00/00/64

00/10/64

International Conference on the Biological Effects of Asbestos.
To review the data and discuss the problems, sponsored by The New York Academy of Sciences.

27/11/77

Asbestos-Associated Disease in U.S. Shipyards.
Prepared by I.J. Selikoff and published in 1978 March/April issue of the Cancer Journal.

26/04/78

Califano Statement on the Health Effects of Asbestos.

J. Califano, U.S. Secretary of State for Health issues a formal statement advising of the risks associated with exposure to asbestos. Two thirds of all asbestos was used in the construction industry, with ship construction having an especially high use. It is estimated that 20-25% of workers exposed to asbestos before the era of Government regulation die of lung cancer, 7% die of asbestosis, 7-10% of mesothelioma and 8-9% of gastro-intestinal cancers. 4.5 million persons worked in shipyards during World War 2,

and it is estimated that 500,000 to 1.4 million since the War. Other industries in which there has been significant exposure to asbestos included asbestos mining and processing; construction work involving insulation; building demolition; roofing; and automotive work in brake and clutch lining installation and repair.

00/00/78

Attorney H. Draft Report. Asbestosis Disease and the Liability of Manufacturers of Asbestos Insulation Products.
Disease caused by asbestos is rarely manifested in less than 10-20 years from exposure. It has become widely accepted that a manufacturer is held accountable for a product which proves to be unreasonably dangerous.

The concept of strict liability has gained rapid acceptance in the US. It was first applied to a case of asbestosis by the Federal District Court in Texas in the case of Borel v Fireboard Paper Products Corp. This case precipitated most if not all of the later cases. In this case the Court examined the history of the disease developed by medical testimony and concluded that the dangers of asbestos had been recognised for well over 50 years. It also cited the testimony of Dr Selikoff. In relation to damages, the Defendants argued that the Plaintiff was unable to show with any degree of precision how much damage was attributable to any one product and therefore recovery should be denied. However, the Court held that "where several Defendants are shown to have each caused some harm, the burden of proof ... shifts to each Defendant to show what portion of harm he caused. If the Defendants are unable to show any reasonable basis for division, they are jointly and severally liable for the total damage". Nor was the case statute-barred because the cause of action should not accrue until the injury could with reasonable diligence have been discovered. The Circuit Court later affirmed the decision of the District Court and the motion for a re-hearing was denied. The Certiorari was denied by the US Supreme Court. The Borel case was followed in the case of Karjala v Johns-Manville tried by a Federal District Court in Minnesota.

Attention must now be focused upon the insurance coverage problems that are arising from the Court decisions. The most immediate problem is which year shall be charged with the loss. Is it the year when the action is started, the year when the disease manifests itself, the year of first exposure, the year of diagnosis or some combination of the above? "As at this writing I have not uncovered any prior judicial opinion which may be used as guidance or authority, persuasive or otherwise, under the circumstances". The manifestation date is the simplest solution. Whether or not this will be adopted by the Courts remains to be seen. It may be decided in one or two cases being brought by Assured 16. The policy concerned expired on 31 October 1972 and so would not be effective from a manifestation viewpoint.

Once the loss date issue has been resolved attention must be focused upon the application of aggregate coverages during a given policy year. As for what the future has in store, a bill has been introduced into the House of Representatives in the US but it is sheer speculation to guess what will emerge from this. "Insofar as the filing of cases is concerned, that seems to have peaked out, and conceivably from here on in we shall see a reduction in filings. I hasten to add, however, that there is no current clear-cut trend evidencing such a fact".

24/08/78

Attorney H letter to Underwriters at interest Re Assured 3B.
Reports on INA's unsuccessful application for declaratory order against Forty-Eight Insulations Inc. The Court held that there was damage during each of the periods of coverage and that accordingly each insurer at risk at the time the damage occurred was the primary insurer. The Court therefore adopted the exposure theory. The attorneys continue that, in view of the finding in the INA case, loss data must be compiled from both an exposure and from a manifestation and/or diagnosis approach, at least until such time as appellate procedures in both the INA and Hartford cases have been exhausted, and hopefully the courts will find a unified approach. To prepare for this eventuality, they recommend that underwriters establish an arbitrary reserve of $200,000 for each year of account.

SI

22/12/78

Wall Street Journal: Group claims millions of school children have been exposed to asbestos hazard.

25/06/79

Business Insurance: Insurers Recoil in Wake of Asbestos Claims.
"Plagued by a massive amount of litigation over injuries to asbestos workers, most insurers have stopped underwriting the trouble-maker and, once burned, are taking a harder line on other product risks, especially hazardous materials. "Hopefully we have learned the lesson that insurers have to learn" said John J. Dwyer, National Account Director for Aetna Life and Casualty. The lesson: definitive data can, because of something external to the insurance relationship, be thrown off ... The asbestos claims could eventually be removed from litigation if a compensation board is established to handle future claims as proposed by U.S.

Rep. Millicent Fenwick whose home district includes a major facility of Assured 1, the nation's largest asbestos producer. Under Ms. Fenwick's scheme, the government would pay asbestos claims from the time the law is enacted through the end of that year. The government could then sue the manufacturers for claims paid during that interim period explained Lawrence Rosenshein, her aide. Future claims would be paid by the compensation board from funds collected from asbestos producers, manufacturers of products containing asbestos and the tobacco industry, since smoking increases the likelihood of someone exposed to asbestos contracting asbestos or other disabling diseases. For asbestos producers, the fund's assessment would be 2% of sales for the corresponding quarter 15 years prior. Manufacturers of products containing asbestos would be assessed 1% of sales and there would be a levy of three-tenths of 1% of sales against tobacco manufacturers."

00/07/79

Document entitled "Reserving Asbestosis Claims for London Insurers" concerning a meeting held at the offices of Attorney H on Tuesday, 19 June 1979 at the request of London Underwriters.
Attended by the representatives of Attorney H, Attorney K, Attorney I and Attorney G. Recent developments in the asbestos litigation field were discussed. Two new declaratory judgment actions have been brought by Assured 3B and Assured 10 against Lloyd's Underwriters and other insurers in California and Florida as to when coverage attaches for the asbestosis claims. US Courts of Appeal are currently deciding other actions involving when coverage attaches for asbestosis claims. The US attorneys present at the meeting listed the asbestos manufacturing companies and producing companies directly insured in the London market. A lengthy discussion then followed as to an evaluation of a probable exposure to each of these assureds for their asbestosis claims. It was commented inter alia that

both verdicts and settlements in the future would be more expensive. Also that certain extremely unfavourable evidence had been discovered in some of the asbestos cases showing that certain assureds had attempted to discourage the dissemination of knowledge concerning the dangers of asbestos.

US attorneys make a joint recommendation that the direct London insurers establish a gross reserve of $75,000 on each of the asbestosis claimants. This would relate to each claimant but not to each assured (most claimants have brought claims against multiple defendants). Assured 1 itself has been excluded from the recommended reserves because it did not become directly insured in the London market until 1978 and because (due to its central position in the asbestos litigation) it involves special considerations. The reserve figure does not purport to apply to reinsurance interests.

In summary the US attorneys say that "the one certain fact about the asbestos litigation is that at present we cannot estimate the number of claims that will eventually be brought against your assureds". Some experts believe the number and severity of claims will peak "within the next year or two". Others estimate that more than 2 million people will die from asbestos-related cancer.

The report stated inter alia: "We do know that the number of law suits has increased dramatically each year since 1973"

19/09/79

Letter from Attorney H to Attorney G. Reserving Asbestosis Claims.
"Confirming our telephone conversations, Underwriters agree with [the recommendation of the US attorneys] that the direct London insurers establish a gross reserve of $75,000 on each of the asbestosis claimants. However, because of their direct excess participation on Assured 1, they desire that Assured 1 be carried at 20% and that the following reductions be made ... 20% for Assured 1 is $15,000 thereby bringing the total to $75,000. Underwriters say that we all recognise that this provisional basis of apportionment will only hold good pending discovery process on various accounts but they are content to accept year end reserving applying this formula as an interim measure ..."

13/11/79

Financial Times: Scale of awards goes soaring.

21/11/79

Attorney K Report to Underwriters at interest (c/o Sedgwick Forbes N.A Ltd.) Re: Assured 15.
"Since our last report, an additional 900 cases have been filed against the insured and are reflected on the bordereau ... Generally speaking, asbestos related litigation is increasing dramatically and is receiving national attention in the media ...

The latent and slowly progressive nature of an asbestos related disease has created an unsettled state in the area of insurance law. The issue in need of resolution is which insurer is obligated to defend and indemnify the asbestos manufacturer for injuries resulting from the inhalation of asbestos fibres ... Nearly all other manufacturers who have stated their position in various court actions, and numerous other insurers, have joined with the Travelers Indemnity of Rhode Island Insurance Company and Forty-Eight Insulations in adopting the exposure theory or a variation thereof, and in rejecting the manifestation theory...

The action between Forty-Eight Insulations and its insurers is a lead case in the asbestos litigation throughout the country. It is the only declaratory judgment case that has been tried, and therefore, is the only case on appeal. We are closely monitoring this situation and once the Appellate Court announces its decision, we shall immediately notify Underwriters regarding the court's ruling ...

We suggest that Underwriters maintain a $40,000 Attorney K expense reserve herein. We also suggest that Underwriters establish a $260,000 loss reserve, from the ground up, as to each of the years they were at risk. In our view, Underwriters' estimated total exposure, from the ground up, is $3,900,000 because they insured Assured 15 during 15 of the past 30 years.

As a result of our previous discussions with Underwriters, it was determined that the estimated damage to each claimant was $75,000 and that Assured 15's share is $6,000 per claimant ..."

SI

10/12/79

Letter from C J Ayliffe to E E Nelson Chairman, Non-Marine Association, Lloyd's Underwriters Non-Marine Association.
"I have been expressing concern at a number of declaratory relief actions which have been filed against underwriters at Lloyd's arising out of the long term product situation which currently faced the market. This problem surfaced in regard to asbestosis when we were faced with suits filed by the two insureds in circumstances where the domestic first excess layer adopted a different view on the attachment of loss than that which had been up to then adopted by the primary carrier. The result was that the insureds, having been denied ongoing reimbursement, were left with little alternative other than to file suit. Interestingly enough in the suit filed in respect of Assured 3B and Assured 6 the insureds were taking contrary views in pleading their case with their carriers, and it became apparent that in the interests of this market it would be helpful if we could reach a common approach to attachment throughout the Lloyd's market to enable us to respond. Although many discussions took place at that time it ultimately proved impossible to get a common approach in the market and, as you are aware, the markets split into two camps: One supporting the manifestation approach and the other that of exposure. As a result of this split in the market it became necessary for each view to be separately represented in the ongoing handling of the defence preparation and to this extent the market is now incurring a duplication of legal expense and effort ... a more recent development, but basically an extension of the same problem are the losses we have outstanding in connection with DES ... it was with this developing background that I called an informal meeting last week of claims settlers to discuss whether it is possible to arrive at some method whereby we can respond to the insureds' need and yet at the same time preserving the basic issue of where attachment ultimately should fall ... Whilst it was fully appreciated that in any discussions of this nature there could be no market mandate it was nevertheless recommended that a small Working Party be set up who would have the authority to explore, both with the insureds and domestic companies, some form of solution that would eliminate the proliferation of Declaratory Relief suits by reason of the industry's inability at the present time to provide indemnity to many long standing accounts in this market."

SI

28/12/79

Attorney G c/o Joseph Hadley (Insurance) Ltd to Underwriters at Lloyd's Re: Assured 4.
Difficult to ascertain the precise coverage provided by underwriters to the assured. In turn it has been difficult to obtain the requisite claims investigation from the assured. The attorneys ask for authority from underwriters to acknowledge coverage to the assureds for certain periods and layers for which there is no written documentation.

To date there has been 363 individual claimants who have filed 336 law suits against the insured (most of which are in the preliminary stages).

The attorneys note that asbestosis cases as a class manifestly represent grave potential exposure to asbestos producers. However, it does not appear that this Assured will be one of the truly major defendants. It is difficult to set reserves because it is uncertain the theory of coverage which will be applied. If "manifestation" "we do not believe that underwriters will be required to make any loss payments on behalf of the Assured". If "exposure" then underwriters will be required to make "substantial loss payments".

Estimate that 1,200 new claims will be brought against the assured in the next few years.

SI

31/12/79

Syndicate 604/605 (1979 Report).
"With the inclusion of reserves for these claims the reinsurance to close now involves a premium in excess of £17,000,000 being paid from the 1977 Account to 1978 Account. This sum covers all outstanding liability on closed years and included among its many items are Asbestosis and the drug "DES", for which reserves have been carried for a number of years."

07/01/80

Attorney G to the Interested Insurers Re: Assured 18.
The number of claims filed against the Assured has increased dramatically and it will be named in a substantial number of future claims. Because of this the attorneys are now of the opinion that it would be prudent for underwriters to establish a loss payment reserve for each of the 13 years when they are on risk for this assured. They have still not been able to obtain complete information or documentation as to the details of coverage provided by underwriters.

Since the last report an additional 33 asbestos related lawsuits involving 437 individual claims have been filed against the assured. Therefore total asbestos claims = 43 suits with 471 individual claimants.

The asbestos related claims as a class clearly represent serious potential exposure to the asbestos producers of the past 30 years. Establishing reserves difficult due to uncertain attitude of American courts (as between exposure and manifestation theories of coverage). Reserve figure of $75,000 set at meeting of London insurers American counsel in New York in June 1979 (this assured to bear a 2% portion of this reserve or $1,500 for each claim. Therefore recommend gross exposure reserve of $2,868,000 (based on an estimate of 2,500 claims including PVC and SBR of which assume 90% will be asbestos-related).

The report contains the following passage: "If .. American courts adopt an exposure theory of coverage then we believe that Underwriters could be required to make substantial loss payments under their policies on this assured."

The figures relate to the liability of a single assured, namely Assured 19.

