Rand Institute of Civil Justice Study: Asbestos in the Courts

(vii) Period of study late 1983 - early 1985.

(24) by the mid-80s, the surge in filings begun in 1978 had ended ... yet the number of dispositions continues to fall behind the number of new filings.

(32) The asbestos crisis is far from ending: new filings projected to continue into the next century. In addition new types of asbestos personal injury and property damage cases will continue to be filed in uncertain numbers into the future. In addition to the traditional plaintiffs, new types of plaintiff and new types of injury (property damage).

(41) Cites 1983 Philadelphia Court which notes that litigating with these claimants is like gambling at a casino.

When carrying out work on the environmental considerations input of the SRA work papers, members of staff may like to know that the Insurance Technical Section does maintain specific environmental files, relating to all areas of the industry. Accordingly, if you wish to avail yourself of this facility, please speak to a member of the section.... A paper, entitled Insurance Industry Scan 1984, has been prepared to summarise many of the more significant developments recorded on these files and will be circulated in early February.

Mr Ian Winchester has resigned as Managing Director of Winchester Bowring Ltd. Mr Hugh Prior is appointed Managing Director of the company. Mr Winchester will remain a director of Winchester Bowring Ltd until he takes up his new appointment with Toplis & Harding Inc. in the United States early in 1985.

Nigel Holland stated that historically the reinsurance to close had been on a net basis. True and fair forces the syndicate to gross up their reinsurance to close between the premium element and the claims element. He cited Merretts as an example as having no pattern in their fourth and subsequent year run-off position, although the figures were not particularly large when compared to the reinsurance to close itself.

Michael Bolger stated that Lloyd's has a very low expense ratios and many syndicates will not go to the extra expense of having full risk written records in order to arrive at a "technical" premium accrual....

Stephen Hill was quite categoric when he said that if there were no records, then, the auditors should qualify their report.

Nigel Holland stated that Davison had felt that a mass of qualified opinions is harmful to Lloyds as a community. He believed that pocket books are being kept at the box, but that they are not related to the accounting records maintained....

Peter Standish and Michael Bolger discussed the problems relating to treaty and binding authority business....

Nigel Holland stated that historically by ignoring the premium accrual, an extra loading was given to the reinsurance to close.

A M Farrar, solicitor and Lloyd's Council Member, writes to a BPR Name stating, inter alia, "

Keene Corp. -v- I.N.A. Judgement redefined.

Mr. Ayliffe of Merretts received a letter enclosing a recent article which stated that in the last three or four years, the number of claims filed by railroad workers alleging asbestos disease has far exceeded the total of such actions in the entire history of the American railroad industry.

The Government publishes its proposals contained in the White Paper, "Financial Services in the United Kingdom: A New Framework for Investor Protection".

In the last three or four years, the number of claims filed by railroad workers alleging asbestos disease has far exceeded the total of such actions in the entire history of the American railroad industry. These claims reflect a growing awareness of the enormous toll exacted by the railroads' use of asbestos, particularly in the Steam Era.... Railroad have long been among the heaviest users of asbestos containing products in American industry.

The State of Maryland has filed suit against 40 manufacturers and distributors of asbestos, including PCC, seeking $500 million in compensatory damages to clean up asbestos in more than 3,000 public buildings in the state, including schools, prisons, dormitories, hospitals and offices. The State's complaint alleges that it has had to spend millions of dollars to inspect, identify, test, analyse, remove encapsulate, decontaminate or enclose asbestos or asbestos-containing products in public buildings and facilities. The State also requests an injunction requiring the companies to perform all "necessary asbestos abatement remedial actions" and to pay for the cost of the suit.

A similar suit has been filed by the City of Baltimore seeking some S225 million from 55 defendants for asbestos abatement costs in public buildings ranging from schools and office buildings to prisons. The City has also charged the companies with fraud for allegedly making false statements about the safety of asbestos and with conspiracy "to deprive the public, and particularly the users, of medical and scientific data" linking asbestos to lung disease and cancer. This action is in the early stages of litigation.

In November 1984, the City of New York and The Board of Education through the office of the Corporation Counsel and the firm of Kriendler & Kriendler, filed an action against more than 60 manufacturers seeking S250 million in order to recover the cost of asbestos removal and containment. The action was filed in the Supreme Court, New York County, and alleges causes of action based upon restitution, nuisance, negligence, fraud and misrepresentation, strict liability, implied and express warranties, and conspiracy. In addition the complaint seeks punitive damages in an unspecified amount

The number of filings by school districts continues to increase, with more than 70 property damage actions now having been commenced nation-wide. PCC has been named as a defendant in 20 school district actions to date, including the national class action pending in Philadelphia. Developments in the Philadelphia national class action are set forth separately hereinafter.

In Ohio, a motion is pending before the Cuyahoga County Common Pleas Court requesting certification of a state-wide class action for school property damage suits. That class complaint is on behalf of 54 private and parochial school districts against some 60 defendants.

Other recent school district filings include actions by The University System of New Hampshire in the Federal Court, New Hampshire, wherein plaintiff seeks $5 million in compensatory damages in addition to unspecified punitive damages, and the Selah School District in Yakima, Washington, wherein plaintiff demands $200,000 compensatory damages and unspecified punitive damages involving the installation of asbestos acoustical plaster.

Mr. Floyd Knowlton of the Travelers Insurance Company, Inc. is recorded as stating in Mrs. Rowe's (claims manager at the R J Kiln Agency) contemporary record of a conversation with Mr. Knowlton on 31 January 1985:-

"Knowlton said the asbestos B.I. problem may be more or less under control, but he feels the P.D. will be at least as large - and may in turn spark more B.I. claims..."

The Johns-Manville settlement was reached by Manville Corporation, the parent Company of Johns-Manville, for $111.8m with three excess insurers, which increased the insurance cover of Manville Corp. to $426m, with a consequence increase in the quantum of asbestos-related claims falling upon insurers.

