticut. It is a large corporate conglomerate with 26 subsidiaries which had 1979 net sales of $2,757,504,000 with net income of $97,641,000. The business of Combustion Engineering, Inc. is widely varied but includes the design, engineering and production of screening equipment for general industrial applications and the mining and processing of industrial minerals. It manufactures heavy insulation products and has used asbestos in the manufacture of cements, mastics, boards and blocks.

The ReinsuredÆs involvement with this assured stems from three facultative reinsurance agreements with the Home Insurance Company. Under NSF-5482 from January 1, 1966 to January 1, 1969, the Reinsured carried $2,000,000 part of The HomeÆs $10,000,000 in excess of $5.000,000 carried by Travelers excess of primary products aggregate of $500,000 carried by Travelers. Our information is that the Reinsured came off this risk for a period but then between January 1, 1972 to January 1, 1975 it had under NSF-9969 a facultative reinsurance agreement with the Home Insurance Company carrying a $3,000,000 part of HomeÆs $10,000,000 excess of TravelersÆ $5,000,000 excess of TravelersÆ primary $500,000 products aggregate. Finally, from January 1, 1975-1978 under NSF-12552, the Reinsured carried a $3,000,000 part of HomeÆs $10,000,000 in excess of the TravelersÆ $5,000,000 excess of TravelersÆ primary $500,000 aggregate.

This assured has a substantial involvement in the asbestos-related bodily injury litigation. We note that it participated in the recent $1,470,570 settlement with 42 claimants in Cleveland, Ohio. It is most frequently a named defendant in the insulation cases.

Our information is that there have been 4,800 claims to date brought against this assured which are all being defended by the Travelers. We are advised that approximately a thousand claims have been concluded by this assured but we do not have reliable information as to the average loss payment being incurred in the resolution of its claims. From our review of the overall asbestos litigation it is our estimate that this assured is expending approximately $10,000 in average loss payment and defence costs per claim.

Reserve on Exposure Basis:

Our study of several thousand asbestos related bodily injury shows the following percentages of all filed cases to date involve allegations of exposure within the indicated years: 1966: 3.22%; 1967: 3.20%; 1968: 3.16%; 1972; 2.95%; 1973: 2.90%; 1974: 2.69%; 1975: 2.5%; 1976: 2.3% and 1977: 2.08%.

Therefore our ground up reserve recommendation on an exposure basis for the claims filed thus far would be based on 4,600 claims times $10,000 average cost per claim equals $43,000,000 times 3.21% for the 1966 policy year equals $1,545,600. On this basis our ground up exposure reserve recommendation for the known claims to date for the remaining years when the Reinsured was at risk would be as follows: 1967: $1,536,000; 1969: $l,516,800; 1972: $1,416,000; 1973:$l,392,000; 1974: $1,291,200; 1975:$l,200,000; 1976: $1,104,000 and 1977: $998,400.

These reserve estimates calculated on an exposure basis for claims filed thus far are substantially less than the underlying limits carried by the Travelers and we therefore are not recommending an exposure reserve to the excess Reinsurers at this time.

Reserve on Manifestation Basis:

Therefore our ground up reserve recommendation on a manifestation basis for the cases filed thus far is based on 4,800 claims times $10,000 average cost per claim equals $49,000,000 times 0.07% for the 1966 policy year equals $33,600. Using this same basis our ground up manifestation reserve suggestion for known claims thus far for the remaining years when the Reinsured was on risk is as follows: 1967: $134,400; 1968: $134,400; 1972: $720,000; 1973: $1,344,000; 1974: $1,872,000; 1975: $2,880,000; 1976: $4,406,400, and 1977: $9,787,200.

Therefore on a manifestation basis for claims filed thus far we would not recommend a reserve for the 1966-1976 years because of the $5,500,000 underlying products coverage carried by the Travelers. However, we do recommend to the excess Reinsurers a manifestation reserve for claims filed to date for the 1977 policy year predicated upon $9,787,200 less $5,500,000 underlying carried by Travelers equals $4,287,200 times the ReinsuredÆs 30% share of the HomeÆs $10,000,000 layer equals $1,286,160 less $750,000 retained by the Reinsured equals a net reserve to the Excess Reinsurer of $536,160 indicating a Full loss under Contract No. 721-0002 and a $36,160 loss under No. 721-0003.