SI

08/01/80

Attorney H to Underwriters at interest Re: Assured 1.
Preliminary reserve has been agreed of $75,000 per asbestos claimant, (20% of which ascribed to Assured 1), that is $15,000 per claim. This is strikingly close to the average contribution made thus far on behalf of Assured 1 in settled cases. The litigated cases present a different picture. Four cases tried in December 1979 resulted in damages of $435,000 per plaintiff. These Virginia cases were also interesting because a Federal Judge ruled that the US Government was not liable to asbestos manufacturers for injuries to shipyard workers at the Norfolk Naval Ship Yard.

"... the Travelers' reserves are structured on the "exposure" theory which approach is concurred in by Assured 1 ... Reserves from a manifestation approach ... would at most be minimal as far as underwriters are concerned."

Lastly, the loss date issue is no closer to resolution than it was 12 months previously. INA v Forty-Eight Insulations is still before the Sixth Circuit Court of Appeal (exposure). The Fifth Circuit Court of Appeal has not yet scheduled arguments in Porter v American Optical (manifestation).

23/01/80

Telex from Attorney H to Sedgwick Forbes.
The Travelers and Assured 1 have agreed to the application of exposure theory for loss attachment purposes. Reserves Travelers established in accordance with this theory set forth in report without comment, as we have not as yet accomplished a review of the 4,000 plus pending actions. Underwriters' policies recited can only be involved if exposure theory becomes law of all asbestos cases. This issue is still unresolved. Additionally Travelers has taken posture its policies (sic) for years 1951 through 1953 written on aggregate basis, but as we pointed out this also in doubt. Therefore in view severe question regarding loss date and question regarding aggregates for years 1951 through 1953, concluded best approach would be to leave it to each Syndicate's discretion whether or not to establish reserves consonant with those established by Travelers or on some other basis, each of which at this time could be equally appropriate.

SI

21/03/80

Attorney H report to Underwriters at interest (c/o Messrs. Willis Faber & Dumas Ltd.) Re: Assured 3A/Assured 3B.
"On the claims side, Assured 3B continues to settle cases where the plaintiff is able to establish (1) asbestos related disease, and (2) exposure to one or more Assured 3B products, on a per average claim of approximately $4,000.

Defensively, the principal argument is still that the manufacturer's knowledge was such that prior to Dr Selikoff's report of 1964, the industry was not aware of undue exposure to insulation workers from the use of asbestos-containing products. In substance, what Dr Selikoff's report revealed was that the then considered threshold limit value of 5,000,000 pp/cu. ft. of air was too high and that insulation workers were at risk. Commencing in 1965, they placed warning labels on their products cautioning against the inhalation of dust particles and if adequate ventilation was not possible, to wear a respirator .... The claims continue to come in at a rate of approximately 100 per month and it has been estimated that this may continue for an appreciable time into the future ..."

SI

27/03/80

Memorandum from C J Ayliffe to R A G Jackson. Handling of asbestosis claims in the Lloyd's market.
"We are advised by most major insureds that the frequency of loss reports will continue at much the current levels for at least 5 years to come, and, to be realistic, if we accept this information as reliable, it would appear that we should now be calculating what the ultimate cost would be to the Market some 5 years hence. So far reserve recommendations for the market have been based upon cases which are presently known. Attorney G, who is now involved in reviewing the re-insurance of the Home for the account of Assured 1, are seeking guidance and support from the market as to their putting up reserves which do take into account a projection of something in the region of 4 years ... The other problem which presently exists is that although we have only 5,000 cases in suit at the present time most cases name all the major companies with whom we are involved ..."

"Not unnaturally the size of the figures that would then be recommended would be very large. Inevitably the impact of projected reserves on our Market would be substantial and I feel that it would be extremely difficult for the leads to make this type of determination by reason of the implication it carries."

07/04/80

Business Insurance Assured 1 Sues 27 Insurers in Asbestos Risk.
"Assured 1 filed suit in the superior court on March 31 seeking damages from the Home Insurance Company for denying coverage and an order for insurers to provide coverage .... Assured 1's suit in San Francisco asks the court to determine how 27 insurers should respond in the cases pending against the company. The issue is whether the claims should be handled on an exposure theory or a manifestation theory..."

09/04/80

Letter from Lumley, Dennant & Company Inc. (Signatures on it indicate wide circulation).
"We enclose a copy of the letter dated 6th December 1979 to the above assured (Assured 7) which is self explanatory and which we believe comes about because of the possibility of asbestosis claims being made under the Umbrella coverage which has been written for a number of years."

SI

14/04/80

Business Insurance:  9 accept asbestos settlements.

24/04/80

Lloyd's List: Court rulings may provoke claims flood.
A recent decision by the California Supreme Court may hit the London Insurance Market. Several Lloyd's Syndicates have already began to increase their reserves to meet asbestos claims. The case (which concerns the drug DES) established "industry wide" liability. There is no need for the person injured to identify specifically the manufacturer of the product as long as the harm has been proved. One of the main problems for insurers is that the illness often does not show itself for many years. Notes the comments of David Mackintosh and Bernard Seigne of Davis, Arnold & Cooper in Product Liability International Magazine: They have handled upwards of 1,200 asbestos cases during the last fifteen years and are now involved in about 360. "The unfortunate message to be read from a UK experience of asbestosis claims is that the US explosion is likely to be even larger than has been predicted to date and that it will inevitably include many borderline cases which will need defending on diagnostic grounds".

30/04/80

Letter from Stephen Merrett to Names enclosing accounts of the syndicates as at 31 December 1979.
RAG Jackson mentions in his report the insurance industry's delayed recognition of substantial exposure to losses, perhaps in years "closed" a long time ago, related to the asbestosis problem.

"You may have seen or heard comment on recent activity in the United States Courts on the filing of numerous suits and in particular on attempts to determine whether the liability of insurers is on policies current at the time when the claimant began to contract the disease by his "exposure" to the dust, or on the policies current when the claimant became aware of his disease by its "manifestation". If "exposure" is adopted there may be many claims made on policies current in the 1940's or even earlier, and it is inevitable that some insurers will have made inadequate provisions for such losses against those years. It would be prudent to suppose that other substances or work processes will increasingly be found by Courts to have damaged employees and others, and the exposure of the insurance industry to third party actions and Employers' Liability Workmen's Compensation claims against policy holders is very considerable indeed."

SS

03/05/80

Attorney G to the Interested insurers Re: Reinsurance of the Home Insurance Company first and second casualty excess of loss treaties. Assured: Assured 1.
Present opinion is that excess reinsurers are at risk of grave exposure on both first and second casualty excess of loss treaties in the period 1963 - 1974. As of March 1980 there were 4,323 claims in suit against Assured 1. 196 cases closed with an aggregate loss payment of $2,938,548 = average loss of $14,993 per case. New claims are being brought on the average of 100 per month. Both the Assured and its primary insurers between 1947 - 1976 (The Travelers Insurance Company) have adopted an exposure theory of coverage for asbestos-related bodily injury claims. Asbestos cases as a class represent a serious potential exposure to asbestos producers, the cases against such producers being "convincing".

There are difficult problems in reserving for asbestos claims:
(i) it is uncertain what principle of coverage will be adopted by the American courts;
(ii) the position on underlying aggregates is unclear;
(iii) it is unclear whether the Assured's deductibles from 1966 onwards are applicable;
(iv) there is an ever present possibility of punitive damages; and
(v) due to the long latency periods of asbestosis diseases, it is impossible to predict the number of claims that will ultimately be brought against the Assured.

Notes that the recommended bodily injury exposure reserve of $2,228,448 (including defence expenses) for excess reinsurers relates only to those claims filed thus far. It does not take into account future bodily injury claims to be brought against this Assured. Assured 1 believes the number of claims have now peaked and that, because of improved working conditions, there should be progressively less claims in the future. On the other hand some say that claims filed to date represent only the tip of the iceberg: e.g. The Secretary of Health, Education & Welfare in US recently stated that 67,000 each year will die from exposure to asbestos during the next 30 years. It is further known that 8 - 11 million workers have been exposed to asbestos in the US since the beginning of World War II. It is estimated that one-third of those heavily exposed have died, or are likely to die, of asbestos-related cancer. It is recommended that each underwriter on the first and second and third excess of loss treaties be shown its report. The attorneys also strongly recommend that each underwriter take all these facts into account in determining the loss reserve to be posted on these claims.

SI

00/06/80

Syndicate 90 (1979 Report).
"The 1977 account trading was satisfactory in itself but rendered improfitable by the need to create substantial additional reserves for possible losses on earlier years. The main problem has been the recent adverse development of serious liability claims (under both reinsurance contracts and direct US insurances) from victims of the industrial disease of asbestosis who allege that this has been caused by exposure to asbestos dust many years ago. Although these are disputable features in these claims it would have been wrong to close the 1977 account without making appropriate provisions in the reinsurance premium paid to the 1978 account."

24/06/80

Lloyd's List: Defendants fight yard asbestosis case award.
There are 4,000 to 5,000 outstanding liability cases over asbestosis in the US, most involving shipyard workers, according to Travelers Insurance Company. The Defendants, Assured 1 and Assured 20 have filed post-trial motions challenging the awards made in a recent case.

04/07/80

Letter from RAG Jackson to E.E. Nelson.
"I have been trying to get hold of you for some time to talk about asbestosis .. Jim Ayliffe. Wrote you a letter on 10^th December about the seriousness of this problem. Since that time as you are probably aware it has become even more serious a problem particularly as the split between the exposure and manifestation. Has become embittered a number of people have persuaded me to be the catalyst in getting a working party under-way and it is to this end that Jim Ayliffe and I have been speaking to a number of people in the market."

07/07/80

Business Insurance: Travelers asks to join suit.
Travelers is attempting to join Assured 1 in its legal fight to decide which of 27 insurers is liable to pay asbestos product liability losses. Travelers has filed a petition to intervene in the case, originally brought against the Home Insurance Company, to protect its own interests. Home is refusing to indemnify Assured 1 for $800,000 paid to claimants for property damages, claiming that Travelers is liable.

17/07/80

Attorney K to Underwriters at interest. Re Assured 15:
Current developments in asbestosis litigation. Reserves: "Since our last report of May 28, 1980 we have received approximately 500 additional cases naming the assured as a Defendant. This brings the total number of cases to approximately 2,300 and a total exposure of $13.8 million for the past 30 years. The average disposition cost of an asbestos claim to all defendants continues to total approximately $67,000 ... therefore, we suggest that underwriters increase the gross loss reserve to $460,000 from the ground up for each and every policy year they were on the risk."

SI

05/08/80

Letter from the AWP. Handling of asbestos claims in the Lloyd's market.
"... Market's involvement in the claims arising out of asbestosis have been gathering momentum over the past six months to the extent that there are now six Declaratory Relief actions pending and more could arise ... during the course of last year discussions took place with those law firms representing the Market's interest to ensure that there was a standard approach to the manner in which reserves were established, and following discussions with each of the firms involved it was agreed that for the present reserve recommendations to the Market would be based on an average cost of $75,000 per claimant. Bearing in mind that in most suits that have been issued there are multiple defendants a percentage scale was arrived at which embraced the major direct writings within the London Market, and by application of the scale percentage attaching to any particular insured we have been able to ensure that no duplication of reserve arose in regard to different insured named in any particular suit.

... the frequency with which new cases are filed is likely to continue at the present level for at least five years ...

Assured 1 had indicated that in their opinion there are likely to be between 2,400 and 3,000 cases filed in each of the next ten years and similar statements, although somewhat less pessimistic, have been made by other major firms involved in this litigation. This then raises the problem of whether or not our representatives should be taking into account in their reserve calculations forward projections of claims in regard to both direct and reinsurance business. Bearing in mind the substantial increase in costs over the coming years it will be immediately apparent that reserve projections in this matter will have a serious impact on the Market as a whole and yet, on the other hand, not to acknowledge the fact that reserves will inevitably increase would be irresponsible.

Arising out of the Market's inability to arrive at a common agreement on the basis on which losses of this nature attach it has been necessary for there to be dual representation on each Declaratory Relief suits that have been filed.

... it is unreasonable to expect matters to be controlled by the few leads involved and it has therefore been proposed that a joint inter-market working party be established which would have the responsibility of considering the day to day problems that have and will develop as the litigation proceeds. It is contemplated that the Working Party be made up of representatives from the Non-Marine and Incidental Non-Marine Markets and also to include a representative involved in LMX writings. It is intended that the party should include both Underwriters and claims representatives ... In addition, in view of the significant participation in certain areas of London Companies it is suggested that Mr John Heath of HS Weavers Underwriting Limited be invited to join the Working Party.

It must be emphasised that the potential involved here is so large and the issue so complicated that we cannot allow a muddle through somehow approach ... it has become clear that the split in the Market is serious and that the legal costs involved are going to be astronomical."

AWP

08/08/80

Attorney I to the Insurers at interest. Re: Assured 10 et al: Asbestos-related claim review.
Even assuming no further delays on the part of the assured, it will no doubt be several months before we are able to assimilate the data on these thousands of claims and render our final report to underwriters. We recommend that an expense reserve of $200,000 be set at this time.

SI

27/08/80

Minutes of an AWP meeting.
C J Ayliffe (in the Chairman's absence) emphasised to members that "the purpose of the Working Party was to deal with overall Market problems and it was therefore important that there should be seen to be complete impartiality in regard to the manifestation/ exposure attitudes that exist."

"Present indications were that the rate at which law suits are being reported will continue for at least the next five years, and the projections indicate that by that time there will be some 25,000 cases in being ..."

"At the present time there are six Declaratory Relief actions pending and the first of these, that of Assured 6, is due to come up for hearing in Boston on the 15 September. At this time it is not possible to indicate whether all matters currently in litigation will proceed to hearing ... Inevitably there will be appeals from the rulings of the lower court and it appears there will be a considerable passage of time before ultimately we have a clear indication of the thinking of the courts."

"It was noted that it was important not to adopt an unreasonably pessimistic approach which could mislead the Market in considering the reserve problem."

There was a discussion of the approach to reserving.

It was recognised that whatever approach was adopted by a particular Underwriter or company they would undoubtedly use their discretion on posting reserves which produced to them their highest involvement, even though that reserve may not necessarily be in line with the position they were advocating.