In early 1985, The Investigations Committee of Lloyd's appointed Mr D R P Baker FCA, a partner in Touche Ross & Co, to act jointly with Sir Edward Singleton on the Committee of Enquiry into Bellew, Parry & Raven.

Letter from Toplis and Harding (Asbestos Services) Limited to insurers at interest, signed inter alia, by C. J. Ayliffe of Merrett Syndicates Limited.

(The steady increase in the number of advices being received in the Market from insureds who have potential problems relating to environmental pollution emphasises the need to establish inter market co-ordination... Bearing in mind that the Market is presently involved in excess of 300 sites which constitute problem areas, it is essential that a system be put into place which can provide an index open to all London participants which records the name of Insured, site designation and the name of the Counsel acting on that account. At the present time the Environmental Protection Agency of the U.S. Government have designated some 783 dump sites as locations subject to special investigation. Quite apart from the damage to persons and property that may arise beyond the area of the site, it has been estimated that the average cost of clean up at any one site will amount to $6.5M... Legislation, such as the Compensation Environmental Response, Compensation & Liability Act has provided that liability for the cost of clean up will be imposed on a joint and several basis with the dump site owner and major dumpers being the initial target of the Government. In a number of instances there can be in excess of one hundred dumpers and transporters of industrial waste involved at one dump site. Control will need to be exercised to ensure that the legal profession does not precipitate mass litigation under contribution theories. Recent budgetary increases granted by the Federal authorities to the Environmental Protection Agency will permit them steadily to increase the site designations in which they are actively involved. This general background leads the Claims Group to conclude that it is essential that the Market addresses the implications without delay).

The steady increase in the number of advices being received in the Market from Insureds who have potential problems relating to environmental pollution emphasises the need establish inter-market co-ordination... Unfortunately, as has been experienced in claims arising from asbestos related injuries, matters involving alleged pollution often extend over many decades, with London placings for individual insureds being handled by various brokers and being subscribed by different markets... It is inevitable that environmental pollution will produce many coverage issues for insurers, and if the present indications from the United States can be taken as a guide the London market is likely to become involved in coverage litigation ... The co-ordinated effort that is required in order to address the issues that arise can and must start within the Market. In an effort to explore how this can be achieved, an inter Market group of Claims Managers, whose names we detailed below have been meeting to exchange views.... The purpose of this letter is to give you some insight into the problems that exist and the future developments that are foreseeable, more importantly the manner in which the problems should be addressed within the Market. It must be emphasised that it is not proposed that the active handling and decision making process be removed from the participating Market, but more towards liaison with the Group whose prime task will be to monitor all matters in the general interests of the entire Market. To succeed in this endeavour it is essential that general support is demonstrated, and to determine if this is forthcoming it would be helpful if you could complete the attached letter and return without delay to ..., Toplis & Harding (Asbestos Services) Ltd., Greenly House, 40 Dukes Place, London. EC3.

An address was delivered to the Chartered Insurance Institute entitled, Insolvencies: A fear or a favour.

We maintain that a syndicate is a joint venture of one year's duration. Assuming the account is then reinsured, that year ceases. Reinsurance to close, therefore, is not just a matter of what is known at the time but takes into account what is likely to creep out of the woodwork at a later date in order to preserve equity between the closing year and the reinsuring year. A company is an on-going entity and, therefore, any shortfall in the funds one year can be made good in a later year without in any way affecting the entity as such. I accept that an unduly good or bad result may affect the price of shares which , of course, is pertinent for those buying and selling, but I do not believe that it follows that what is good for the companies is necessarily good for Lloyd's.

R A G Jackson attended a meeting with Senior Executive Officers of the Aetna, Hartford, Liberty Mutual, I.N.A. and Continental, which was held in New York on Monday, 25th February to discuss the latest developments of the formation of the Asbestos Claims Facility and consider the next stage to be addressed at an executive level .

I refer to the letter of 12^th October last, in which deputy chairman, Mr. Murray Lawrence, advised you of the membership requirements which would apply for new members who commenced underwriting from 1st January 1986 and to existing members who changed their underwriting arrangements after 1st January 1985.

The Chancellor of the Exchequer has decided to take action to counter the practice known as "Bond Washing". The new rules will apply on and after 28 February 1986 when the scheme comes into effect.

Cornell University researchers have concluded in a recent study on the adequacy of workers compensation payments to the survivors of men who died from workplace exposure to asbestos, that "the compensation is neither adequate nor equitably distributed."

The study, one of the first on compensation for occupational-related illnesses and diseases, focused on benefits payments in 1979 to 249 widows, whose husbands would have been living that year had they not died from asbestos exposure. It was found that workers compensation payments replaced only 36.2% of the losses of widows for whom it was the only source of income. The figures are far below the normal standard that workers compensation benefits should equal, approximately 66% of the workers wages before his death.

Additionally, the study showed that widows who succeeded in common law actions received the most adequate compensation, but it also showed that tort awards were inadequate for some widows and that, furthermore, some of these awards would be exhausted within one year.

A recent survey released by the EPA indicates that 20% of commercial, federal and residential apartment buildings in the United States may contain friable asbestos. The survey was conducted on 231 buildings to determine how much friable asbestos-containing material might be in buildings other than schools. The 20% figure translates into approximately 733,000 commercial, federal and residential apartment buildings with friable asbestos.

The report noted that only 38 of the surveyed buildings had asbestos-containing ceiling tiles. The report also noted, however, that buildings constructed in the 1960's were found to be 15% more likely to have asbestos-containing sprayed or troweled-on friable material than other buildings.

The report went on to say, "It appears that the extensive use of asbestos-containing sprayed-on friable material would have continued and perhaps increased in the 1970's had not the EPA banned the use of those materials for all but decorative purposes in 1973." The EPA banned all other uses of these materials in 1978.

In March, the Chairman, Peter Miller, visited Brussels accompanied by the Deputy Chairman, Mr David Coleridge. Meetings were held with Lord Cockfield, Vice President of the EEC and other senior officials of the Community.