5. Dana Corporation:

This large corporate conglomerate was incorporated in 1916 and today has 25 wholly owned subsidiaries. It had 1979 net sales of $2,761,135,000 with net income of $164,177,000. Its general office is located in Tolado, Ohio and its business is generally divided into two segments: vehicular and industrial. The vehicular segment includes the manufacturing and marketing of a wide variety of engine and vehicle parts including clutches. The industrial segment is involved in the manufacture and marketing of a broad range of products for industrial markets.

The Reinsured has both direct and reinsurance involvement with this assured. Under its direct policy NSX-7864 the Reinsured provided coverage of $5,000,000 p/o $20,000,000 excess of $10,000,000 excess of $1,000,000 products aggregate in the March 23, 1969 to May 23, 1972 policy period. We understand that the Reinsured in turn facultated out $2,000,000 of its limits on this placement.

The Reinsured also carried facultative reinsurance with the Home Insurance Company under NSF-11249 from March 6, 1973 to June 1, 1976 carrying $3,000,000 p/o $25,000,000 p/o $50,000,000 in excess of a $50,000,000 primary coverage. The Reinsured also carried this risk from June 1, 1976 to June 1, 1977 under NSF-1399 for $3,000,000 p/o $15,000,000 (The Home) p/o $50,000,000 excess of $50,000,000 primary coverage.

The Reinsured is unaware of the total number of asbestos claims presently pending against this assured. However, Dana has put the Reinsured on notice of at least one claim for asbestos-related products liability coverage. Our review of pending asbestos actions nation-wide fails to disclose the assured as an prominent defendant in the asbestos litigation.

Reserve:

While we do not know the status of this assured in regard to other products liability claims, from the information at hand we do not believe a reserve is required for its asbestos exposure.

6. Flintkote:

The Reinsured wrote this assured on a direct excess basis and also had two facultative reinsurance contracts with the Employers Liability Assurance Corporation (ELAC). In the December 31, 1964 to December 31, 1967 period the Reinsured under direct excess Policies NSX 5187 and 5232 wrote $4,000,000 limits excess of $3,000,000 for both United States and Canadian operations. It is our understanding that during this period the assured carried a $25,000 per occurrence deductible but also maintained a $100,000 limit in annual aggregate products liability.

In a subsequent period between December 31, 1967 and December 31, 1973 the Reinsured under agreements NSF 6785 and 9178 facultatively reinsured ELAC for $3,000,000 p/o $14,000,000 excess of $1,000,000 which we believe was carried by American Mutual Liability Insurance Company.

This assured is a Massachusetts corporation with its general offices in Stamford, Connecticut. It owns eight subsidiaries and its 1978 net sales totalled $730,175,000 with net profits of $37,721,000. It is engaged in the manufacturing, distribution and marketing of various building and construction materials. We understand that the assured does not now mine or produce asbestos but that it did have a wholly owned Canadian subsidiary corporation that operated an asbestos mine in Quebec from 1946 to 1971. This subsidiary provided mineral asbestos to the assured and, to a lesser extent, to unaffiliated customers.

We know of no case to date where the assured has been sued because of its mining operations. The assured manufactured no less than 40 different products containing asbestos including cement pipe, shingle and roofing materials, floor tiles and mastic pastes, liquids and solvents used in insulation work. The assured maintains that none of its products can be employed so as to liberate asbestos dusts or fibres into the air.

We know of no case against the assured that has gone to trial as of yet. This assured does not appear to be one of the major producers of insulation materials but it has persistently been named as a defendant in cases involving members of the International Union of Heat, Frost, and Insulating Workers who work in the building trades.

Our investigation reflects that to date there have been 2,078 lawsuits brought against the assured involving 3,724 individual claimants. Our information is that the assured has settled or closed several hundred claims and has been averaging a loss and cost payment of approximately $3,000 per claim.

Therefore our ground up reserve recommendation on an exposure basis for the claims filed thus far would be based on 3,724 claimants times $3,000 average cost per claimant equals $11,172,000 times 3.24% for the 1965 policy year equals $361,972. On this basis our ground up exposure reserve recommendation for known claims to date for the remaining years when the Reinsured was on risk would be as follows: 1966: $359,738; 1967. $357,504; 1968: $353,000; 1969: $351,918; 1970: $351,9l8; 1971: $336,277; 1972: $329,574 and 1973; $323,998.