AWP

01/09/80

Business Insurance: Doing nothing may be answer to asbestos risk.

02/09/80

Lloyd's List: Lloyd's to look into asbestosis.
A working party has been set up at Lloyd's to help co-ordinate the handling by underwriters of the thousands of asbestosis claims which are arising in the United States.

08/09/80

Business Insurance: Lloyd's Group to monitor claims for asbestosis.

11/09/80

Post & Insurance Monitor: Lloyd's Working Party to examine asbestosis claims.
"The spate of asbestosis claims now emerging in the US has led to Lloyd's non-marine underwriters to set up a working party to examine the future effect on the Market ... Insurers in the United States are worried that if all the compensation sought by these and other workers, who at some time or another in the past 40 years may have been in proximity to asbestos, was totalled together, it could reach the massive sum of nearly $2 billion. But these are purely speculative estimates and no one yet knows the effect on Lloyd's, which is now beginning to feel the impact of recent American lawsuits. The first of more than 1,000 cases brought in Los Angeles by Long Beach workers ended in a $1.2m jury award. But this was reduced by the trial judge to $250,000, so that the amount of settlements likely to be determined for other litigants is still uncertain. But the problems, which had been lurking in the minds of Lloyd's insurers for some time, came to a head in June when $1.2m was awarded to Richard Hogard, a Long Beach worker, who cited Assured 1 and Raybestos-Manhattan as defendants. the reduction of Hogard's award to $250,000 is being watched with future settlements in mind."

22/09/80

Business Insurance: California bill sets a fund for asbestos claimants.
The California legislature has appropriated $2.6 million for the workers compensation fund in respect of asbestosis.

23/09/80

Attorney I to C J Ayliffe, Merrett Dixey Syndicates. Re Assured 10 Claims Review.
"You are no doubt aware of this tremendous volume of pending litigation involving asbestos, the high rate of new filings, and what appear to be increasing verdicts. These general factors, combined with the preliminary information gathered in our claims review, leads us to be concerned that the present method of reserving (as we understand it) may be under-estimating the exposure of underwriters."

SI

29/09/80

Business Insurance: Asbestos firm says it has way to share liability.
Standard Asbestos Manufacturing seeks in court to make tobacco companies co-defendants in asbestos-related suits.

01/10/80

Attorney G to Underwriters at Lloyds, c/o Merrett Dixey syndicates. Attention: C J Ayliffe.
Notes the monumental significance of the "manifestation" versus "exposure" issue. In relation to Assured 1, Lloyd's would be on risk for 31% of all the years of alleged exposure by the asbestos claimants, but only 7% of the claims if manifestation rules were adopted.

"It is widely accepted that asbestos liability will be the most significant legal and loss cost issue in the history of the insurance industry ... The number of potential future claims is staggering". In a statement on 26 April 1978 the US Secretary of Health, Education & Welfare estimated that 8 - 11 million American workers had been exposed to asbestos since the beginning of World War II. Dr Selikoff had predicted 20,000 asbestos related deaths per year in the US until the end of the century.

The attorneys say it is their opinion that, due to the long latency period of asbestos diseases, there are likely to be thousands of new asbestos claims at least until the 1990's. A great number of claims will ultimately come from all of the major industrial areas. On the other hand, despite the 8,000 or more cases filed to date, there have only been to our knowledge about 25 asbestos products cases tried to verdict thus far. Plaintiffs and defendants have won about 50% of time. However, underwriters are told to note the size of several of the jury verdicts in favour of the plaintiff (as high as $1.1m after appeal).

Notes possible sources of indemnity:
(i) third party actions against suppliers of raw asbestos which could be deemed to have merit and represent a serious potential exposure to the suppliers;
(ii) the US Government (because of the exposure of workers in US Navy shipyards), although the Department of Justice has vigorously refused to contribute to any of the most recent asbestos settlements. Attorneys believe that it is not unlikely that sooner or later courts will permit indemnity or contribution actions against the US Government which could provide some relief to asbestos manufacturers.

Potential claims against asbestos employers have generally been brought under workman's compensation schemes but, since the Supreme Court of California's decision in the Rudkin case, it has been possible to sue Assured 1 directly for concealing the dangers of working with asbestos. This decision could "open the door to a great number of suits under the Employers' Liability policies". Attorneys also note attempts to intervene legislatively. The report concludes that "it would appear that any federal relief to insurers is fairly remote at the present time".

It is the attorneys' view that underwriters can continue for the time being to reserve each claim on the $75,000 previously suggested by Counsel. However, more sophisticated information should allow a reallocation of percentages among the various assureds. "As indicated we believe the number of claims will continue to increase for the next several years ... We believe that eventually the asbestos manufacturers will obtain substantial indemnity help from the asbestos suppliers and from the US Government".

The Report also indicated that the Attorneys could provide date as to loss payments and costs incurred by certain American assureds thus far in the trial and settlement of asbestos claims. "We believe that these statistics form a reasonable basis from which to estimate probable future loss payments and expenses to be made on behalf of these assured".

SI

03/10/80

Attorney H to Merrett Dixey Syndicates Attention: C J Ayliffe Re: Asbestos Claims.
With regard to future developments in the overall asbestos problem, it is possible to come up with "very dire projections depending on the statistics drawn upon to support these projections". New lawsuits continue to be filed at the rate of approximately 100 per month or 1,200 per year.

Conclusions:
1. Higher settlements likely as a result of increased jury awards;
2. No legislative relief in prospect for insurers.

Essential that the current reserve recommendations be adjusted to reflect future potentials. Recommends increasing the present general per injury reserve of $75,000 to $100,000 which "while seemingly steep at first blush" ... "should sustain us through the mid point of the 1980's".

SI

13/10/80

Attorney K to Merrett Dixey Syndicates, Attention: C J Ayliffe Re:  Asbestosis Litigation.
Asbestos litigation continuing to develop at an unpredictable rate. New claims flow into this attorney's office at the rate of approximately 50-75 per month and sometimes higher. Flow of new claims appears to be undiminished, if not increasing. Asbestos related injury receiving substantial publicity in the American press. The defence posture of key manufacturers is deteriorating ... "the problem is presently one of unpredictable size both from the aspect of number of plaintiffs and potential value" ... "the defence picture (is) darkening rather than lightening". Also a suggestion that property damage claims are potentially of a substantial value and should be separately monitored.

"At this date the attorneys also recommend that property damage claims be monitored separately".

SI

16/10/80

Attorney H to Merrett Dixey Syndicates, Attention: C J Ayliffe.
"In my earlier letter I observed another area where the Working Party might find our comments useful and that is with regard to our experience with percentages of claims that were assigned to the various insulation manufacturers involved in asbestos litigation."

SI

03/11/80

Business Insurance: Court restricts policies available for latent injuries.
"Insurance policies written over the years when workers handled asbestos are the only source of funds available to pay today's claims for recently discovered diseases says the Federal Appeals Court here ... In its decision (of) Oct. 22 in INA v Forty-Eight Insulations Inc. the court chose the exposure theory. It rejected the theory favoured by 48 Insulations that would prorate liability among all insurers from the time of exposure to the time of discovery ..."

06/11/80

Minutes of AWP meeting.
"The Chairman [Mr Nelson] then asked if sufficient legal decision had now been taken for one side or the other to change their views and have a common approach. He felt that when the Assured 6 decision was known there would possibly be full agreement. Mr Ayliffe said that the point had not been reached where agreement was likely. Mr Ayliffe continued that there would be another Court of Appeal decision shortly but it could be at least a further year before any Industry decision was likely. One of the difficulties he said was to whom does this Group talk in America bearing in mind there is still diametrically opposed opinion. Mr Heath confirmed that he felt when the Eagle-Picher declaratory relief action trial was known there would be an appeal and we must therefore, wait for the decision of the Higher Court ...

Mr Kemp felt that the Supreme Court would be brought in if different states took different views and this was confirmed by Mr Heath ... Attorney G stated that there were 13 declaratory relief actions but only 6 were known in the London Market. Mr Kemp felt that the remainder would be known by now if there was a UK lead".

AWP

10/11/80

Letter from CJ Ayliffe to EE Nelson.
Re Asbestos Working Party. "My concern basically stems from the fact that all attorneys who are handling the asbestos problem are aware that the working party is giving consideration to the difficult question that is raised by the manner in which reserves should be approached.. My basic concern on this problem is that whilst I am as conscious as you of the delicate manner in which the year end reserves must be handled, and also fully agree that our obligation must be to provide to the markets sufficient background information to enable them to make the final decision, I am nevertheless concerned that reserves now are possibly lower than they would have been had the working party not come into being. In the case of matters being handled by Attorney H, as I have said, it has been made clear to me that it would have been their recommendation that reserves be increased on a per claim basis, and the reserves they would have put forward would have taken into account some form of projection. Neither of these developments have taken place due to the belief that a Working Party would be providing guidance, and if matters were left as they now stand it would effectively mean that we would be explaining to the Market the imponderables and that any loadings that individual Boxes decided to apply would be attached to reserves which would have already been higher had we not become involved"

10/11/80

Business Insurance: Winner, Loser both seek re-trial in asbestos case.
Refers to the "precedent setting decision" on insurer responsibility for asbestos claims made by a US court on 22 October 1980 in the case of INA v Forty-Eight Insulations Inc. This supported the exposure theory of coverage. Both INA and Forty-Eight Insulations want the Sixth Circuit Court of Appeals to rehear the case. INA wants the court to reverse the decision in favour of the exposure theory and adopt a manifestation theory. Forty-Eight Insulations wants the court to reconsider part of its ruling that makes insurers responsible for coverage and defence costs only for the years they insured a risk.

12/11/80

Lloyd's List: Tobacco Firms Should Share Asbestosis Claims.
"Two California courts are being asked to rule that cigarette companies are at least partly to blame for the illnesses of many asbestosis sufferers and should pay part of the compensation..."

12/11/80

Attorney I to the insurers at interest Re: Assured 10 et al. Tampa claims review.
Assured has more than 4000 open claims files and this figure is growing by approximately 100 each week. In addition more than 500 claims have been settled and claims continue to be settled on a daily basis. Aetna Casualty is alone amongst the insurers in having paid a significant number of claims. However neither Aetna Casualty nor any other insurer has ever reviewed the insured claims files which suffer from "the most rudimentary organisation". The attorneys are further informed that Aetna Casualty has exhausted its limits for certain policy years and so cannot be relied upon to formulate any rational claims handling policy.

The Sixth Circuit Court of Appeals has recently affirmed the decision of the lower court in the Forty-Eight Insulations case. Strong support for the exposure argument. "An escape valve is provided. Liability among the insurers, said the Court, is not joint and several, but rather is individual and proportionate. Therefore, if an insurer can show that no exposure to asbestos products manufactured by its Assured took place during certain years, it is not liable for those years. However, the valve is effectively closed when the Court makes the burden of demonstrating this exculpating factor purely the insurers'. This burden will be well nigh impossible to carry in many situations."

SI

28/11/80

Minutes of AWP meeting.
"Mr Ayliffe believed that Attorneys should make recommendations for year end purposes but it was for the individual Underwriters to determine the figures used when closing the account. He was concerned that reserves currently carried on files, were lower than would have been the case under normal circumstances. Those concerned were looking for recommendations from the Working Party before final decisions were made. This view was supported by Mr Jackson, who thought that a figure of $125,000 per average claim was more realistic than the present figure of $75,000 currently used as a yardstick ..." He thought Attorneys should in fact provide two sets of figures:-

(a) Reserves as at 31st December, 1980 on known cases.
(b) The projected literally number of claims for the next five years, based on information currently available but to include an inflation allowance.

"... Messrs Rokeby-Johnson, Skey, Taylor, Kemp and Froude thought that $125,000 was excessive and $100,000 more realistic. They were not in favour of making projections of eventual numbers involved, but did agree that Attorneys should provide information on this matter ... Mr Heath was in general agreement with Mr Jackson and said that it appeared the number of new cases was more than doubling in each successive year from 1976 onwards".

Summary of the Chairman (EE Nelson) included the audit Committee were reluctant to identify individual situations for audit purposes. The asbestosis situation was well known in the Market. underwriters were aware of the potential problems.

AWP

08/12/80

Attorney H report to Underwriters at interest (c/o Willis Faber & Dumas Ltd.) Re: Assured 3A/Assured 3B.
Detailed report on US Sixth Circuit Court of Appeal's decision in INA v Forty-Eight Insulations

SI

24/12/80

Attorney K to E E Nelson c/o K F Alder (Underwriting Agency) Limited Re: Asbestos Claims.
Average case settlement price $67,000 comprised of contributions from various defendants. ... "one can expect future settlements to increase substantially to $100,000" or higher. While the number of defendants to the litigation is likely to rise (lessening the exposure of the individual asbestos manufacturers towards individual settlements) the average settlement package will "quite likely continue to increase in size ... it is likely that an average asbestos settlement will approach $100,000 per claimant over the next few years, with an additional $10,000 allocated for expenses." "Asbestos claims are multiplying rapidly" (this attorney gets 50 per month). US court decisions may substantially increase the number of asbestos related claims that will be brought and raise some further coverage questions. In particular:

1. in the case of Judith Ferriter v Daniel O'Connel Funds Inc. the Massachusetts Supreme Court held that the spouse and children of an injured worker have a right to sue the worker's employer based upon an allegation of negligence, even though the worker accepted workman's compensation payments;
2. the Supreme Court of California (Rudkin), and Appellate Courts in Delaware and Texas, have recently upheld actions brought on the basis of intentional or wilful misconduct by employers.

It remains difficult to project the number of claims to be filed in the years to come. This attorney estimates that, in the next 6 to 8 years (1980-86/88), 1,000 new claims may be filed each year. They suggest that this figure should be continually revised and updated on the basis of case law and new causes of action on at least a semi-annual basis.

Selikoff projections referred to in the above connection.