Mendes & Mount letter to R A G Jackson, Chairman, Asbestos Working Party, C/- Merrett Syndicates Ltd. Re: Report on the Asbestos Working Party activities during the past twelve months:

As attorneys servicing the interests of the London Market in various asbestos related matters, we submit the following report to Underwriters and Companies, highlighting the events of significance which have received the attention of the Working Party during the past twelve months.

1. Asbestos Claims Facility:

As the market is aware, negotiations aimed at the establishment of the Asbestos Claims Facility have become somewhat protracted. We understand that the Chairman of the Asbestos Working Party has at frequent intervals provided advice to the Market on how matters had been developing, and bearing in mind the importance which is attached to the success of this venture, we feel that it would be beneficial to provide the Market with a broader review of the background to the discussions that have taken place; the problem that presently exist in establishing the Facility; and finally the consequences to the London Market that could arise in the event that the Facility fails to get underway.

1. Past Developments:

The concept of the Asbestos Claims Facility was two-fold: Firstly, it was recognised by industry leaders that there was a pressing need to arrive at a negotiated solution with Producers of various coverage issues which continue to persist under numerous declaratory judgment actions.

Secondly, which is much more material in addressing the problems which exist domestically was the need to establish a claim handling capability to provide asbestos claimants fair and equitable compensation as an alternative to resorting to the civil tort system.

The backlog of suits in the various jurisdictions, Federal and State, were a source of increasing concern, because it was unreasonably delaying the time before which the claimants could have their suits addressed by the court. It was the unacceptable delay in the ability of the tort system to provide compensation to meritorious claimants which was progressively attracting more attention from the Federal Government.

The negotiations to bring about agreement in regard to both coverage issues and claims handling commenced in October, 1982, by a small representative group of Insurers and Producers. As the Market is aware, two London Market representatives have served on that Resolution Group, which over the past two years, met on no less than 32 occasions, involving 58 days of intense and difficult negotiations.

It is interesting to record that the role of the leading negotiator on behalf of the insurance group was assumed by Ray Stahl of the Travelers Insurance Company, who diligently pursued solutions to various problems using innovative ideas in order to bring about agreement. Although the proposals that evolved recognised the Keene interpretation of coverage, their effect was nevertheless to bring about a controlled application of Keene by applying indemnity over a block of coverage. In addition, it was through Ray Stahl's persistence that ultimately agreement was reached in regard to the establishment of a defence funding mechanism! in connection with policies issued on the pre l966 C.G.L. wordings.

By May 1984, agreement had been reached on all issues within the Resolution Group and the "Agreement Concerning Asbestos Related Claims" was released throughout the Insurance Industry and to all the commercial concerns who had any involvement in the asbestos problem in the U.S. Thereafter, both groups undertook to educate their individual constituencies with a view to obtaining provisional commitments to the Facility concept. Unfortunately development of the necessary support has proven to be a slow process, for with respect to the Insurance Industry a number of issues continue to be raised by direct writers who, among other matters, were concerned at the negative attitude being indicated by the reinsurance market. A further difficulty arose in June 1984, when the Travelers announced that certain aspects of the Agreement relating to the resolution of coverage matters were not in keeping with that company's approach, and, therefore, indicated that it was unlikely that the Travelers would become a provisional subscriber. By December 1984, provisional commitment had been received from the following insurers:-

	Direct Insurers
1.	Aetna Life & Casualty Co.;
2.	American Universal;
3.	Argonaut Insurance Co.;
4.	Bituminous Casualty Corp.;
5.	Continental Insurance Co.;
6.	Crum & Forster;
7.	Employers of Wausau;
8.	Fireman's Fund
9.	First State Insurance Co.;
10.	Harbor Insurance Co.;
11.	Hartford Insurance Group;
12.	Highlands Insurance Group;
13.	I.N.A.;
14.	Liberty Mutual Insurance Co.;
15.	Underwriters for Lloyds of London;
16.	Reliance Insurance Co.;
17.	Royal Insurance Co.;
18.	The St. Paul Cos., Inc.;
19.	U.S. Fidelity & Guarantee Co.;
20.	Zurich Insurance Co.;

1.	A.I.G.
2.	American Mutual
3.	Chubb
4.	C.N.A.
5.	Commercial Union
6.	Home
7.	Kemper
8.	Northbrook
9.	Midland
10.	Travelers

Although negotiations aimed at this objective have been underway for some time, to date provisional commitments have not been obtained. The immediate problem that this poses for the Facility Agreement is that within the provisions relating to the broad band of coverage, gaps could be created by the non-participation of certain carriers. This factor was recognised within the Agreement, which essentially provides that provided the gaps are small, the participating Insurers will on a temporary basis assume those additional obligations, subject to the Assured pursuing the non- subscribing Insurer through the courts.

Regrettably, as matters stand at present, the absence of participation by the majority of the companies listed above could create gaps of considerable size so as to make the position unacceptable in regard to certain accounts. Indeed, it may ultimately develop that non-subscribing carriers would feel compelled to make some payment to their Insured in such a situation, which could have the effect of reducing the gap to a more manageable proportion for participating Insurers to assume on a temporary basis.

The delays that have arisen have proven counter-productive to the interests of both Insurers and Producers, to the extent that certain coverage issues for which the Facility proposed solutions are with the passage of time now being addressed by the courts. While in most cases these are at a lower court level, it is inevitable that any decision rendered after the terms of the Agreement were concluded will detract support from either the Producer or Insurer element. Despite this fact, it must be recorded that Producers have been highly successful in obtaining support from their industry, and to date have received provisional commitments from no less than 31 companies involved in mining, producing or in some way handling asbestos products. The only major Producer yet to make a commitment is GAF. However, negotiations continue, and it is hoped that their support will ultimately be forthcoming.