Because of the underlying insurance in existence here we would not recommend a reserve for the excess Reinsurers for the claims filed thus far on an exposure basis.

Reserve on Manifestation Basis:

No reserve would be required for the excess Reinsurers on a manifestation basis for the 1965-1973 years.

7. GAF (Formerly Ruberoid Company):

This assured was incorporated in 1929 in Delaware ant maintains its principal office in New York City. Its asbestos-related operations derive from its May, 1967 merger with the Ruberoid Company which manufacturers asbestos products at two New Jersey locations as well as in Pennsylvania and Vermont. The Ruberoid Company of New Jersey had manufactured industrial thermal insulation products containing asbestos since the late 1920s and early 1930s. However, by early 1966 Ruberoid began labelling its industrial thermal insulation products with a warning of the dangers of asbestos fibre inhalation.

The assured in 1979 terminated its asbestos cement and mineral fibre operations at its Missouri and New Jersey locations. The assured continues to manufacture building materials and this product line includes roofing insulation, flooring for residential construction, re-modelling and built-up roofing for commercial and institutional buildings. In 1979 the assured had gross sales of $1,213,243,000 with income of $57,555,000. It currently owns 52 subsidiaries world-wide.

The Reinsured provided direct excess coverage on this risk for the period between May 1, 1977-1978 under policy no. NSX-15154. The Reinsured carried $2,000,000 part of $5,000,000 excess of $46,000,000 underlying coverage.

This assured is one of the major defendants in the asbestos related bodily injury litigation. Our investigation shows that there currently are 5,500 individual claims brought against the assured. However, we are advised that this assured has been settling its asbestos cases on an average of approximately $5,000 per claim.

Reserve:

Because of the protection of the $46,000,000 underlying coverage provided to this assured during the 1977 policy period, we do not believe an exposure or a manifestation reserve is required by the Excess Reinsurers on the basis of the claims filed to date against the assured.

8. General Dynamics (Electric BoatÆ Division and Asbestos Corporation, Ltd.) :

The reinsured wrote this direct excess liability coverage from November 29, 1966 through July 1, 1972 under three policies. NSX-5933 effective November 29, 1966-1969 provided $3,000,000 part of $20,000,000 excess of $80,000,000 coverage. During the period between September 1, 1967 and July 1, 1970 under NSX-6546 the reinsured provided $4,000,000 p/o $8,000,000 excess of $15,250,000 excess of $17,000,000 primary coverage. Finally, under NSX-8558 from July 1, 1979 through July 1, 1972, the reinsured provided $3,000,000 p/o $25,000,000 excess of $25,000,000 primary coverage. The assuredÆs primary carriers during these periods of coverage included Maryland Casualty, the Insurance Company of North America, Aetna and the Chubb Insurance Company.

This assured is, a Delaware Corporation which maintains its executive offices in St. Louis, Missouri, Its involvement in asbestos began with its merger in 1952 with the Electric Boat Company of Groton, Connecticut and with its acquisition of part of the Asbestos Corporation, Ltd. of Quebec, Canada in April, 1973. General Dynamics is engaged in the design and manufacture of various products for the aerospace and shipbuilding industries as well as asbestos mining and milling operations. In 1979 net sales totalled $4,059,576,000 with a net income of $186,156,000. Its Electric Boat Division employs over 24,000 workers alone. It appears that this Division is the principal manufacturer of submarines in the free world. During World War II alone, over 100,000 of its workers were possibly exposed to asbestos products during the fabrication of ships for the war effort. We note that a 1975-1976 study which was undertaken by the purported leading medical researcher in the asbestos related disease field, reported that of 1,000 Electric float workers tested under x-ray that 46% were found to have some lung abnormality. We further note that the assuredÆs Electric Boat division is still unable to specifically identify all of the asbestos which was used in its submarines during the past 40 years.

There have been approximately 350 lawsuits filed by shipyard employees of the Electric Boat Division in the United States District Court in Hartford, Connecticut against fourteen asbestos manufacturers and distributors. A package of fifty of the lawsuits has been settled for a total loss payment of approximately $6,000,000. Although there were attempts to involve the assured in these settlements, as it was a third party defendant, it is our understanding that the assured did not contribute to any of the settlements. All of these claimants have filed WorkmanÆs Compensation claims against the assured but this liability would not involve the ReinsuredÆs coverage.