AWP

24/12/80

Attorney H to E E Nelson, K F Alder (Underwriting Agency) Limited. (Response to E E Nelson's letter of 10 November 1980).
Since the Borel jury returned a verdict of $79,000 in 1972 the amounts of settlements have increased to several multi-million dollar awards. Currently the attorneys recommend that underwriters should increase reserves to $125,000 per claim (which they believe will see them through until 1983-84 including an item for defence expenses). The attorneys predict that the peak years "may very well be fixed for 6 or 7 years hence". Claims are being filed at an average rate of approximately 100 per month or 1,200 per year. "We currently do not see any marked increase in this number, nor on the other hand do we anticipate a sharp reduction." However these comments are to be considered as "guarded" because, over the past 30 days, there has been a sharp increase in filings. Assured 3B alone has had 286 cases filed since 1 December (1979). Attorneys say their "guesstimate" is that cases will not peak until at the earliest mid-1985.

AWP

29/12/80

Telex Attorney G to E E  Nelson (c/o K F Alder (Underwriting Agency) Limited).
"... thousands of additional claims can be expected at least into the 1980's. For these reasons we would deem it prudent to raise reserve for each known BI asbestos claim to DLRS US 125,000 with such reserve including costs ..."

SI

19/01/81

Letter from C J Ayliffe to E E Nelson.
Referring to reports from US attorneys such as Attorney H, C J Ayliffe states: "... I think you will agree that it is important that the Market should have access to the reports in question and form their conclusions from those comments rather than be influenced by anything that we might independently say in the form of a report".

26/01/81

Attorney G c/o C T Bowring & Co to the Interested Reinsurers Reassured: Assured 1.
"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, there have been several large settlements made, and some verdicts have been returned against the insured which "portend" poorly for future litigation. The case of INA v Forty-Eight Insulations has supported the "exposure" theory of coverage. The primary insurer states that aggregate limits on three of its annual periods have been exhausted and that exhaustion of its limits for all other years is imminent. "It thus appears that the Reinsured must become in effect a primary insurer with defence obligations in the very near future". The attorneys therefore recommend a substantial reserve increase to the excess reinsurers: "We request each reinsurer to carefully consider his own reserve on these claims". There is a possibility that "a great number of claims may be brought in the future". The reserve which has been indicated by attorneys does not take into account either loss or expenses of reserves for future bodily injury claims which may subsequently be brought against the insured or indemnity or contribution claims that might be brought against the assured.

SI

27/01/81

Lloyd's Underwriters' Non-marine Claims Office, (LUNCO).
Circulates US attorney reports about Glen Alden Corporation asbestos-related claims review correspondence.

00/02/81

Assured 2's Annual Report.
"Assured 2's youth and the relatively small involvement of its former subsidiary in the asbestos-containing thermal insulation Market put the Corporation in a unique position relative to other defendants. Assured 2 is nevertheless being exposed to the same legal liability as miners and suppliers. Most of these have substantially greater resources and continue to have a stake in the Market. Unlike Assured 2, they can recover the costs of their asbestos cases from their current operations. Assured 2 is making every effort however, to resolve the asbestosis problem facing the Corporation. Management and its counsel believe that the disposition of existing possible unasserted asbestosis claims and other cases will not have a material effect on the consolidated financial position of the Corporation."

02/02/81

Business Insurance: Asbestos suits cloud firm's 1980 report.
Assured 1 has qualified its annual financial report for 1980 because of uncertainty over whether its insurance will cover its potential liability in the thousands of asbestos suits brought against it. There has been a dramatic rise in the number of suits filed against it (from 2,707 to 5,087, and the costs of disposing them has risen from $13,000 to $23,000.)

10/02/81

Letter from AWP (Mr E E Nelson) to the Active Underwriters.
The insurance industry, including the London Market, continues to be divided as to whether asbestosis claims are attributable to policies on an "exposure" or a "manifestation" basis. A significant decision was given recently in the appeal in one of such actions, INA v Forty-Eight Insulations, Inc (U.S. Court of Appeals for the Sixth Circuit) which, in affirming the trial court judgment, 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 a "half-way" house between the exposure and manifestation arguments, a further complication of the issue. Lloyd's has been actively involved in another Declaratory Relief Action, the Assured 6 case, which was tried in Boston, Mass. towards the end of 1980. Judgment is expected at any time now, and whatever the decision, the case will be appealed. A Declaratory Relief Action by Assured 1, who probably have the largest involvement in the asbestosis problem of any Insured, is not expected to be heard until next year. "In all the circumstances it is reasonable to assume that the manifestation against exposure issue will not be resolved in the near future."

"With the approach of the year-end attention has focused upon claims reserves particularly bearing in mind the following:
(1) the rising trend of settlement figures and the effect upon them of inflation in the U.S;
(2) as underlying aggregates are exhausted some insurers may look to excess carriers to absorb defence costs; and
(3) during the past year the number of cases in suit has increased from about 5,500 to in excess of 8,000 and at this stage it is not possible to project how many more claims will be filed".

"It cannot be emphasised too strongly that you should make yourself aware of the contents of [your U.S. legal representatives'] reports".

AWP

12/02/81

The Post Magazine - Problems of disease claims.
"In the United States by the late 1960's so many workers had contracted asbestosis that manufacturers had begun to cut back on the production of asbestosis containing products ... Claims on behalf of many injured workers were made against manufacturers. This was on the basis of strict liability for defective products; the workers arguing that the manufacturers had not warned them of the dangers. Since it was impossible to tell which particular manufacturer had been involved with so many thousands of products on the Market, the workers contended that all relevant asbestos manufacturers should be jointly and severally liable."

18/02/81

Attorney G to Underwriters at Lloyd's Re: (Assured).
"It is generally accepted that asbestos liability will be the most significant legal and loss cost issue in the history of the insurance industry. The number of future potential asbestos claims is overwhelming." The attorneys note the estimate that 8-11 million American workers have been exposed to asbestos since the beginning of World War Two (Califano Speech, April 1978) and the US Government study in 1978 which projected that 13%-18% of all cancer deaths over the next 30 years would be asbestos related. The Director of the National Institute for Occupational Safety and Health has predicted that tens of thousands of asbestos deaths are likely to occur annually. "We can continue to expect thousands of new asbestos claims at least into the 1990s ..." There are approximately 9,800 claims in suit against this assured. The assured has concluded settlements at an average loss payment of $9,000 per claim.

There are problems with reserving for asbestos-related claims:
1. the basis of coverage is still uncertain;
2. it is impossible to predict the number of product liability claims;
3. there are inconsistencies where primary insurers have adopted a manifestation theory, and reinsurers an exposure theory.

The attorneys emphasise to reinsurers that suggested reserves relate only to claims known to have been made against the assured so far: "... there are numerous well informed people who believe that many hundreds or even thousands of additional claims can be expected in the future". Reinsurers should consider all factors in establishing reserves.

23/02/81

Attorney H to Underwriters at interest Re: Assured 1.
Several significant developments have recently occurred which warrant underwriters' prompt attention. Of immediate concern is the fact that the Travelers as primary insurer for Assured 1 spanning the years 1947 through 1976 has just about exhausted its aggregate limits.

SI

23/02/81

Attorney G to the Interested Reinsurers.
"There have been some favourable developments since our last report and we no longer believe that the indemnity claim brought by Forty-Eight Insulation Inc against the assured, a subsidiary of General Dynamic Corporation will ultimately represent exposure to the excess reinsurers herein.

We are now pleased to report that the trial Court has dismissed the Count of the claimant's complaint praying for a Declaratory Judgment on all pending as well as potential indemnity claims that the claimant might have against the assured ... Since our last report we can advise that on October 21, 1980 the United States Court of Appeals for the Sixth Circuit handed down its decision in the INA v. Forty-Eight Insulations Case previously discussed. The Court of Appeals affirmed the trial Court holding that the date of loss, triggering coverage in the asbestos-related bodily injury cases against this claimant was the date when the individual bodily injury claimants were exposed to the alleged defective asbestos products. This decision is certainly favourable to the excess reinsurers here who could be subject to far greater liability under a manifestation rule in the 1975-1978 period.

The rulings of the US District indicate that the Court will view each individual bodily claim as a separate occurrence. If this interpretation continues then the reinsurer should bear no losses."

SI

00/03/81

Lloyd's Bill receives second reading in the House of Commons.

06/03/81

Attorney G to Interested Reinsurers Re: Assured 25.
Repeats that it is generally accepted that asbestos liability will be the most significant legal and loss cost issue in the history of the insurance industry and that hundreds if not thousands of new claims can be expected until the 1990's at least, asbestos exposures ranging from a few years to as many as forty to fifty years. Currently twenty declaratory judgment actions being litigated between insurers and insureds in the US. The attorneys have reviewed claims brought against each of the 19 individual assureds at risk with the reinsured and suggest reserves in respect of each assured calculated on both an exposure and a manifestation basis. The reserve calculations have been made only on the basis of claims that have been brought to date against such assureds. Additional asbestos-related bodily injury cases must be reserved for separately. Potentially there are other risks (depending on the law of employers' liability).

13/04/81

Notes of an AWP meeting taken by Elborne Mitchell.
Reporting on trip to the US of C J Ayliffe and K R Rayment: discussions had been held with Attorney H and Attorney G in respect of the Assured 1 coverage 1951-63.

"It would appear that the excess layers covered by London Underwriters were on an occurrence basis only between 1951-60 ... this left them with a gap in coverage ... However, Underwriters' lawyers are by no means certain that Underwriters will be able to benefit from this coverage problem ... if the coverage situation described ... above is correct, then the exposure of the London Underwriters may be substantially reduced between 1951-60... Can London agree to any funding arrangement in these circumstances? Could this situation lead to a lump sum settlement with Assured 1 for those years? Assured 1 have said they will revert when they have further investigated the coverage situation".

"Assured 12 is being sued by 9,000 claimants and is a larger problem than previously realised. First layer insurances are now exhausted - above them is the Home and above the Home are London Underwriters. The Home is involved with all 28 Assureds which concern London, except Assured 20 and Assured 17".

"The Fifth Circuit U.S. Court of Appeals has reversed the judgment in Porter v American Optical and applied the exposure theory of assigning liability. The Court agreed with the reasoning of the Sixth Circuit in I.N.A. v Forty-Eighty Insulations Inc".

13/04/81

Business Insurance: Asbestos: Judge ties California suits.
Judge Ira Brown has issued an order co-ordinating four pending actions to determine whether insurance cover would apply under exposure, manifestation or pro rata theories. This affects more than one sixth of the pending asbestosis liability suits in the US.

14/04/81

Attorney I to the Insurers at interest. Assured 10 Claims Review:
The US attorneys have reviewed the 4,500 individual claims files of the assured, some of which contain hundreds of claimants. "We understand that the entire London Market is considering a consolidated claims review process which would encompass all London insureds."

$125,000 is the reserve figure for each pending asbestos claim (8%, or $10,000 worth, is assigned to Assured 10). The attorneys recommend underwriters periodically consider the adequacy of the $125,000 figure. It may be accurate in respect of average settlements in 1981 but may not be an accurate prediction as to the ultimate settlement value of pending asbestos claims. Reserves have been recommended tentatively and on the basis that the sheer volume of claims means that underwriters may face liability no matter what the specific terms of policies, or which theory of coverage is eventually adopted. Legal decisions:

1. District Court for District of Columbia has ruled in the Keene case, following the INA v. Forty-Eight Insulations decision and ruling in favour of an exposure theory of coverage. The court in Keene extended this decision to Mesothelioma and Bronchial Carcinoma as well as asbestosis. The Court went on to pro rate the obligation to defend and indemnify for each insurer on risk during the exposure period. Appeals are underway;
2. the Environmental Protection Agency in the US has recently found that asbestos poses an "unreasonable risk of injury" to school children and school employees. Potential property damage claims arising out of making school buildings safe;
3. The Sixth Circuit of the Court of Appeals has denied a request for an open hearing in the Forty-Eight Insulations appeal and has extended its prior ruling to Mesothelioma and Bronchial Carcinoma;
4. Van Buskirk litigation in Philadelphia has held that an asbestos manufacturer cannot rely on workmen's compensation immunity. This may have a significant impact on the coverage provided by underwriters;
5. claims by 890 asbestos workers in New Jersey recently settled by establishment of $59.4 million fund. The average per claim claimants settlement was $13,500, far below the current national average;

Reserves discussed do not allow for new claims.

17/04/81

Letter from Attorney D (US attorney) to K F Alder (Underwriting Agency) Limited Attention: E E Nelson.
Encloses a copy of the recent proposal authored by the American Re considering the asbestos claims handling procedures. The enclosure headed "asbestos claims handling procedure" sets as its objective: formulation of a procedure for the unified control of evaluation, negotiation and litigation management by the insurance industry. It envisages "form a national asbestos litigation committee ..."

"Why is such an elaborate and unprecedented organisation required: (A) Asbestos litigation is the largest phenomena that has ever hit the casualty insurance industry. The present mechanism is not capable of handling it effectively. (B) Asbestos litigation is going to get much much worse. No one knows how bad the problem will ultimately become. (C) Even some prominent members of the bar have stated the waste in defence cost because of the lack of uniform co-ordinated approach is scandalous. This problem will only get worse as time goes by."

20/04/81

Attorney G report (c/o C J Ayliffe, Merrett Dixey Syndicates Ltd.) Re: Assured 4.
"Several hundred new suits have been brought against the assured and it appears that Underwriters' involvement may be greater than initially believed ... Since our last report, we can advise Underwriters that we have documentary evidence that there have been 571 additional claimants who have filed 351 additional lawsuits against the assured nationwide. Thus, to date, we know for certain that there have been a total of 943 individual claimants who have filed 637 lawsuits against this assured. However, this number may not represent the true correct status as the assured has recently reported to us that there have now been 1,099 lawsuits brought against it on behalf of 2,019 individual claimants ... Our information as to the assured's average disposition of these claims remains generally unchanged from our last report .... the assured generally will not be a target defendant in these cases. We continue to believe that the asbestos-related bodily injury cases represent grave potential exposure to the producers of asbestos and to the manufacturers of products containing asbestos. However, we do not believe that this assured will be one of the truly major defendants in the asbestos cases ... It thus appears at this point that the exposure theory as opposed to the manifestation theory will probably prevail in the American Court system .... we suggest a reserve be established herein based upon an average total cost per claim of $2,500 ..."