B. Future Implications:

With the Co-ordinated Action in California due to start in March, 1985, .it has been decided that in the short time available one final effort should be made to enlist support of at least some of those major Insurers who have yet to make a commitment to the Facility. Negotiations along these lines are now being conducted at a Chief Executive officer level through the Aetna, Hartford, Continental, INA, Liberty Mutual and London interests. It has generally been accepted ; by its supporters that the Asbestos Claims Facility is the only viable way in which to control the developing asbestos problems which rage in the States, and there is Federal Government support for that conclusion. It is equally apparent that in the event through lack of support the Insurance Industry fails to achieve success in resolving the issues, the pressure that will be brought to bear upon the Federal authorities from uncompensated claimants will be such that ultimately there will be a Government imposed solution.

There is no question that in the event this were to happen, the effect on the Insurance Industry would be dramatic, and far less palatable than the regulated handling provided for within the Facility Agreement. In the event that the Facility concept were ultimately to collapse, it is important that Underwriters do appreciate the serious problems that would arise in the London Market in endeavouring to handle some 30,000 outstanding claims which, from past experience, will increase by some 5,000 new suits each year.

The conflict issues that would face your various Counsel would no longer be capable of being kept low key, and this fact, coupled with the dramatic increase that would arise in expense incurred on handling accounts, would undoubtedly be far in excess of anything the Market has currently experienced. This fact, coupled with the inevitable increase in coverage litigations would prove extremely burdensome to the Market.

During the course of the past year there have developed new issues in regard to damage to property allegedly caused by asbestos containing materials, which create unique coverage issues which have yet to be addressed. If the solution proposed in respect of bodily injury claims under the Facility Agreement receive the support they deserve, the Facility must be the best forum through which to address resolutions of coverage in regard to Property Damage. This would undoubtedly be a more satisfactory way in which to deal with this particular problem than permitting the courts to adjudicate on the matter, which would only serve to create additional dilemmas by reason of the conflicting rulings that could arise.

II. Johns-Manville

As the Market is aware, following the collection of the estimated then present value of the Settlement agreed with the Insured the funds were invested with Citibank through Lord, Day & Lord. The return being achieved, together with the capital gain which will arise, will be adequate to meet the sum specified in the Settlement Agreement at 31st December 1985, or thereafter. We understand that participants have recently received tax advice from U.S. and UK advisors, which sets out the tax implications that arise for Lloyd's and companies.

The terms of settlement arrived at between Travelers, Home & London continue to attract the criticism of the Plaintiff and Creditors Committee, who argue that the liabilities of settling Insurers was in excess of the $315M accepted by Johns-Manville. As a result of the opposition that developed, Judge Lifland has ordered a Fairness Hearing at which the issues can be adjudicated. Originally the Hearing was set for early December 1984, but due to continued discussions between Johns-Manville and other excess insurers, the court continued the hearing to 22 February 1985, although further extension are a distinct likelihood. Irrespective of the ruling handed down by Judge Lifland, the matter will be appealed.

Johns-Manville has expended considerable effort over the past three months to reach agreement with other carriers for either a cash buy out of coverage limits or an understanding on the manner coverage will be applied. It is clearly their hope that by the time the Fairness Hearing takes place they will have substantially increased the amount of the settlement fund, which could have the effect of deflating the plaintiffs' objections.

Considerable court activity is anticipated before the Insured's Plan of Reorganisation has final judicial approval, and there is little doubt that, with the authority of the Bankruptcy Court still subject to question, appeals will be filed, perhaps all the way to the U S. Supreme Court. Some sources have expressed the view that if the Settlement Fund is approved there is a possibility that Judge Lifland will make a partial order to permit Johns-Manville to address the substantial number of claims that have remained pending since the Chapter 11 petition was filed on August 26, 1982.

In accordance with the terms of the Settlement Agreement, Johns-Manville has dismissed London participants from the California Co-ordinated Action on a without-prejudice basis. Effectively, the Insured is at liberty to refile coverage litigation, should the settlement ultimately be rejected by the Court. However, participants should be aware that as a result of the filing of cross-complaints in the Co-ordinated Action by certain company defendants, declaratory judgment counsel continue to be involved in matters relating to Johns-Manville, albeit on a more restricted role than was formerly the case. Whilst this will inevitably involve participants in additional defence costs, the terms of the Settlement Agreement require Johns-Manville to indemnify Insurers in respect of any compensatory award that may arise.

During the last year the anticipated increase in re- insurance involvement has developed, as is demonstrated the volume of reports now monitored by the Re-insurance Claims Committee [see Toplis and Harding (Asbestos Services) Limited]. It is reasonable to expect this trend to continue as the overall cost of the asbestos problem increases and more cedants' potential exposure exceeds underlying retentions. In addition, it is inevitable that the Market will develop a further up-surge in retrocessional involvements.

All year end reserve reports are reviewed by the Reinsurance Claims Committee to ensure that the reserve recommendations are in keeping with factual information emanating from the original account. Due to the increased volume of reports being processed, the membership of the Reinsurance Claims Committee has been broadened to include Peter Dodds, John Heath and Jim Teff. The prime objective of the Committee is to ensure that reports which contain year end reserve recommendations are circulated with a minimum of delay. Narrative reports on each account will thereafter be prepared by reporting Counsel setting out in more detail the present posture of each matter and outlining the manner in which the reserve recommendations were established. Due to pressures involved it was not possible to produce a narrative report on every account during 1984, but Counsel have been asked to correct this situation for the current year.

One problem which is tending to recur at more frequent intervals is the difficulty of tracing Market participants on early years of involvement. The Reinsurance Committee is depending upon information held by the broker, which can be incomplete at times. In such instances the Market has been asked to review their records to assist in identifying participants.

During the ensuing year, 1985, it is intended to develop subscriber information on layers of reinsurance over those levels presently impacted by reserves. Once this information is available, the Claims Committee will circulate advice to upper levels of coverage once reserves attain 80% of underlying limits.