We are advised that the assured owns 54.6% of Asbestos Corporation, Ltd, which has supplied raw asbestos fibres to various asbestos product manufacturers in the United States since at least 1931. This company has been sued by Forty Eight Insulations, Inc., an asbestos insulation manufacturer seeking indemnity for all the loss payments it has made in connection with bodily injury claims. Asbestos Corporation, Ltd. has also been named as a defendant with eleven other suppliers in bodily injury actions brought by Johns Manville employees in Illinois and by CertainTeed employees in Pennsylvania alleging a failure to warn of the dangers of raw asbestos and a failure to properly package the raw asbestos.

For similar reasons this assured was sued with four other asbestos suppliers by 623 employees of the Raybestos Manhattan plant in Passaic, New Jersey. We are advised that a total settlement of $16,000,000 was achieved in these suits and that Asbestos Corporation LtdÆs share was $1,825,000.

Reserve:

We do not believe this assuredÆs insurers would be liable on an exposure basis for claims against Asbestos Corp., Ltd. for injuries sustained prior to the assuredÆs acquisition of Asbestos Corp. Ltd. in 1973. Further, we do not believe the assured in the 1966-1972 period covered here could be found liable on a manifestation basis. Therefore we believe the only potential liability to the Reinsured here could come from the liability of the Electric Boat Division on an exposure basis in the 1966-l972 years.

Because there have been only 350 claims filed to date by Electric Boat Division employees and because of the limits of the underlying Coverage beneath the ReinsuredÆs layers, we do not believe a loss reserve should be established by the excess Reinsurers on this risk.

9. Hooker Chemical and Plastics Company:

The Reinsured had numerous reinsurance involvements with this assured. Under facultative Agreement NST-6271 with the Monte Insurance Company it wrote 60% p/o $5,000,000 p/o $20,000,000 excess of $5,000,000 products aggregate excess of $10,000,000 primary carried by the Hartford in the May 12, 1967 to December 1, 1970 period. Under facultative agreements NSF 8919 and 8930 with the Home it wrote respectively $1,000,000 p/o $4,000,000 excess of $1,000,000 products aggregate excess of $10,000,000 primary carried by the Hartford and also 40% of $5,000,000 p/o $20,000,000 excess of $5,000,000 products aggregate excess of the Hartford $10,000,000 primary in the December 1, 1970 to March 1, 1973 period.

Following March 1, 1973 the Reinsured had facultative agreements with the Unigard Insurance company on Occidental Petroleum which included Hooker Chemical Company. These included policies (1) NSF 11256 and (2) NSF 11257 and (3) NSF 11258 in the March 1, 1973 to March 1, 1976 period with respective limits of (1) $1,000,000 p/o $7,000,000 p/o $15,000,000 excess of $10,000,000 including $1,000,000 primary by Hartford as well as (2) $1,000,000 p/o $13,000,000 excess of $25,000,000 including primary and (3) $1,000,000 p/o $10,000,000 p/o $25,000,000 excess of $50,000,000 including primary.

Following March 1, 1976 for one year until March 1, 1977 the Reinsured had direct excess cover NSX-13822 on Occidental which would include Hooker with limits of $2,000,000 p/o $25,000,000 excess of $75,000,000.

Hooker Chemical is involved in the manufacture of a broad line of chemical and plastics products with its Home offices near Buffalo, New York. We are not familiar with this assuredÆs use of or involvement with asbestos, however. The Reinsured has received no notice from its ceding Companies as to any asbestos claims against this assured and our own review of the asbestos litigation indicates that this assured should not be heavily involved. Hence we have no information as to number of claims or whether any loss payments have been made. The only litigation that we have independently noted involves a group of asbestos related bodily injury actions filed in Chicago by 51 employees of the Johns-Manville Corporation in Waukegan, Illinois. The action names 34 defendants, including the assured, However, the Chicago litigation is in its very early stages and we are unable to report on the nature of the evidence, if any, against this assured.

We recommend no reserves in connection with this assuredÆs asbestos involvement. Nevertheless we should mention here this assuredÆs serious exposure arising out of the notorious bodily injury and property damage claims allegedly caused by its deposit of toxic chemical wastes at the "Love Canal" and other sites near Niagara, New York in the 1942-1953 years. The Reinsured seemingly could be involved in substantial loss payments because of this exposure.