23/04/81

Attorney G to the Interested Insurers Re: [various] Lloyd's Policies. Assured: Assured 19.
"It ... appears at this point that the exposure theory as opposed to the "manifestation" theory will probably prevail in the American court system in the asbestos cases". This could be unfavourable to excess underwriters in the US. The issue of the self insured retention by assureds is not yet resolved. Attorneys recommend a conservative approach. However, "because of new coverage information we are now recommending a substantial reduction in the exposure reserves previously suggested ..."

28/04/81

Victor Levit, Managing Partner of Attorney F of California, gives a talk at the invitation of Lloyd's Under 30's Non-Marine Claims Committee entitled: Recent Developments in Insurance Coverage of Asbestos, Agent Orange, DES, Radiation Hazards, and Similar Catastrophic Product Liability Development.
Figures suggest that (at 1 February 1981) 25,000 individual plaintiffs have sued for asbestosis (with 500 more suits per month). Losses and expenses from these suits alone in 1980 are costing $1.35 billion per year (liability premiums are $6.35 billion). Assured 1, the principal defendant in most asbestos suits, is running out of primary insurance for the period 1947-1976 (its accounts for 1979 and 1980 had to be qualified). Assured 20 will have qualified accounts for 1978-1980 and this may be only the "tip of the iceberg". The staggering size of toxic latent disease claims could threaten the solvency of some insurance companies. Levit notes Dr Selikoff's recent study on the long latency period for asbestosis (15-45 years). If an exposure theory of coverage is accepted this could put a great financial burden on insurers. A recent California case indicated that Assured 16 alone had potential exposure of $20 billion. The same case stated that the Court should construe insurance policies to promote coverage. Two recent cases have also shown that victims are not confined to claims under workers' compensation schemes.

A recent consolidated action settlement involving 680 workers at a Assured 20 plant involved the establishment of a $9.4 million fund. A 1978 settlement in Tyler, Texas, provided a $20 million fund for 445 asbestos workers. The opinion has been expressed that such settlements may encourage more suits. "I believe that there will be many more claims than we can possibly anticipate from toxic substances, that such claims will often take many years to manifest themselves, and that the dollars involved will be far greater than we can possibly imagine".

00/05/81

Syndicate 219 (1980 Report).
"A major problem which has recently reared its ugly head is summed up in one word "Asbestosis". Although it has long been known that the inhalation of asbestos fibres damages lung tissues, causing disability and sometimes death, it is only recently that the US Courts have upheld the legal theory that manufacturers of asbestos are liable for failing to provide warnings regarding the dangers of its use. There are now 8,000-10,000 claims pending and this figure will probably rise rapidly. Although insurers themselves have had to go to court to ascertain who covers what, the general view emerging is that 'bodily injury' occurs repeatedly with each exposure over the years and that insurers at risk during the periods of the individual exposure will have to respond since manifestation can be up to 45 years after initial exposure. In practice this means that policies issued decades ago are likely to be involved. This Syndicate commenced underwriting in 1956 and already we have some advices on our very early years. As Members are aware the Syndicate carries substantial reserves for such contingencies but as the situation develops over the years it may well be considered necessary to increase those reserves."

04/05/81

Business Insurance: A modest proposal? Asbestos comp trust may clear legal backlog.
Attorney D (a US attorney) suggests that it is time for the insurance industry, with the co-operation of policy holders and the government, or even independently, to find a workable solution aimed at reducing the avalanche of asbestos claims. The solution must involve the disposition of a substantial number of asbestos claims leading to a reduction in legal costs. This could take the form of a asbestos compensation trust.

11/05/81

Minutes of AWP Meeting taken by Elborne Mitchell.
"Mr Maitland reported that the Commercial Union were advocating strongly that the tobacco companies be made parties to Asbestosis litigation..."

12/05/81

Asbestos a Social Problem: A position paper prepared by the environmental issues task force and issued by the Commercial Union Insurance companies:
The estimated number of cases to date ranges as high as 12,000, involving some 25,000 plaintiffs and more than 260 defendants. Likely that many thousands of additional claims will be filed during the next 25-30 years, placing a severe burden on the insurance and asbestos industry. Viewed objectively, the proliferation of asbestos claims jeopardises the financial stability of many companies.

"Estimates as to the total number of individuals who will contract an asbestos-related disease are frightening. In 1978, Joseph Califano, the then secretary of a former department of health, education and welfare, warned that as many as 5.6 million Americans may die of cancer of other diseases associated with asbestos...".

The courts are grinding to a standstill and the situation is likely to get worse in the future. Thousands of additional law suits can be anticipated. It is impossible to assess with exactitude the total liability that the insurance industry will have to bear. A study conducted by the Insurance Services Office indicates that for the period between July 1976 and 15 March 1977 the average payment in an asbestos case (for settlements and jury awards) was approximately $170,000. If just 1 million asbestos claims are resolved at that average value, the insurance industries liability will be £170 billion. "...It is not inconceivable that several million claims will ultimately be filed... We can anticipate an increased instance of asbestos-associated diseases during the next two or three decades".

The number of asbestos product liability claims may be "staggering", potential liability "immense". "It is conceivable that the damages that will be ultimately awarded will exceed the combined assets of the insurance and asbestos industries". Concludes that there is a need for a federal solution.

00/06/81

Lloyds League Tables 1978 (produced by Chatset).
In respect of Non-marine business:

"A vintage year with the total result of 22%, nearly double that of 1977. The settled claims figure was much the same but there were not those special provisions for reserves which were charged in 1977 so there was a much lower increase in reserves and a better underwriting result. The principal reason for this appears to have been that those special provisions in 1977 for computer leasing and asbestosis were considered adequate when closing 1978. It would appear likely that additional reserves will have to be made in the 1979 and 1980 accounts against further asbestosis and DES claims. Asbestosis has been described as the largest ever insurance loss and will not only affect the Non-Marine Market. 1979 and 1980 were showing higher settlements at the end of 1980, so the Non-Marine section as a whole will certainly be back into an underwriting loss". (Published in 1981).

00/06/81

Syndicate 90 (1980 Report).
"... Although the asbestosis claims which caused the loss in the previous year have continued to accumulate we have been able to buy a substantial measure of reinsurance protection for the 1974 and previous accounts ..."

00/06/81

Syndicate 334 (1980 Report):
"This has exposed us to a number of potentially serious asbestosis claims on closed year. The most recent reports from our legal advisers (received in February 1981) have caused us to take a serious view of the possible cost of these claims and we decided that a substantial additional provision had to be made before closing the 1978 account. We shall endeavour to do what our Non-Marine colleagues have done, namely to buy r/i to protect the old years of the syndicate against any worsening of the position in regard to asbestosis or similar liability claims."

01/06/81

Minutes of an AWP Meeting taken by Elborne Mitchell.
"Assured 1 understand that the post 1956 London Market cover wording is on an occurrence basis and that this will lead to their claim, which at present stands at US $347,753 on the 1952-1960 London Market covers being rejected. Assured 1 indicate that they will look to Marsh McLennon for this shortfall, thus both the American brokers and the London Market will have to be involved in any final settlement with Assured 1."

04/06/81

Attorney H to the Underwriters at interest Re: Assured 1.
Travelers has exhausted its aggregate limits and, as a consequence, Assured 1 has demanded direct immediate payment from underwriters of US $347,753 on an exposure basis against the years 1952-1959 (as their contribution to the $1,872,027.27 settlement of 73 asbestos claims). Reports warning of the exhaustion of Travelers primary limits given to C J Ayliffe at a meeting on 7 January 1981 with Mr Von Wald (Corporate Counsel, Assured 1). At a subsequent meeting with Von Wald (also attended by K R Rayment and J Heath) on 9 April 1981, limits and attaching levels were considered in detail. Counsel for Assured 1 also conferred at length with R A G Jackson. It was discussed that as the policies are on an occurrence basis then underwriters would be required to respond only to those cases where the loss exceeded the stated occurrence limits.

29/06/81

Business Insurance: Asbestos insurers apply exposure rules.
Spokesman for Assured 16 and Aetna reaffirm their support for the manifestation theory despite recent court decisions to the contrary. However, some insurers, for example Travelers, have recently adopted the exposure theory in the light of these court decisions. Aetna is also willing to work out agreements based on the exposure theory but reserves its right to review these. The insurance industry as a whole will pay more under the exposure than the manifestation theory and can be expected to continue fighting it in the courts. Two key cases are Eagle-Picher v Liberty Mutual Insurance, which is about to be decided by the district court and Keene Corporation v INA, in which a decision is also due soon. A ruling in the consolidated cases in California could be more than three years away. Pending Californian asbestos coverage cases were consolidated in March 1981.

11/07/81

The Economist: Warning: Asbestosis may cost you more than money.
"In the past two years, there has been a quintupling in the number of law suits in which Assured 1, once America's biggest Asbestos producer, is named as Defendant. Law suits against Assured 2 have risen ten fold .... Auditors Coopers & Lybrand qualified both the 1979 and 1980 accounts of Assured 1 because of the potential liability from law suits. The 1980 accounts of Raybestos-Manhattan were also qualified, and some other asbestos companies must expect the same treatment in future.

There are roughly 25,000 cases against asbestos companies pending in the American Courts ... The Industry is now desperately worried because some courts are awarding punitive damages - in effect, saying that asbestos companies wilfully did not do enough to protect workers against the hazards of asbestos ... Some believe that legislation will be needed if great chunks of American industry are not to go bankrupt."

04/08/81

Telex from C J Ayliffe to Attorney I Re: reserves on asbestos cases.
"The Working Party are now considering the reserve philosophy to be adopted for the coming year end in regard to all the accounts which come direct to London Market and it is our intention to now adopt a reserve per case for each insured based upon average cost of settlements achieved to date plus loading to take care of inflationary trends."

10/08/81

Minutes of an AWP Meeting taken by Elborne Mitchell.
"Elborne Mitchell ... had now obtained copies all of the slips in respect of Assured 3 and Assured 7. They have not been able to obtain the slips for Assured 4 since the brokers were having difficulty in finding some of them". CJ Ayliffe noted that Assured 4 held cover notes stating that 100% coverage was placed in the London Market. That company had 900 claims. CJ Ayliffe reports that "a great deal of information was coming to the Leading Underwriters in respect of Asbestos claims and a central store of this information was required ... general reports were shown to the Market by the brokers. However any reports of a delicate nature would be reviewed by Elborne Mitchell prior to a decision as to their release to the Market".

Attorney H sought the Working Party's agreement to certain estimated per claim figures, arrived at by adding a 20% inflation factor to the average claim payment during the first half of 1981. The per claim figures were: Assured 3B $5,500; Assured 6 $15,600; Assured 17 $15,000; Assured 12 $12,000; Assured 2 $12,600; Assured 13 $10,500; Assured 14 $10,200; Assured 7 $18,200; and Assured 1 $25,000. Attorney H also recommended an expense figure of 25% for each claim.

31/08/81

Business Insurance: Court Reverses trend to maximise coverage.
Reports the carefully worded decision of a US district court on 14 August 1981 in the case of Eagle-Picher v Liberty Mutual Insurance. The court ruled in favour of a manifestation theory of coverage. However the significance of a decision is unclear since the decision in favour of the manifestation approach maximised coverage in this case.

14/09/81

Business Insurance: Asbestos Maker, Insurers differ on liability theories.
Commercial Union says that the solution of the problem cannot be found in the court room and that legislation is needed to handle the flood of claims from asbestos-related diseases. Assured 1 agree that legislation is needed but argue in favour of wide liability for insurers. A spokesman argues that an exposure theory of coverage is now the law.

21/09/81

Minutes of AWP Meeting taken by Elborne Mitchell.
Assured 11. Following figures for asbestosis claims made against this assured which gave some indication of the increasing rate at which new claims are made: 1977 - 96 claims; 1978 - 386 claims; 1979 - 310 claims; 1980 - 632 claims; first half of 1981 - 860 claims.

25/09/81

Letter from Lloyd's Underwriters Non-Marine Association Re: US Reinsurance Contracts Covering Casualty Business.
"The Non-Marine Reinsurance Committee has given a lot of time and thought to the attitude that they should take as individual Leaders in connection with the renewals of U.S. Reinsurance contracts covering casualty business in the fight of the latent disease problem. As a result a "discussion paper" has emerged which those Underwriters who have signed it intend to use as a basis for discussion with their reassureds at the time of the renewal of their programmes. A copy of this paper is enclosed for your information." Discussion document: "the potential for losses arising from asbestos products has been known for some time and obviously will continue to be dealt with by the insurance industry for many years to come. The same latent disease characteristics, in some degree or another, are unfortunately common to many elements, compounds, chemical mixtures and products ..."

28/09/81

Business Insurance: Government liable for asbestos ills:
Commercial Union, taking the lead position in the insurance industry fight against asbestos litigation, is waging a full scale effort to lay the liability for asbestos claims with the Federal Government.

05/10/81

AWP meeting which reported on Keene.

26/10/81

Minutes of AWP Meeting taken by Elborne Mitchell - Recent Keene Decision.
"Mr Ayliffe who had recently returned from the United States, reported that the insurance industry, including Assureds, considered the Keene judgment to be erroneous and detrimental to products coverage as a whole."

02/11/81

Business Insurance - Keene case concerns London Insurers.
Insurers that cover manufacturers of asbestos products must seriously review their policy terms in light of a recent US Court decision that widens the scope of asbestosis claims liability one Lloyd's underwriter says. "We must give serious thought to where we go from here", says R A G Jackson, an underwriter with Merrett Syndicates Ltd. "It's too early to tell how this decision will affect the liability market. But I am asking a lawyer for an opinion on our position ..."

09/11/81

LUNMA letter to Market.
"A Market meeting has been arranged for 4pm on Monday 16th November 1981 in Committee Room A, at the Institute of London Underwriters ... to enable a report to be given of the current developments in connection with the Asbestosis claims. The report will touch on both direct insurance and reinsurance."