L.U.N.C.O. will shortly be advising that, with the exception of LMX business, there will be no change in the manner in which reserves are recorded for this year end. The most up-to-date figures available for year end closing are those provided by Toplis Harding (Asbestos Services) Ltd., and that office should be given full credit for the service that they have afforded to the market.

Asbestos declaratory judgement actions:

During 1984, deposition testimony of a number of London Market Underwriters and claim staff was taken in connection with the California Co-ordinated Declaratory Judgment Action. Although the possibility still exists that this litigation could be concluded by settlement prior to the 5th March 1985 trial date, especially if the Asbestos Claims Facility secures the critical mass necessary to a viable organisation, the closer that date comes the more certain it is that the first phase of the litigation relating to the existence of policies will commence.

While the litigation instituted by Celotex Corporation against its insurers in Tampa, Florida, has not proceeded through pre-trial discovery, an interpleader action was filed on behalf of the London Market seeking a declaration as to whether the benefits of the London policies belong to Celotex Corporation or Rapid American. Significant developments are anticipated in the interpleader action, although the Declaratory Judgment Action has not proceeded to any extent, partially due to the insured having settled with some of its other Insurers.

Decisions of significance in coverage actions during 1984 include: Keene Corporation -v- I.N.A., where Keene's motion for punitive damages against the I.N.A. for refusal to defend was dismissed on a Summary Judgment Motion by the trial Judge, June Green. Judge Green determined that Pennsylvania law controlled since I.N.A.'s decision with respect to defence was made at its home office in Philadelphia, Pa. Under Pennsylvania law it is against public policy to allow recovery of Punitive Damages against an Insurance carrier. Keene had also sought punitive damages against its other primary insurers, Aetna and Liberty Mutual, but since the respective laws of the states of incorporation, Connecticut and Massachusetts had not been brief and argued, the judge reserved decision.

In a later decision in the same case, Judge Green denied Keene's motion for partial Summary Judgment seeking a determination that I.N.A. was required to continue defending Keene subsequent to the exhaustion of I.N.A.'s Aggregate Limits for products bodily injury. The judge found the I.N.A. policy wording to be unambiguous and that under the plain meaning of that wording I.N.A.'s defence obligations ceased with the exhaustion of the policies' Aggregate Limits.

In a more recent decision in the case of Owens Illinois -v- Aetna Casualty and Surety, Judge Hogan endorsed the Keene "triple trigger" finding and also held that the decision by Owens Illinois to manufacture and sell the asbestos product, "Kaylo" should be regarded as a single occurrence with the result of only one deductible would apply.

Asbestos Property Damage Actions:

As anticipated, in 1984 there was a continuing increase in the number of property damage actions filed against the producers of asbestos products. The most significant of which were those filed on behalf of various Districts. These include the actions instituted in Ohio, Alabama, New York, Michigan and Maryland. As an illustration. in the Maryland action brought on behalf of the Mayor and City Council of Baltimore the Plaintiffs seek actual damages of $225,000,000 and in addition seek an unspecified amount of punitive damages and costs.

When the new school year commenced in September, much adverse publicity was generated by the fact that a number of School Districts had failed to comply with the requirements of the Environmental Protection Agency, regarding testing and removal of friable asbestos.

Following public debate, the U.S. Congress was persuaded to pass the Asbestos School Hazard Abatement Act of 1984 whereby the Environmental Protection Agency was granted a total of $600,000,000 to be used for loans and grants to schools for the abatement of the asbestos problem. Significantly The Act preserves claims for damages against manufacturers and producers.

In the year end 1983 Market report strong emphasis was placed upon the need for timely collection of funds from the Market, in order to satisfy both servicing and data bank commitments, and more importantly to provide indemnity to direct Insureds. At that time it was hoped that through the gradual adoption of Letters of Credit the situation would effectively be improved, which would enable us to satisfy the loan account that we were compelled to establish in order to meet data bank and servicing requirements. Unfortunately, the improvement took far longer than had been expected consequently it was not until December, 1984, that sufficient funds were in hand to enable us to reduce the loan to a manageable level.

Firstly, the refusal by certain company participants to grant Letters of Credit has imposed an administrative burden on brokers who have been forced to process collections in the traditional manner to satisfy each cash call made during the period. To a great extent this problem has been alleviated as more companies have become participants in the Letters of Credit Scheme. However, we must again emphasise that the efficiency of a Market funding mechanism based on Letters of Credit is geared to total acceptance by participants, and we, therefore, again implore these companies who have yet to give a commitment to reassess their position so as to avoid any criticism that could well develop if funding delays continue. More importantly we are fearful that some producers might not be quite so indulgent which conceivably could precipitate actions for bad faith and/or extra contractual damages against the entire Market.

These factors have been under constant consideration by the Claims Committee, who now recommend that we modify the basis of the projections on which Letters of Credit are currently predicated from a one-year projection to two years. Significantly, this will ensure that credit is always available on which to make drawings, and reduce to an extent the administrative effort for the Market. It is intended that future needs will be based upon a two-year projection which will be adjusted at one year intervals to respond to changing circumstances. One such changed circumstance could be the establishment of the Asbestos Claim Facility. The Facility would require funding promptly and at frequent intervals from the entire Insurance Industry. New Letters of Credit reflecting the new two-year projection are currently in preparation, and will be circulated shortly.

Reserves:

The Market should be aware that per Claimant reserves on each account continue to be reviewed annually by the Claims Committee together with reporting counsel. Indemnity reserves are adjusted to reflect the historical level of settlements for each account to which is then added a percentage loading - normally 20% - to provide for future inflationary trends. In addition, a defence expense allowance is calculated on each account in order to recognise that upon exhaustion of the primary aggregates, the obligation to indemnify for these defence costs will pass to the excess carrier.

It must again be re-affirmed that reserves recommended by your servicing counsel are based on filed claims outstanding for each assured, and no attempt has been made to project an IBNR factor in respect of claims yet to be filed.