10. Mundet Cork Company:

The Reinsured provided coverage to this assured from July 15, 1962 through January 1, 1964 under two contracts. Under NSX-3275, the Reinsured provided $2,000,000 excess of a $25,000 self-insured retention per accident for excess WorkmenÆs Compensation and EmployerÆs Liability. The Reinsured reinsured 50% of its exposure under this contract.

Then from July 15. 1963 through January 1, 1964, the reinsured under NSX-3275 provided $2,000,000 excess of a $25,000 self-insured retention per accident for excess WorkmenÆs Compensation. and EmployerÆs Liability. The reinsured advises that it has no information regarding any asbestos claims filed against this assured and our independent investigation does not disclose that this assured had a substantial involvement.

Reserve:

From the information available we cannot recommend a reserve. We will attempt to encourage the Reinsured to obtain additional facts.

11. Owens Corning Fiberglass Corporation:

The ReinsuredÆs involvement with this risk stems from its facultative reinsurance agreement with the North River Insurance Company. Its coverage was for a policy period from January 18, 1974 through October 24, 1976 under Contract No, NSF-12263 with limits of $3,000,000 part of $25,000,000 part of $50,000,000 per occurrence/aggregate in excess of $25,000,000 per occurrence/aggregate excess of the primary $1,000,000 occurrence/aggregate carried by Aetna Life and Casualty Company.

This assured was incorporated in Delaware in 1938 and maintains its general offices in Toledo, Ohio. Owens-Corning and its 37 subsidiaries realised 1979 net sales of $2,245,l64,000 with net income of $109,266,000. Most of the companyÆs revenue is derived from its glass fibre business and activities incidental thereto. Its insulation and construction products include thermal and acoustical insulation for residential and commercial construction, automobile and rooting materials.

This assured is a substantial defendant in the asbestos litigation. We note that in December, 1979 a jury returned a verdict against the assured and other defendants in favour of two plaintiffs in the amount of $435,000 each. That verdict was subsequently set aside as excessive. However, Owens-Corning discharged itself from potential liability in 40 other pending law suits in Cleveland in January, 1981 for a total loss payment of $500,000. In one Ohio case this assured contributed $65,000 to a single person settlement of $477,250.

Our general review of this assuredÆs situation reflects that as of September, 1980 there had been approximately 4,000 claims brought. We expect that this number has increased dramatically since that time. The assured had concluded 416 cases with total loss payments of $4,181,313 or an average loss of $10,051 for each closed file.

Reserve:

In view of the underlying $26,000,000 aggregate limits we do not believe a reserve is required by the excess Reinsurer for the claims brought thus far against assured.

12. PPG industries, Inc. (Pittsburgh Corning Corp.)

The Reinsured had separate involvements with this assured in the 1966 to 1978 periods. First of all in the October 1, 1966 to July 24, 1970 period it provided facultative reinsurance to the Employers Liability Assurance Corporation (ELAC) under Policy NSF-5915 for $500,000 part of the first $2,000,000 part of $10,000,000 excess of $1,000,000 carried by primary insurers, During the same period under the same policy the Reinsured also carried $l,000,000 part of $5,000,000 (ELAC) excess of $5,000,000 excess of underlying $1,000,000 primary.

The Reinsured also had facultative agreements with the Home Insurance Company. Under policies NSF-5893 and NSF-8717 and NSF-11082 the Reinsured during the periods between October 18, 1966 through July 1, 1976 carried 15% of $1,500,000 of the HomeÆs excess layer of $10,000,000 excess of $31,000,000 underlying.

The Reinsured also wrote this risk on a direct excess basis. Under NSX-10945, effective December 1, 1972 through July 1, 1976, the reinsured carried $1,500,000 of a $4,000,000 layer excess of an underlying $46,000,000. And, under NSX-15358, the reinsured carried $1,000,000 part of $25,000,000 excess over $50,000,000 underlying from July 1, 1977 through July 1, 1978.

Finally, the reinsured had a facultative agreement with ISLIC in the July 1, 1976 to 1977 period with limits of $3,000,000 p/o $5,000,000 p/o $10,000,000 excess of $30,000,000 excess of primary $1,000,000 aggregate products carried by the Hartford.