10/11/81

Minutes of an Advisory Panel of Auditors meeting attended by, inter alia, N F Holland of Ernst & Whinney. Notes made by D Stevens of Littlejohn & Co.
Potential claims in connection with asbestosis make computer leasing appear insignificant by comparison. As a result of the Keene decision the insured may claim both on exposure and manifestation theories of coverage. Murray Lawrence stated that there would be a report on the 10-12 major assureds showing the underwriters' lines of each syndicate on all years of cover. The report will project the number of claims forward for five years to show which layers the policies are exposed. It is also to produce some information on the reinsurance side. It could not be over-emphasised how serious the losses will be as a result of asbestosis.

10/11/81

Minutes of an Advisory Panel of Auditors meeting taken by N F Holland (dated 9 December 1981) [in relation to the same meeting as the above minutes]:
W N M Lawrence made a fairly detailed statement on asbestosis. Following a recent decision in the US courts, both exposure and manifestation were a basis for settlement. Accordingly, all years covered on each basis were vulnerable for claims. Attorney H were preparing a report in respect of direct business and were going through the 10-12 major assureds covering all years and the losses on each year on all known covers. They would then project figures forwards, hopefully giving some feel for the loss on direct writing. It would then be up to each syndicate to consider what reinsurance protection it had and arrive at net losses. R J Kiln said he did not wish to see mention of specific claims in the Audit Instructions.

On reinsurance, W N M Lawrence could give no help at all. Each syndicate would have to do its own "rough shot" of its potential exposure and would hopefully develop some feel for the sources from which claims will materialise.

W N M Lawrence was pressed to call a meeting of Panel Auditors early in 1982 to keep them informed of the latest position and he agreed to talk to E E Nelson and see what could be done. It was hoped to monitor available information in the market. Clearly there were some major losses developing and it was important that some form of intelligence was established with a view to pooling all available information from all sources within the London Market.

10/11/81

Minutes of an Advisory Panel of Auditors meeting held on Tuesday 10 November 1981 [in relation to the same meeting as the above two sets of minutes]:
Reserves: the Panel consider that the current reserves were reasonable.

Under "Any Other Business", there was a discussion of asbestosis. R J Kiln reported that claims being made on notices as far back as 1947 where underwriters had been involved in direct insurances or reinsurances of companies covering liabilities of companies subject to asbestosis claims. WNM Lawrence reported that a data bank was being produced which would contain details in respect of 10-12 major assureds with all years of cover. Loss adjusters would then be able to make some estimate of underwriters' lines on such risks. Projections of claims for 3 or 5 years hence would be made and predictions of loss expenses for 2 or 3 years hence (in both cases in respect of direct business only). From the data bank it would be possible to give a rough estimate as to the exposure in respect of reinsurance business.

"R J Kiln pointed out that he did not wish to see mention of these specific claims in the Audit Instructions."

W N M Lawrence said that a Lloyd's market meeting would be held soon to appraise everyone (including auditors) of the situation in respect of the data base. It was agreed that a further meeting of the Panel would take place early next year to consider asbestosis and any other unconcluded business.

11/11/81

Attorney G to Underwriters at Lloyds Re: Assured: Assured 5.
Recommends substantial reserve changes reflecting a huge increase in the number of claims brought against the assured since their last report (January 1980). Since then 3,753 new claims have been brought against this assured by individual claimants throughout the US. As of 1 November 1981 the attorneys had received notices of a total of 4,656 claims. That is not all. As at 30 June 1981 the assured has stated that a total of 6,210 suits involving 7,877 claimants have been filed against them. Moreover, since 30 June 1981 there have been an average of 300 new claims per month meaning a current total of approximately 9,000 claims filed against Assured 5.

Reports cases of Porter v American Optical and INA v Forty-Eight Insulations which support the exposure theory of coverage. Notes that more recently, the Federal District Court in Eagle-Picher v Liberty Mutual ruled in favour of manifestation. More recently still the Circuit Court of Appeals Washington DC has held in the Keene case that coverage attaches on all years of inhalation exposure as well as during the years when the fibres were present in the human body without inhalation (exposure in residence) as well as to the year of manifestation of the disease. All four decisions are being appealed. So coverage remains a "perplexing issue".

"... It is thus possible that the manifestation rule of coverage may yet prevail which we believe would relieve the London excess insurers here from any liability. On the other hand, if the exposure theory as opposed to the manifestation theory ultimately prevails in the American Court System then we believe that Underwriters here in the 1964-1967 years will be required to make substantial payments on behalf of this assured".

"... We should advise Underwriters that there are numerous well-informed people who profess to believe that claims filed to date represent only the beginning of a potential flood of asbestos litigation ... Although the assured's involvement with products containing asbestos does not appear to be as substantial as other defendants in these matters, it may be that in the future the assured regularly will be included among the growing group of frequently named defendants in these cases ..."

As usual excess insurers are warned that the reserves relate only to those claims known by the assured thus far. Underwriters should carefully consider all the factors when establishing their reserves for asbestos losses.

23/11/81

Business Insurance: Asbestos makers increase claims against government.
There are more claims being made against the US government by asbestos manufacturers seeking a contribution to the massive settlements in respect of asbestos related diseases.

23/11/81

Attorney H to the Underwriters at interest Re Assured: Assured 13.
To establish a prima facie case an asbestos plaintiff merely needs to produce evidence that:
1. the defendants manufactured, marketed or distributed asbestos insulation products;
2. the products were defective and unreasonably dangerous;
3. the plaintiff was exposed to any of the defendants' products;
4. the plaintiff's exposure was sufficient to be a producing cause of certain asbestos related lung diseases;
5. the plaintiff has or had an asbestos related lung disease;
6. the plaintiff suffered damages.

The industry generally recognises that when these criteria are established a case should be settled rather than risk the uncertainty of jury trials (juries impose far greater damages). Settlement is therefore the "conduct of choice".

Cases:
Porter and INA cases in favour of exposure, Keene, in favour of "triple trigger". And one district court in favour of manifestation (Eagle-Picher v Liberty Mutual). The principal thrust on Keene is that if any of the three triggers (exposure, manifestation or exposure in residence) occurs during a policy period then coverage is triggered in full for defence and indemnity.

A trial Judge in the US District Court in Pennsylvania in the case of Commercial Union v Pittsburgh Corning noted "the indisputable scientific fact that cumulative physical damage resulting from asbestos inhalation occurs prior to manifestation. As a matter of law, such exposure is a covered occurrence during the policy which results in injury. At a minimum the policy language is ambiguous and must be construed against the insurer".

The attorneys recommend that underwriters establish a $125,000 per year reserve for claims servicing in addition to the indemnity and defence expense reserves.

23/11/81

Attorney H to Underwriters at interest Re: Assured 7.
"As of the end of September 1981, Assured 7 reported to us that it had 11,315 open cases, and that new cases were being filed at the rate of approximately 100 per week ... It is our observation that in cases where the Plaintiff is able to make out a prima facie cause of action, juries do find liability...."

Reserves: Not accompanying this report, but being transmitted directly to underwriters are the reports of the "Asbestos Claims Information System"... We are pleased to report that these reports are the end result at this point of intensive efforts on the part of outside computer consultants, Alexander Grant and Co. Inc., and members of the Asbestos Claims Sub-committee, C J Ayliffe and K Rayment and J Heath, to achieve computerisation of all asbestos claims.

Two Circuits have adopted the "Exposure" concept and one Circuit has adopted an extension of that concept in Keene v INA. One District Court has held to the manifestation concept.

Recommend that Underwriters establish reserves for claims servicing at $125,000 per year, in addition to indemnity and expense reserves.

23/11/81

Attorney G to the Interested Insurers Re: The Assured 10.
"We are recommending in this report substantial loss reserves based upon an exposure theory of coverage. We do not believe the excess Insurers here should sustain a loss if the manifestation theory... is deemed to be applicable."

New claims are being filed at rate of approx. 500 per month and no decrease in number of new claims in reasonable future is foreseen.

This risk represents substantial exposure to the London Excess Insurers in the 1967-1972 period. The attorneys recommend substantial loss reserves based on an exposure theory of coverage.

Assured believes that if the US Government were judicially compelled to share in the asbestos related bodily injury loss payments then national legislation might be forthcoming to help avert the potential financial collapse presently being faced by many asbestos manufacturers and producers.

A figure of 9,955 individual claimants given as at 5 June 1981 may not be accurate because there may have been some duplication of claims. 1,945 additional claimants have brought suits as of 31 October 1981. The loss payment of the assured as of 16 September 1981 in respect of 897 individual claimant files closed since 1975 was $6,285,547 (or $7,007 per claimant).

The asbestos cases manifestly represent grave potential exposure to asbestos manufacturers and producers and the situation must be viewed as one of certain liability.

There are problems in establishing reserves:
1. the basis of liability coverage remains uncertain;
2. it is impossible to predict with certainty the number of product liability claims;
3. it is not yet known whether the underlying coverage was written on an aggregate or per occurrence basis.

Suggested reserves only refer to claims known to have been made against the assured to date and do not consider future bodily injury claims. Excess insurers are urged to consider these factors in establishing reserves to accommodate future claims.

23/11/81

Attorney H to the Underwriters at interest Re Assured: Assured 1.
"We wish to advise that we have now received a 6th claim from Assured 1 seeking reimbursement from underwriters subscribing the policies for the years "7-1-52 to 6-30-60"."

The report discusses the case of Borel v Fibreboard and how a plaintiff can satisfy the burden of proof in an asbestos claim. Recommends that claims servicing reserves are increased to $125,000 per year, in addition to loss reserves.

01/12/81

Letter from AWP to all Interested Underwriters containing a report by Elborne Mitchell summarising activities of the AWP since it was set up.
The report summarised some of the functions of AWP including to assist in the establishment and development of a database to provide claims information for reserve purposes. In this regard it noted that a database had been established with the assistance of Alexander Grant, computer consultant, and Toplis & Harding, Chicago. Further, that reports providing year end reserve information based upon the database output will be circulated to Interested Underwriters and that in the near future a room will be available at LUNCO for inspection of the numerous documents and computer printouts.

The report also noted that Assured 1 exhausted their primary cover with Travelers earlier in the year, but that a difficulty has arisen on the policies with the description of the underlying insurance on a number of years and that underwriters position has been reserved in this respect. That the broker has been unable to produce all the policies and slips for Assured 4, but that Assured 4 have sufficient proof to establish coverage in the London Market on all years from 1949 to 1960. Assured 7 has recently been reported as exhausting its primary domestic insurance cover with the result that claims will shortly be presented to Interested Underwriters in London.

As to the division between Underwriters and so-called manifestation versus exposure theories, the report stated that "it is not certain that the exposure and manifestation declaratory judgment actions are proceeding theories are either mutually exclusive or that they include all available alternative methods of allocation". Numerous in the US in which the manifestation/exposure issue is before the courts.

Four major cases have been decided:
(a) Eagle-Picher v Liberty Mutual (Court of First Instance) - decided in favour of manifestation.
(b) Porter v American Optical (Court of Appeal) - decided in favour of exposure.
(c) Forty-Eight Insulations v I.N.A. (Court of Appeal) - decided in favour of exposure.
(d) Keene v I.N.A. (Court of Appeal) - decided in favour of a combined manifestation and exposure.

The report said that "appeals are pending in each of these four cases and while Underwriters generally are looking to the Supreme Court of the United States for guidance it is not yet determined whether the Supreme Court will hear any one of more cases; nor is it clear to what extent a determination by the Supreme Court would assist in clarifying a different case on different facts".

Finally the report noted that the "database currently shows 14,526 individual claimants but on the basis of various projections which the Working Party is not in a position to verify, the total claimants will, in the end significantly exceed this number".

04/12/81

Letter from Lloyd's Underwriters Non-marine Association.
Enclosing another position paper to be read in conjunction with the September position paper on US reinsurance contracts covering casualty business. "Obviously claims from the asbestos-related diseases are catastrophic and disastrous so far as whole the Insurance Industry is concerned but this fact alone does not automatically qualify them to be treated as "a catastrophe" or "a loss" within the definition or intent of the excess contracts."

07/12/81

Business Insurance: Tobacco firms share asbestos liability.
This charts attempts by insurers and asbestos manufacturers to make the tobacco industry partly responsible for damages paid to victims of asbestos-related diseases.

12/12/81

Lloyd's List: Asbestosis may cost insurers more than $1 billion.
Insurers in London and the United States fear that compensation claims arising from the industrial disease asbestosis could well top $1 billion, making it the largest ever insurance loss. There is growing pressure on the insurers who include Lloyd's and the major companies to work together to handle the massive stream of claims from asbestos-companies in the US who are having to compensate workers suffering from inhaling the mineral. Beside the actual claims insurers are facing enormous costs by acting individually. A Lloyd's estimate is half as much again, but the major US Company Travelers calculates 77 cents in costs for every $ 1.00 in a claim.

14/12/81

Business Insurance: Supreme Court refuses asbestos policy cases.
"The Supreme Court's refusal last week to hear two appellate Court decisions on insurer liability for asbestos claims indicate that it will also refuse to hear the appellate Court decision in the far reaching Keene Corporation v INA case attorneys say."

14/12/81

Business Insurance: Settling asbestos claims.
Editorial: It now appears that the Supreme Court will not rule on coverage. Different coverage interpretations invites more costly litigation. BI encourages underwriters to heed the suggestion of R A G Jackson of Lloyd's that they adopt a clear policy on latent injury losses.

28/12/81

Business Insurance: Defending asbestos suit pays off for UNARCO.
A US District Court in November 1981 absolved two asbestos manufacturers of liability in an asbestos-related claim, apparently vindicating UNARCO's decision to defend cases as vigorously as they can.

31/12/81

Syndicates 604/605 (1981 Report)
"As in previous years, provision for liability for various latent diseases especially Asbestosis, remains a major factor in the amount of premium required to assume the outstanding liability on prior years. In addition there is the Whole Account Excess of Loss reinsurance taken out last year giving additional protection to 1977 and previous years."