Databank:

As has been reported previously, the London Claims Information System (C.I.S.) has proven to be the most flexible system yet devised to monitor Asbestos claims. For some time work has been proceeding on the Claims Facility database with input from Alexander Grant as representative of London's interests. It has now been recognised by both Insurers and Producers that London's system is the only one possible for creating the foundation for the Facility database and, therefore, London will have a much greater say as to the ultimate design of the system. Members of the Claims Committee continue to meet with Alexander Grant to evaluate current requirements and methods in a constant endeavour to reduce costs. Towards this end London now owns the software relating to the Asbestos Databank which, including the Purchase, will result in a reduction of costs for 1985 and produce even greater benefits in the long term. This software package also gives Underwriters the ability to create a database for other requirements as will no doubt arise in the future at a greatly reduced cost and with an improved efficiency.

This office has now been in operation for just over a year, and the volume of work, for both Direct Accounts and Reinsurance, has increased dramatically.

The number of Direct reports containing reserve recommendation remains in line with the previous year; however, some 145 Reinsurance reports were circulated, compared with 66 last year end.

Last year in our Market Report dated 19th January 1984, reference was made to the need to create a company limited by guarantee, so that a proper asbestos General Authority could be obtained from the Market. Unfortunately, after a long delay, we are advised that the Companies Registry reports that exception had been taken to the proposed name of the company, "Asbestos Working Party Ltd.", since there is a Government body called the "Asbestos Working Party." The incorporation of the company is therefore proceeding under the name "Market Claims Services Limited." As soon as the company is incorporated, the Working Party will circulate a revised General Authority, and request that the Market assist by signing and returning the document as soon as possible after it is received.

In America, by universal acclaim, insurance seems to have been constituted the general money tree. Just to take one example the New York Superintendent of Insurance, James P Corcoran, introduced an amendment which would prohibit insurance companies licensed in New York from requiring tests for AIDS, on the grounds that the proposed amendment would result in the denial of essential health insurance coverage to individuals. Insurance is looked on as a substitute for social welfare. The many obvious advantages this must have where politicians are concerned hardly needs to be emphasised.

Asbestos Working Party letter to Insurers at interest enclosing a copy of a draft press release that will be made to all trade journals and newspapers, including "Lloyds List". The Facility currently boasts 33 producers and 22 insurance companies that have conditionally signed the Agreement.

I enclose for your information Mendes & Mounts year end report reviewing matters involving the Asbestos Working Party during the course of 1984.

As you will observe, our main concern during the past year has been in relation to the Asbestos Claim Facility, and we have continued to work closely with certain U.S. Domestic Insurers in an effort to develop the support necessary to ensure that the Facility becomes operational.

As recounted in the attached report, negotiations have been somewhat protracted, but I wish to report that a sufficient measure of success has been achieved during the past months that it now appears that the Facility will go ahead.

I attended a meeting with Senior Executive Officers of the Aetna, Hartford, Liberty Mutual, I.N.A. and Continental, which was held in New York on Monday, 25th February to discuss the latest developments and consider the next stage to be addressed at an executive level.

The most significant development which has taken place in the past few days has been the provisional commitment of both the Home and C.N.A. to become Facility members. Both companies are significantly involved in the asbestos problem, and their participation is of considerable importance to the effectiveness of the Facility. Discussions will continue with other companies who have yet to make a decision, but indications are that the present Insurer commitments received are now adequate for the Facility to move forward. Obviously, for total effectiveness it would require support from the entire Insurance Industry, but we have now achieved enough support to enable U8 to proceed, whilst efforts continue to attract others to join.

You will appreciate that all Insurer commitments are subject to approval being obtained from their Reinsurers. To date certain professional Reinsurers in the U.S. Market have not been particularly positive in their reaction to the Facility, but plans are now in hand for a meeting of Senior Executives to take place within the next month to develop a more positive approach. My personal view is that it is unlikely that any direct writer will obtain the total support of all his Reinsurers, particularly in view of the extended periods affected by the asbestos problem. However, it will be up to each participant to determine whether they have sufficient indications of support to enable them to make the necessary binding commitment.

As an indication of where matters now stand, I am enclosing a copy of a draft press release that will be made to all trade journals and newspapers, including "Lloyd's List". As you will observe from the future activities outlined in the press statement, there remains much to be done to achieve a final closing date of 29th May. Several sub-committees are in existence, which are addressing such varied issues as staffing and terms of employment, transitional arrangements for claim files from each Insurer participant, funding and financial integrity of the Facility, office site selection, incorporation and computer design.

The two London representatives will continue to be actively involved in future meetings, and I have agreed to participate with Pete Thomas, Chief Executive of the Hartford; John Baldwin, Chief Executive of Pittsburgh Corning; and Harry Wellington, Dean of the Yale Law School in making a presentation before Senator Nicholls at the hearing set up by the Senate Labour Sub-Committee to consider the Facility agreement.

The proposed meeting with producers in April is of major importance, for it has as its objective agreement between Producers and Insurers of any specific coverage problems that have not been addressed within the terms of the Agreement, in order that matters remaining for the attention of the Alternative Dispute Resolution Procedures can be kept to the minimum. It is important that you appreciate that at this negotiating session London representatives will be required to make certain decisions on your behalf on the manner coverages will apply within the Facility. Whilst it is not possible to foresee all the issues that could be raised, I trust that you will accept that our representatives are authorised to participate in the manner indicated and can assure you that wherever possible, there will be no departure from the basic principles on which the Facility Agreement was based.

Now that we have the Facility momentum underway, I would like to address the procedure I would advocate for the London Market sign-up. Directly the final minor amendments to the Facility Agreement have been agreed, the document will be reprinted. Once the final agreement is received in London I propose to distribute one copy to each Lloyd's syndicate, and two copies to each London company. As detailed in my letter dated 30th August, 1984, Lloyd's participants will be requested to return to me an authority to sign the final document on their behalf. If for any reason a Lloyd's participant wishes to sign a separate Agreement, the necessary arrangements can be made, provided I am given prior notice to this effect. So far as London companies are concerned, I will require one signed Agreement from each company, which on the present timetable must be returned to me no later than Wednesday, 15 May.