General Background:

PPG Industries, Inc. was incorporated in Pennsylvania in 1883 and subsequently reincorporated there in 1920. It was the first commercial plate glass company in the United States. In 1979, the assured enjoyed net sales of $3,091,800,000 and net income of $213,900,000. The assuredÆs principal businesses include the manufacture and distribution of automotive glass, paint and finishes as well as industrial paints, resins and glasses. In May, 1962, the assured acquired the Rubber and Asbestos Corporation of Bloomfield, New Jersey to add adhesive products to its paint and brush division. In 1973, PPC sold its fibre glass insulation assets to CertainTeed Products Corporation and a major portion of its cement assets to the Filtro Corporation. We note from our review of the asbestos litigation nation-wide that CertainTeed Products Corporation is frequently named a defendant in these matters.

Our review of PPG industries led us to conclude that this company was not a major manufacturer asbestos products. PPG currently has been sued by approximately 1,200 claimants but thus far it has no history of making substantial loss payments in the asbestos related bodily injury claims. Travelers as its primary insurer did pay $2,250,000 in the $20,000,000 Tyler, Texas settlement but this loss was paid as an operations loss and not as a products loss.

We believe the ReinsurersÆ exposure here is more likely to come through the Pittsburgh Corning Corporation, 50% of which apparently is owned by PPG. It is our understanding that Pittsburgh Corning had its own primary insurers with $1,000,000 aggregate products limits but that in the periods involved here the excess policies issued to PPG covered Pittsburgh Corning as well.

The primary carrier of Pittsburgh Corning during the 1966 to 1970 period was the Travelers and INA was the primary carrier until July 1, 1973. Kemper provided $1,000,000 products aggregate coverage on Pittsburgh Corning in the 1973-1975 period but we are advised that there was a $5,000 per claim deductible at that time. It appears that Pittsburgh Corning was uninsured on a primary basis in the 1975 to 1976 years and that it is claiming that the Home Insurance Company, which wrote an umbrella $2,000,000 cover over $1,000,000, is its primary carrier during that period.

In any event because of the underlying limits it would appear that the ReinsuredÆs most obvious vulnerability would fall under its facultative agreements with ELAC in the 1966-1970 periods. The primary insurer at that time was the Travelers, which as an "exposure" carrier, claims to have been tracking its loss payments over all of the years of alleged exposure for each individual claimant to whom a loss is paid. As of December, 1979 the Travelers claimed it had impaired its annual products aggregate by $180,057, $193,939, $200,762 and $263,722 respectively during the 1956 through 1969 policy years. We have not been able to obtain the current position of TravelersÆ underlying aggregate.

Nevertheless, our review reflects that Pittsburgh Corning is substantially involved in the asbestos litigation. We note that in 1979 a Virginia jury returned a verdict on behalf of a former insulator at the Newport News shipyard against Pittsburgh-Corning and two other asbestos producers for $435,000.

While this verdict was later set aside it does reflect this assuredÆs involvement. Similarly in January, 1980, Pittsburgh Corning and four other defendants settled a single asbestos action for $113,500. It also recently settled 22 separate actions filed in Maine and Massachusetts by former construction or shipyard workers in the total amount of $192,000.

Reserve on Exposure Basis:

Our review of the Pittsburgh Corning risk reflects that currently 5,400 claims have been brought and that this assured has been averaging approximately $10,000 in loss and cost expenses for all claims concluded thus far. At the same time our survey of several thousand asbestos-related bodily injury cases indicates that the following percentage of these cases involve allegations of exposure during the years when the Reinsured carried facultative reinsurance on ELAC: 1967: 3.20%; 1968: 3.16%; 1969: 3.15%; 1970: 3.15%.

Therefore our per year ground up loss and Costs reserve recommendation on an exposure basis for the 5,400 claims filed thus far would be based on 5,400 claims times $10,000 approximate average cost per claim equals $54,000,000 times the percentage of cases involving an alleged exposure for that given year. Therefore our per year ground up exposure reserve for this assured are as follows: 1967, $1,728,000; 1968: $1,706,400; 1969: $1,701,000; 1970: $1,701,000.

The net exposure reserve to the Reinsured would be the above ground up reserves less the TravelersÆ $1,000,000 aggregate times the ReinsuredÆs 25% share of ELACÆs first excess layer. The ReinsuredÆs net exposure reserves on this basis would be 1967: $182,000; 1968: $176,600; l969: $175,250 and 1970: $175,250. These reserves would all fall within the ReinsuredÆs retention under Contract No. 721-0002 and thus no reserve is recommended to the excess Reinsurers at this time.