00/01/82

Paul W. McAvoy: The Economic Consequences of Asbestos-Related Disease.
By 2015 there will be between 154,000 and 450,000 excess deaths from asbestos. Future compensation would be between $8 billion and $87 billion, with most likely estimate being $38 billion. The large payments that will result from asbestos product liability suits are likely to go beyond the financial capacity of the insurance industry to meet them as well as their other financial obligations.

11/01/82

Minutes of AWP Meeting taken by Elborne Mitchell.
C J Ayliffe stated that "there might be some 150 insureds involved in asbestos-related claims but his view was that there were only 19 principal accounts placed in the London Market..."

15/01/82

Minutes of a Panel Auditors Meeting - Notes taken by Audit Department:
"The main purpose of the meeting was to inform Auditors of the latest position with regard to the large number of outstanding claims due to various latent diseases." E E Nelson then mentioned Agent Orange, Love Canal, DES and Asbestosis. "Mr Nelson briefly mentioned the first three but said that at present they were not significant compared with the problem of asbestosis .... A department had been set up within LUNCO premises ... all the details of the slips and losses etc. had been fed into a computer and auditors were advised that they should seek their clients' permission to access the information on this computer. The computer programme would give a fully computerised claims pay out breakdown.

E E Nelson than went on to explain that due to varying interpretations of where the liability should fall by way of the Courts, there was still great doubt as to which years of account were liable to pay the claims. There were two bases of liability: 1. Manifestation ... 2. The liability could be spread over all years on which the insurers were on the risk. In certain Court decisions in the US it has been decided that whichever route produced a greater settlement for the plaintiffs could be used, and this, E E Nelson said, was grossly unfair to reinsurers and was still being contested."

25/01/82

Note of a Panel Auditors Meeting which took place on 15 January 1982.
Memo to Lloyd's audit partners and staff from P B Milne of Littlejohn Fraser.
Re: Lloyd's Audit of 31 December 1981
E E Nelson advised on asbestosis:

There is to be no specific audit instructions other than a reference to the incidents of late claims arising from product and disease insurance. There have been some 15,000 claims notified (increasing at the rate of 400 per month). By mid to end 1980s it is expected there will be some 25,000 claims in total. E E Nelson thought that the estimate by the Prudential of 2 million claims was well wide of the mark. The Committee of Lloyd's has set up a database whereby the full details of all known syndicates liable are stated. At present loss reserves have been based on an average cost per claim of $125,000 plus expenses of £10,000 per claimant. Currently this means a total claim of $2.025 billion. On an exposure basis 40% is with the London companies and Lloyd's, on a manifestation basis it is 10%. E E Nelson also reminded the Panel Auditors of three other product claims requiring consideration; Agent Orange; Love Canal; and DES.

Court actions to date have taken the form of 15 declaratory actions to determine whether insurers are liable to assureds. Courts have ruled in three actions;

1. INA v Forty-Eight Insulations (exposure);
2. Eagle-Picher (manifestation);
3. Keene (both exposure and manifestation to ensure that maximum benefit accrues to the claimant).

"Clearly, the foregoing decisions are a bit of a nonsense and the London Market is currently in the process of appealing to the US Supreme Court to obtain a sensible ruling".

16/02/82

AWP Letter to Market (Mr Tayler)
"The arrangements are complete for the establishment of an office at LUNCO where documents and computer print outs can be inspected by underwriters. Your auditors may also want to see the information, however, in view of the need for confidentiality it will be necessary for them to be accompanied by your own representative".

"In view of the uncertainties of the future, it is difficult at this stage to provide the Market with any meaningful projection of the developments that are likely to take place over the coming years in regard to this problem. However, the number of claims is likely to escalate and for this reason, I must emphasise that future deterioration is inevitable."

24/02/82

The Neville Russell letter.

01/03/82

Minutes of an AWP Meeting.
"The Chairman stated he was concerned over the reaction from Underwriters regarding the opening of the Claims Office at LUNCO and thought it was fair comment to say there was some disappointment. In particular, many had envisaged the Office would be capable of informing them of individual syndicate participation in respect of the numerous Assureds. Mr Ayliffe stressed that the information would improve."

Panel Auditors. "The Chairman raised the question of the letters which had recently been circulated to Underwriters by the Panel Auditors. He believed the Auditors appreciated that it was not possible for Underwriters to be precise in their reply although he was disturbed at the ignorance displayed by certain syndicates on the question of Asbestosis generally."

02/03/82

Meeting of Lloyd's Audit Committee.
Mr Chester raised the question of the reinsurance of underwriters asbestosis liability in the Lloyd's market (i.e. effectively amounting to reinsurance of the asbestosis "tail") and expressed concern that such liabilities could fall on comparatively few syndicates. Mr Merrett considered that it would be inappropriate for such reinsurances to go unnoted and unreserved by Panel Auditors and that it would be improper for a syndicate taking such reinsurances without telling its own Names.

09/03/82

Meeting of the Lloyd's Panel of Auditors.
E E Nelson said that there were at present 400 new claims per month being advised. If this were projected over ten years it would lead to 50,000 claims. E E Nelson said that in his view a figure of 50,000 new claims over the next ten years was realistic but that the report of 2 million new claims could well be an exaggeration.

Mr Chester raised an ancillary matter which was the writing by certain Lloyd's syndicates of the reinsurance of other syndicates asbestos liability. He said that this could lead to the funnelling of a large amount of liability into a small number of names. He continued by saying that consideration was being given to asking the market to stop writing such reinsurances in the open years.

11/03/82

E&W internal letter from MA Bolger to Partners and Managers involved in Syndicate Audits.
In the white letter accompanying this year's Lloyd's audit instructions the attention of auditors is drawn to risks which include liability for latent diseases and products liability when assessing the adequacy of reserves. The fact that there are major losses under these categories has been known in the Lloyd's Market for some time and syndicates have created reserves in respect thereof. The subject was raised at a meeting of advisory panel of auditors in November 1981 at which it was decided to hold a special meeting to provide further information for auditors. The special meeting was held in January under the chairmanship of RJ Kiln and auditors were addressed by E E Nelson, the immediate past chairman of a Lloyd's Committee set up to investigate asbestosis losses. The meeting was told that asbestosis was one of a group of diseases which are referred to as latent diseases. These comprise Agent Orange, Love Canal, DES and asbestosis. These losses are principally in US $ and can mainly be classed as products liability claims. The Lloyd's Market is meeting claims in non-marine syndicates, in marine-syndicates writing non-marine business and also in aviation syndicates. The losses can arise from direct writings, from the reinsurance of particular US companies, from other reinsurance contracts and in some cases by the acceptance of running-off accounts ... It is understood that there are 40 insureds of which 19 are direct in the London Market. In respect of 15 of these, all the slips placed in the London Market have been found. The total number of cases in litigation is in the region of 15,000 and this number is growing by approximately 400 per month. The product was readily available between 1945 and 1975. The pattern in Lloyd's is that up to 1962 syndicates have insured American carriers direct, and thereafter they have covered American companies by reinsurance in the London Market. The current state of litigation suggests some uncertainty as to who is liable, Courts in the USA having settled cases on both an "exposure" and a "manifestation" basis. There is apparently the possibility of an appeal being made to the Supreme Court but this has, so far, been turned down. The size of the asbestosis problem became apparent some 2 years ago when it was agreed that normal assessments of settlements were not suitable. A committee was set up and in April 1981 a data base was established on computer ... Estimates have been made on the basis of an average cost per claim together with an estimate of expenses. The average was said to be $125,000 plus $10, 000 for expenses ... an office has now been established within LUNCO and the records can be examined by auditors provided they are accompanied by an underwriter ... In compiling reserves for asbestosis reports have been made available to underwriters by brokers in the usual way setting out policies which have covered the various asbestos insureds ... this information has enabled underwriters to calculate their maximum exposure on direct writings. The data base which is also limited to direct writings is available as a back-up to records compiled by individual underwriters. Syndicates will have to assess liability on facultative and treaty reinsurance and on any run-off business accepted, and then see what reinsurance protection they have available. In the office, a questionnaire has been prepared which has been sent to clients, there having been some liaison between firms following the Panel Auditors meeting. As a result of problems that have arisen in quantifying reserves for asbestosis, further meetings between Panel Auditors and the Audit Committee at Lloyd's have taken place.

18/03/82

The Murray Lawrence letter.

19/03/82

Ernst & Whinney internal memo from NF Holland to Insurance Partners and Managers Underwriting Department.
"Herewith the latest epistle on asbestosis. I cannot believe that at some stage we are not going to find a syndicate where there is a major problem. If any partner is unhappy about a particular situation I suggest he lets me know and we will try and organise a PSP type meeting so that a view can be formed and the partner can then talk to his clients knowing he has the full backing of his colleagues".

PA

22/03/82

Minutes of an AWP Meeting taken by Elborne Mitchell.
"The Chairman reported that up-to-date computer printout information was expected at the claims office shortly and that this indicated a 22% increase in asbestos related claims for the current quarter. It was agreed that this information should be released to the Market promptly. No Insureds, in addition to those already known, are shown in this latest information".

AWP

16/04/82

Ernst & Whinney internal memo from NF Holland to Insurance Partners.
Asbestosis. Comments that in view of the well publicised problems in estimating outstanding liabilities in respect of asbestosis claims, and the subjective judgments involved therein, it is imperative that audit files are accurately documented this year. In particular, auditors must insist on syndicates supplying specific information in relation to asbestosis and other latent diseases in view of the letter issued by Lloyd's on 18 March 1982. Insofar as this letter goes beyond the information requested by auditors in their letter this additional information should also be recorded on the auditors file.

27/04/82

The Washington Post: The asbestos mess.
"The likelihood of bankruptcies among manufacturers and insurers, the lack of remedy for the victims and the unmanageable legal mess that is burdening court schedules make it imperative for Congress to stop its endless studying of the problem - this has been going on for years - and take action."

28/04/82

Letter from Chairman, AWP and Chairman, Non-Marine Reinsurance Sub-Committee to Market.
"The Non-Marine Reinsurance Sub-Committee has recommended that the Asbestosis Working Party make arrangements to add treaty reinsurance asbestosis related claims to the existing computer programme. As the Working Party has no authority to handle treaty reinsurance matters, this will be a record keeping exercise only".

00/05/82

Syndicates 418/422/417 (1981 Report):
"During the year there have been significant developments in the United States which have led us to increase the very substantial provision already made for claims as a result of asbestosis and after latent diseases. There has been a substantial increase in the losses advised, both in terms of total numbers and in the anticipated average settlement of such cases as may be proved: the legal charges are very considerable. With more information available, reinsurance claims are also higher. Perhaps of greater significance has been the thrust of judgments in the United States Courts. It has become necessary to review our exposure not merely on the basis of exposure (those years when the plaintiff was exposed to the noxious substance) or manifestation (that year when the disease was detected), but an aggregation of both plus all the years in between. It is too early to estimate (in public) what the consequences of the development of this approach of the Courts might be. Unfortunately such reinsurance as the syndicate carried in some of the years has already been exhausted by earlier recoveries. Our annual review of other continuing liability on old years has shown some need for increase, not unexpected where awards will see some inflationary effect."

00/05/82

Syndicate 553 (1981 Report):
You will be reassured to learn that I have no reason to believe that the syndicate is heavily involved with asbestosis claims."

00/05/82

Syndicate 219 (1981 Report):
"Last year I referred at some length to the "Asbestosis" problem which, as anticipated, has worsened during the year and will continue to do so for quite a while to come. The situation is further confused by the total failure of American Courts to decide which insurers should pay what and, with the Supreme Court declining to intervene, it is difficult to see a speedy solution being found."

00/05/82

Syndicate 367 (1981 Report):
"Another factor which affected the 1979 Account adversely was Asbestosis, about which a lot has been written in the National Press. This has produced potential claims going back about 30 years. Though in themselves, our losses are relatively small they do accumulate into quite a substantial figure. It is very difficult to predict the outcome of these, but we have carried forward a considerably higher figure then the claims advised to take care of Asbestosis and other latent disease claims."

00/05/82

Syndicate 918 (1981 Report):
"The 1979 account of Syndicate 918 has been left open because of the uncertainties surrounding the ultimate liabilities with regard to "Asbestosis" claims, for which a specific provision amounting to £747,813 has been made in addition to our reinsurance to close ..."

00/05/82

Syndicates 112/114/316 (1981 Report):
"You should know the position we have taken with regards to claims on Asbestosis. We have put into reserve a sum in excess of $300,000, [sic] which is the amount of expected claims that we anticipate may be settled. There are figures given to us which are in excess of this amount but I am unable to give credence to such figures ..."

00/05/82

Syndicate 34/652 (1981 Report):
"In view of the potentially serious situation which is developing in connection with claims being made in the USA by sufferers of asbestosis, it is the wish of the Committee of Lloyd's that any involvement in these policies should be made known to the Names concerned. We did write a number of such policies between 1959 and 1969 in our Incidental Non-Marine Syndicate. At this stage, the extent of the losses is far from clear; however we are confident that, in the light of the knowledge we have at present, the reserves that we have set aside are more than adequate for the worst eventuality."

00/05/82

Syndicates 310/236 (1981 Report):
"We have been advised of, and have settled, one asbestosis loss this year ... The figures involved are small but I think it wise to establish a fund for this type of claim and, accordingly, I have increased our reserves to cover this unknown and un-noted contingency."

00/05/82

Syndicate 342 (1981 Report):
"The Committee of Lloyd's has strongly advised us to inform Names of any involvement in Asbestosis claims and the manner in which the Syndicate's current and potential liabilities have been covered. I have no reserves or claims as such, but I do have one policy where an involvement is remotely possible. I have made provision in my reinsurance to close for that policy to be a loss."

00/05/82

Syndicates 584/667 (1981 Report):
"The most remarkable and dangerous event of the year [1979 and previous] was the flood of claims for asbestosis ... Many of these claims relate to insurances which expired 20 or 30 years ago and the complications are considerable, so far this Syndicate has not been deeply affected, but I have thought it right to provide for possible future exposures. For the first time the total Syndicate carry forward exceeded £10 million."