The operation of the Facility will raise two issues for the Market. Firstly, in addressing future year end reserve recommendations, it will be necessary for our U.S. Counsels only to consider an exposure concept in line with the Facility Rules. The liability share allocated to each Producer member will simplify calculations of reserves, which will in any event be affected by the reductions in defence costs that will arise.

Obviously, it will be necessary to continue to operate the London Databank for some time to come, but eventually it should be possible to scale down that operation, once we are satisfied that the Facility Databank will cater for our needs in London.

The second issue that needs early attention is a new authority for the Asbestos Working Party, which will enable prompt commitments to be made on behalf of the Market to the many administrative issues that have to be addressed in the Facility formation, and in the processing of claims. I expect to be writing to you shortly on this subject.

WASHINGTON, D.C., 27 February 1985 - The Wellington Resolution Group announced today that the proposed Asbestos Claims Facility, a private sector solution to the massive number of asbestos-related injury suits clogging the nation's court system, has been given a "green light" and is expected to be established in May of this year.

The Facility is the result of over two years of highly complex and intense negotiations between producers and insurers involved in asbestos-related lawsuits and insurance coverage disputes.

A unanimous decision was made by the chief executive officers of the Wellington Resolution Group to proceed with a concrete schedule designed to achieve finalisation of the Facility.

"We are going forward with the Facility and we will proceed swiftly," said John Baldwin, president of Pittsburgh Corning and chairman of the Wellington Producers Group. "There is no question that this alternative to our court system will satisfy the interests of the parties involved, especially the injured workers," he added.

The Facility is designed to provide a faster, less costly, and equitable alternative to asbestos claims litigation. It will be available to those claimants involved in the more than 23,000 cases currently pending in state and federal courts, as well as the new suits that are being filed at the rate of about 500 per month.

John F. Shea, Jr., vice president and claim counsel of Aetna Life & Casualty and chairman of the Wellington Insurers Group, stated that "although we will actively continue to seek additional subscribers, the recent conditional sign-ups of Fireman's Fund, C.N.A. and Home Insurance companies has greatly enhanced our effort to move the proposal forward."

"We applaud the decisions of the CEOs of these companies to join us and hope that other insurers will soon follow," said Shea. The Facility currently boasts 33 producers and 22 insurance companies that have conditionally signed the Agreement.

The Rand Corporation has estimated that producers and their insurers have spent approximately $1 billion in compensation and legal expenses in the last ten years. Injured workers, however, have received only 37 cents of every dollar.

"Providing fair and equitable compensation to injured workers does not require that hundreds of millions of dollars be wasted in legal expenses," said Dean Harry Wellington, Dean of Yale Law School and Chairman of the negotiations.

The Facility has received the support of many Members of Congress and Administration officials in recent months. Secretary of Commerce Malcolm Baldridge said the efforts of the Wellington Resolution Group "are clear testimony to the ability of the private sector to resolve major problems that widely affect our society. It is significant that you have done so without requiring the intervention of Government."

March 12	Mandatory meeting of subscribing producers to assure completion of insurance coverage information essential for final closing of Agreement.
March 19	Senate Labor Subcommittee holds oversight hearings on Facility; Wellington subscribers testify.
March 29	Insurance coverage information provided by subscribing producers to subscribing insurers.
April 24 - 26	All subscribing insurers and producers meet to reconcile insurance coverage information agreeing on items for alternative dispute resolution.
May 10	Reconciled insurance schedules provided by subscribing producers to subscribing insurers.
May 22	Pre-closing meeting of all conditional subscribers.
May 29	Final closing, final signing, Washington, D.C.

During this time period the Facility will be incorporated and the Wellington Resolution Group will also complete its search for a chief executive officer as well as other personnel. The Facility will be headquartered in Boston with a claims office in San Francisco.

The Wellington Resolution Group is comprised of six major producer companies and six major insurance companies that have negotiated the Agreement to establish the Asbestos Claims Facility. (Kathryn Broderick refers to only 34 Producers and 16 insurers that formerly signed the Asbestos Claims Facility Agreement on 19 June 1985)

Victor B Levit, a partner in the San Francisco law firm, Barger & Wolen, and the legal editor of Underwriters' Reports, delivers a paper entitled "Toxic Perils and Products Liability: Current Insurance and Legal Developments" to the Under 30's Lloyd's Non-Marine Claims Committee.

The US Attorneys reports addressed to Underwriters at Interest advise that "there was some recognition of the potential for property damage liability in cognisance of the increasing number of school District claims filed although the issues of the liability and date of loss remain unresolved".

Letter from Wilson, Elser, Endelman & Dicker to

directors chosen from among the subscribing insurers and asbestos producers. The Facility would operate from two offices, one on the east coast and another on the west coast. Additional regional offices could be opened when and if the need arises.

The Asbestos Claims Council invited interested insurers and asbestos producers to conditionally subscribe to the Facility by 15 July 1984. Final subscription was originally scheduled for 13 September 1984, but was extended indefinitely to allow insurers additional time to consult with their reinsurers.

As proposed, the Facility has two major objectives. First, it will operate as a claims processing center to administer, evaluate, pay, settle and/or defend all asbestos-related bodily injury and disease claims brought against subscribing asbestos producers and their insurers. For the present, property damage claims would not be processed under the Facility.

Each asbestos claimant would be required to support his claim by submitting valid evidence, such as job, medical and compensation histories. Claimants would also be required to demonstrate that they suffer from a recognised asbestos-related condition and that they were exposed to a subscribing producer's asbestos products. The Facility would be empowered to settle on behalf of all subscribing asbestos producers. Punitive damages claims would, however, be disallowed. The Facility would also be empowered to toll the statute of limitations for claimants whose claims have not yet matured, thereby allowing such claimants to resubmit their claims when additional medical evidence becomes available.