Reserve on a Manifestation Basis:

We do not believe a manifestation reserve would be required for this assured.

13. Porter-Hayden Company:

This assured is a Baltimore, Maryland Corporation which had 1980 sales of $19,000,000. Its 150 workers produce certain products containing asbestos including friction materials, glass insulations and packings.

The Reinsured provided coverage to this assured under policy NSX-14130 from June 28, 1976 through May 26, 1977 with limits of $2,000,000 excess of $7,000,000 excess of $1,000,000 products aggregate darned by the Hartford.

Despite its obvious involvement with asbestos products, this relatively small assured does not appear to be a major defendant in the asbestos litigation. The Reinsured has received no notice of any pending claims against the assured. We will press the Reinsured to obtain additional information.

Reserve:

Under the present circumstances we do not recommend a loss reserve to the Reinsurers on this risk.

14. Raybestos-Manhattan Corporation:

This assured was incorporated in 1923 and its principal offices are located at Trumbull, Connecticut. Its business is the manufacturing and marketing of energy absorption and transmission products, fastening systems arid custom engineered materials. Raybestos-Manhattan operate 10 manufacturing plants and five brake products manufacturing centres throughout the United States. Its 1979 net sales were $294,872,000 with net income of $5,180,000. This assured is a major producer of friction products and, until very recently, a substantial portion of its product line contained asbestos.

The Reinsured here provided coverage under Policy NSX-9672 from September 1, 1971 through September 5, 1972 for $1,000,000 excess of a $35,000 self-insured retention [or WorkmanÆs Compensation and EmployerÆs Liability. Our review of the ReinsuredÆs policy reveals that under Exclusion (e) Employers Liability under Section 1(b) for bodily injury caused by disease would be excluded unless prior to 36 months after the end of the contract period a written claim is made or a suit brought because of such injury or death. We believe this exclusion should protect the Reinsured from common law indemnity claims brought against it by other manufacturers or producers of asbestos products who have been sued by the assuredÆs employees.

Nevertheless the Reinsured must be deemed to face substantial potential exposure here. Even though the assured to date has not put the Reinsured on notice of any claims, we must advise that the recent California Supreme Court decision in the Rudkin case held that an employee of an asbestos product manufacturer can sue his employer directly for fraud or misrepresentation in concealing the dangers of working with asbestos. Clearly, this decision could portend grave potential exposure to asbestos manufacturers and their EmployerÆ Liability insurers. Formerly, employees have been limited to WorkmanÆs Compensation scaled benefits and could not sue their employers directly.

In this regard we note that Raybestos-Manhattan also has been named a defendant in a $66,000,000 law suit filed in Pennsylvania on behalf of named and an unknown number of unnamed present and former employees at its Manheim, Pennsylvania plant seeking damages for alleged injuries resulting from asbestos exposure. The assuredÆs defence as above recited is that under Pennsylvania law, WorkmenÆs Compensation is the exclusive remedy for employees allegedly injured on the job.

This particular assured must be deemed to be vulnerable to these types of suits because of the availability of several letters written by its President in the 1930Æs, Sumner Simpson, which tend to indicate that this assured was aware of the danger of inhaling asbestos fibres at that time and may even suggest that there was an attempt to conceal this information.

We can advise that more than 600 of this assuredÆs employees at a New Jersey Manufacturing plant recently obtained a $16,000,000 settlement against various suppliers of asbestos to the assured.

Reserve:

The Reinsured has not been put on notice of any claims by this assured and it does not carry a loss reserve at this time. Under these circumstances we do not recommend a reserve to the excess Reinsurers but we do believe this situation should be closely monitored.

I5. Ryder Industries:

The RainsuredÆs involvement with this risk stems from its treaty no. NS-1196 with Surplus Underwriters wherein during the period between July 1, 1978 through June 6, 1980 it provided reinsurance of $1,000,000 in excess of $15,000 each occurrence. Surplus LinesÆ coverage on this assured, however, is only $300,000 per occurrence and in products aggregate and thus the ReinsuredÆs exposure is $285,000 excess of $15,000 on an aggregate basis.