One last point should be emphasise. Participation in the Asbestos Claims Facility is purely voluntary. Present and future asbestos claimants may choose to forego the Facility's alternative dispute mechanism, and sue the asbestos producers in court, thereby preserving their right to a jury trial.

The Facility's second major objective is to resolve coverage disputes between asbestos producers and their insurers by providing asbestos producers and their insurers with a cheaper, faster and more efficient way of disposing of those claims. Under the proposed Facility, asbestos producers would be afforded "comprehensive coverage". Each producer would be permitted to select a "coverage block" consisting of some or all of its insurance policies issued before 1 January 1973. 1 January 1973 is the pivotal date, since after that date, insurance policies written for asbestos producers either contained high per-claim deductibles and self-insured retentions or excluded coverage for asbestos-related disease liability altogether.

As claims come into the Facility, each producer would be assigned a predetermined percentage of liability for each claim and its liability would be allocated among all the insurers in its "coverage block". An asbestos producer's percentage of liability would be determined by a complicated formula which takes into consideration the number of claims that have been filed against the producer as well as any amounts that the producer may have paid out on those claims.

Under this coverage approach, an asbestos producer does not have to pay any of its own money until all of the insurance in its coverage block is exhausted. Thus, even if the primary and excess policies in a particular year are exhausted, the producer would not have to participate in affording coverage; rather, coverage for the exhausted policy year would be divided among the remaining insurers in the coverage block.

An asbestos producer may still include post-1973 policies in its coverage block, assuming, of course, that such policies do not exclude liability for asbestos-related diseases, but in that case, the asbestos producer would be required to pay its proportionate share of any per-claim deductible or self-insured retention. For example, if a subscribing asbestos producer is found liable for 1/25 of a claims payment, the subscribing asbestos producer would pay 1/25 of the deductible obligation toward it.

Unlike the "triple trigger" theory of coverage first enunciated in the Keene case, which would allow an insured to select a particular policy that would apply, and then force the selected insurer to seek contribution from the other insurers, the Facility's comprehensive coverage approach eliminates the need for contribution actions because all years of coverage in the coverage block are triggered, and thus each insurer is required to pay its proportionate share.

On the question of the duty to defend under pre-1966 policies, the proposed Facility would provide that the duty to defend would cease on exhaustion of the policy limits. However, if a subscribing producer exhausted all of its other pre-1966 coverage, including its excess coverage, then defence coverage would be revived. The revived coverage would come from a defence fund established by all the subscribing insurers and would guarantee lifetime payments of defence coverage under pre-1966 policy forms.

Not all potential subscribing producers are pleased with the proposed defence coverage provisions. Some producers argue that at least two decisions, AC & S -v- Aetna Casualty & Surety Company, and Raymark -v- Zurich International, hold that insurers under pre-1966 policies have an unlimited duty to defend even after their policy limits are exhausted. In addition, many asbestos producers argue that the Facility's proposed defence coverage plan could mean less excess coverage for some asbestos producers, since excess policies, unlike primary policies, frequently include defence costs within the policy limits and therefore, if excess insurers are tapped for defence costs (instead of primary insurers providing unlimited defence), excess coverage that would normally be used to pay claims would be spent on defence.

The proposed Facility also attempts to resolve the question of putting "caps" on policies and deductibles that have no aggregate limits. This is frequently seen in early Lloyd's policies, many of which were written without aggregate limits. Under the agreement, the coverage cap would be calculated by multiplying the per-occurrence limits by numbers ranging from one to ten. High per-occurrence limits would be multiplied by a lower number, and lower per-occurrence limits would be multiplied by a higher number. Thus, policies with high per-occurrence limits would have a low aggregate limit and policies with low per-occurrence limits have a high aggregate limit. A similar formula would be used to calculate caps on policyholder's deductible obligations.

Most members of the Asbestos Claims Council agree that without widespread industry participation, the Facility cannot succeed. To attract additional subscribers, the Asbestos Claims Council has taken two steps. First, as noted above, it has indefinitely extended the final subscription deadline to allow insurers additional time to consult with their reinsurers. Second, it has extended the cut-off date for individual "coverage buyout" agreements to 24 October 1984. Before this change, any agreement executed between producers and insurers after 1 January 1984 that involved insurers "buying back" the policies they had issued to a producer to end the insurers' liabilities would have been set aside if the producer or insurer joined the facility. As a result of this, many producers and insurers balked at giving up all coverage agreements made after 1 January 1984 in order to join the claims facility.

First, as noted above, in early June Manville announced that it had settled with three of its large insurers -- the Home Insurance Company, The Travelers Insurance Company, and a group of Lloyd's syndicates - for $315 million dollars. Manville originally sued its 27 insurers in 1980 in a dispute over how much insurance the carriers should provide the company for its asbestos claims. A wrinkle emerged in the settlement in early August, however, when it was learned that as part of the settlement package, Manville had agreed to indemnify the three insurers if they were named in any future Manville-related actions.

The second development, also noted above, was Manville's recent decision to subscribe to the Asbestos Claims Facility. Manville's support for the facility has boosted the hopes of the facility's proponents and brought new pressure to bear on more insurers and producers to join.

As we noted in our earlier report, the United States Supreme Court struck down a sizeable portion of the 1978 Bankruptcy Reform Act in the 1982 case of Northern Pipeline Construction Co. -v- Marathon Pipeline. In July, Congress passed a bill that overhauled the U.S. Bankruptcy Court System in accordance with the Supreme Court's Northern Pipeline guidelines. Under the bill, the Bankruptcy Courts were supposed to continue handling the asbestos-related bodily injury claims against Manville that they were currently handling, and all future asbestos-related bodily injury claims against Manville were supposed to be filed in Federal District Courts. In other words, the revised Bankruptcy bill was supposed to