00/05/82

Syndicate 183 (1981 Report):
" Turning to the Accounts, it is worth noting the dominant effect our reinsurance to close has on the result for the year. With the problems of asbestosis, and the like, very much in all our minds, we clearly cannot afford to underestimate the value of claims still to be reported. On an account such as ours we have only seen the tip of the iceberg to date and we have done our best to make a realistic assessment."

00/05/82

Syndicate 810/840/930 and 618/408/346 (1981 Report):
"The 1979 account of syndicates 618, 408 and 346 has been left open owing to the uncertainties surrounding the ultimate liabilities with regard to "Asbestosis" claims, for which a specific provision amounting to £1,882,964 has been made in addition to our reinsurance to close. These funds and the investment income earned thereon will be available to meet losses when they arise."

00/05/82

Syndicate 918/940 (1981 Report):
"The 1979 account of syndicate 918 has been left open because of the uncertainties surrounding the ultimate liabilities with regard to "Asbestosis" claims, for which a specific provision amounting to £747,813 has been made in addition to our reinsurance to close. These funds and the investment income earned thereon will be available to meet losses when they arise."

00/05/82

Syndicate 471 (1981 Report):
"Claims arising from Asbestosis are being incurred on the Liability Account, but at present, are not of great frequency or size to the Syndicate and special reinsurance arrangements have been made to limit any future changes in this situation to amounts which should be easily contained within the normal operation of the Account."

00/05/82

Syndicate 947 (1981 Report):
"As predicted in my Report last year, 1979 has closed with a loss. The fall in the value of the pound against the US Dollar during the year, which increased the loss on U.S. Dollar business in terms of Sterling, cost no more than expected. However, the purchase of reinsurance has relieved the necessity of making substantial reserves to cover losses arising from past underwriting years, in particular those associated with latent disease claims. All years prior to 1976 have been reinsured in full, with Lloyd's Syndicates providing unlimited reinsurance in excess of a policy placed with an insurance company. I am hopeful that the problems of the casualty account are now behind us".

13/05/82

The Financial Times: Perils of US Asbestos litigation.
"Asbestos claims are the latest and fastest-moving product of the US litigation industry. They run into tens of thousands, necessitate the appointment of additional judges to deal with them, and present a potential threat to [the solvency?] of manufacturing and insurance companies alike. The legal issues generated by these claims are largely unresolved - or, to be more exact, have been resolved differently by different appellate courts ... The refusal of the Supreme Court to review the [Keene] case leaves the lower courts free to go their own way, and manufacturers and insurance companies uncertain about their liabilities and claims ...That decision represents a financial threat to industry and insurers of such a magnitude that it could be handled only within the assistance of public funds. Commercial Union estimates that, as a result, liability over the next 20 years connected with deaths caused by previous exposure of former asbestos workers could amount to some $38 billion. To this would have to be added claims for injuries that do not result in death, and claims by others, for example those using asbestos products. The combined assets of the asbestos industry and of their insurers would, it is evident, not be enough to meet such claims .... The Court [in Keene] went so far as to say that insurers were liable to Keene even during the period its insurance may have lapsed."

27/05/82

Order made by the US Environmental Protection Agency ("EPA") in May 1982.
Required that all schools and similar public buildings constructed prior to January 1979 be tested within 12 months to determine the presence of friable (i.e. flaking) asbestos. There may have been isolated instances of property damage claims before this order, but this was the origin of the bulk of the subsequent property damage claims.

00/06/82

Syndicate 707 (1981 Report):
"Members of this Syndicate will probably wish to know of their involvement in Asbestosis. The claim situation concerns persons working in the asbestos industry and the alleged death and disability resulting from their exposure to asbestos dust. The policies on which we are concerned go back many years, in some cases thirty years ... we have ... allocated reserves for this situation and these retentions have been increased this year. This loss is being closely monitored and I am convinced sufficiently protected ..."

00/06/82

Syndicate 90 (1981 Report).
"...The small loss on underwriting was mainly due to additional provision for possible claims relating to asbestosis and other types of latent disease on old year policies and reinsurance contracts ..."

"Our last two reports have mentioned asbestosis and we feel that our Names would like a summary of the position..." [a summary of the syndicate's position follows].

00/06/82

Selikoff Report - Disability Compensation for Asbestos-Associated Disease in the United States.
Dr. Selikoff issues a further report for the US Department of Labor. The report, running to 650 pages, describes in detail the effects of exposure to asbestos and projections of death and partial incapacity which were to be expected as a result of exposure to asbestos.

From 1940 through 1979, 27,500,000 individuals had potential asbestos exposure at work. Of these, 18,800,000 had exposure in excess of that equivalent to two months employment in primary manufacturing or as an insulator. 21,000,000 of the 27,500,000 and 14,100,000 of the 18,800,000 are estimated to have been alive on January 1, 1980.

Approximately 8,200 asbestos-related cancer deaths are currently occurring annually . This will rise to about 9,700 annually by the year 2000. Thereafter, the mortality rate from past exposure will decrease, but still remain substantial for another three decades.

One of a number of reports produced by Dr. Selikoff.

14/06/82

The Wall Street Journal: Suits Over Asbestos Touch Off War Among Insurance Firms Over Who Will Pay Billions.
Some 16,000 damage suits already filed against asbestos companies, with new cases arising at a rate of more than 450 a month. A few experts contend that some insurers could collapse under the weight of asbestos claims. The flood of legal cases is likely to grow. Selikoff has estimated that 8,500 workers will die each year until the end of the century from asbestos-related cancer. The fight among insurance companies is likely to get worse. The US Supreme Court has refused to decide between conflicting theories of liability. This leaves standing a series of often contradictory State and Federal Court decisions. Paul W McAvoy, a Yale University Economist, predicts that payments to asbestos disease victims are likely to exceed $38 billion and could go as high as $90 billion over the next 35 years. He argues that some insurers may face financial ruin. Others think that such talk is "nonsense". However critics of Mr McAvoy have failed to come up with their own figures. Insurers are wrapping their asbestos liabilities in an "veil of secrecy". It is unclear how many claims are going out of the back door to reinsurers. Only 30% of asbestos claims are filed under Workers' Compensation schemes since their awards do not match the hefty awards made by some juries.

14/06/82

The Wall Street Journal.
"U.S. schools are facing the costly task of locating (and), fixing asbestos hazards. The EPA estimates that up to 14,000 public and private schools may have potential asbestos hazards ... Estimates of the cost of either covering up or removing potential asbestos hazards in the nation's schools run as high as $400 million to $900 million ..."

27/06/82

Financial Times: Assured 1 overwhelmed by law suits.
"Assured 1 yesterday petitioned for protection under Chapter 11 of the Federal Bankruptcy Code. It is the first time in memory that a constituent of the Dow Jones Industrial Average has taken this step ....The Company is now forecasting at least 32,000 more law suits. Mr McKinney said the total costs could exceed $52 billion."

16/07/82

Letter HR Rokeby-Johnson to Winchester Bowring for Sturge.
The claims arising from the ingestion of asbestos fibres by all those involved in handling this material seem likely to be the biggest claim ever to confront the Insurance Industry not only in the United States but also throughout the world. Various attempts have been made to quantify the potential final sum of all payments and some very large figures have emerged. Over 7,000 people actually die each year in the United States from asbestosis and it is expected that this figure will soon increase to 9,000 or 10,000 these deaths and disablements will continue to be reported for the next decade or more and if it is reasonable to suggest that the average settlement of each claim is of the order of $100,000 including costs and expenses and that the number of serious claimants may reach 100,000 or more the final claim would be $10 billion at least. On these figures it is not impossible to forecast the Sturge gross involvement at $40,000,000 - $50,000,000.

26/07/82

The Financial Times: Underwriters prepare for huge asbestosis claims.
Insurers are facing the largest series of claims in their history as victims of asbestosis file suits. Estimates are that claims could amount to $150 billion (£85 billion) by the end of the century. Insurers, including Lloyd's, are already involved in more than 15,000 legal actions. Special reserves are being created by underwriters.

"The exposure of Lloyd's on the asbestosis problem is by no means as great, although underwriters there might be liable for anything up to a quarter of whatever is claimed". Although claims will exceed by a great margin those paid out on computer leasing liability the asbestosis claims will be mitigated by being spread over many years. Lloyd's identified its difficulties over asbestosis three years ago. It faces a double problem: it insured industrial companies and it also reinsured other insurers who had offered liability cover. The main problem for underwriters is extensive litigation, as asbestosis victims claim compensation in the courts. One underwriter reports that the problem "gives us enormous difficulties in identification of who is responsible for indemnifying the assured". Insurers are finding it difficult to arrange retroactive reinsurance cover on their outstanding asbestos liabilities.

30/07/82

WIR: Commercial Union Assurance Co. Ltd. London, considers asbestos litigation a major threat to the property and liability industry.
It estimates liability over the next twenty years connected with deaths caused by exposure of former asbestos workers could amount to $38,000 million, and that the combined assets of the asbestos industry and their insurers would be insufficient to meet such claims. An average of $233,000 per claim settled has been estimated by a Yale University study partly financed by Commercial Union.

02/08/82

A M Walker. Projections of Asbestos-Related Disease 1980-2009. Final Report.
Epidemiology Resources Inc. The study foresees between 18,700 and 21,500 new mesothelioma cases, 55,000 new lung cancer cases and 135,900 to 178,100 new asbestosis cases of which 41,900 would become suits. Relied on Assured 1 by its bankruptcy petition. Estimates between 30,000 and 120,000 new lawsuits related to asbestos; likely figure to be 120,000.

26/08/82

Assured 1 and most of its subsidiaries file for Chapter 11 bankruptcy.

28/08/82

Financial Times: Assured 1 claims $5 billion.
Assured 1, the world's biggest asbestos company, filed for protection under the US Bankruptcy Code on Thursday. It is seeking punitive damages of $5 billion from insurance companies alleging that, by denying insurance coverage for claims over asbestos-related diseases, the insurers forced Assured 1 to file for relief under the bankruptcy law. The Defendants include various Underwriters at Lloyd's of London.

[Claim against Lloyd's settles in May 1984 - see below.]

31/08/82

Lloyd's List: Assured 1 faces $2 billion asbestosis liability.
"Assured 1 the world's largest producer of asbestos, has a potential liability of 52,000 lawsuits costing $2 billion ... last week the company sought the protection of United States Chapter 11 bankruptcy proceedings because of the possible burden of litigation costs in asbestosis cases ..."

00/09/82

Report by Conning & Co: Potential impact of asbestos on the insurance industry.
The insurance industry's ultimate liability is estimated as between $4 billion and $10 billion with the lower range appearing most probable at present. The exposure theory seems to have been accepted by the Courts. The impact on the insurance industry is not expected to be catastrophic because of the long period over which the claims will be experienced. However, individual companies may be severely affected and some have already significantly strengthened their reserves.

Additional reserve strengthening may be required. It is also possible that "numerous excess and reinsurance carriers may be greatly understating their potential liabilities." Although the Courts have tended to maximise available insurance coverage many legal questions still need to be resolved. This makes projecting with any accuracy very difficult. Current estimates of claimants vary between 25,000 and 50,000. Insurance company officials think the latter figure is closer to the truth but the figures may be misleading because of multiple counting. Reports estimate there are currently between 15,000 and 20,000 claimants involved in asbestos litigation. Assured 1 have reported that they have 16,000 claimants and they have been subject to the bulk of the litigation. This ignores expected future claims which are difficult to project due to the long latency period for asbestos related diseases. Claims against Assured 1 are currently increasing at a rate of about 400 per month. Conning & Co believe that claim incidence rates will not be as severe after 1990 but that new claims will none the less continue to be reported. They believe that between 83,000 and 178,000 asbestos claims can be expected during the next 28 years. Assuming that approximately 50% of these claims will fail this leaves between 40,000 and 90,000 successful claimants.

24/09/82

W.I.R. Asbestos: US Government refutes liability.
"Assistant US Attorney General told a House of Representatives labour standard sub-committee that the Federal Government "will refuse to accept any legal responsibility" for compensation of asbestos victims. Representatives of George Millar, from the sub-committee, said the industry could afford the cost of providing care for asbestos harmed workers ... Assured 1 has released further details of a study which was used to justify its bankruptcy filing last month. The study, by Epidemiology Resources Inc., Boston, estimated a low figure of 30,000 and a high one of 120,000 new law suits related to asbestos health. Manville's estimate of 52,000m based on the lower estimate could go as high as 55,000m based on the higher figure. ... Dr Irving Selikoff, Cancer Expert at Mount Sinai School of Medicine, New York, has said that the Assured 1 study results were too low."

30/09/82

Syndicates 604/605 (1982 Interim Report):
"The legal wrangles over the settlement of latent disease claims, especially asbestosis, continue to persist. The main argument has centred round whether policies in force when the plaintiff was exposed to certain conditions respond or these policies in force when the disease manifested itself. There is even a court decision in the USA which has the effect of making payment possible under both sets of policies."

01/10/82

Chairmanship of AWP.
HR Rokeby-Johnson succeeds D. Tayler.

09/10/82

Lloyd's List: Assured 1 used two claim assessments.

03/11/82

Lloyd's List: Company files for protection from asbestos claim deluge.
Assured 21 has filed in Philadelphia for protection under Chapter 11 of the Federal Bankruptcy Code from a deluge of asbestos-related damage suits bought before the company since the mid - 1970s.

08/12/82

Lloyd's List article by David Mann, Director Merrett Syndicates:
Asbestos Presenting a Growth Loss Potential. Asbestos claims will have a dramatic effect on the results of insurance and reinsurance markets world-wide. Settlements of claims will undoubtedly stimulate more claims related to this and other environmental or product related causes (e.g. Agent Orange, DES or Love Canal). Although many insurers, especially Lloyd's, have established reserves, the loadings for adverse deterioration may be tested. Markets will probably not have anticipated the measure of likely asbestos claims. It remains to be seen where deficiencies may exist.

"Within the Lloyd's market, where very strong opinions are usually to be found, conjecture regarding the ultimate quantum of asbestosis and other latent disease losses have stimulated a relatively new and fascinating level of reinsurance trading." The "run-off" reinsurance policies are mentioned as an example of such unusual innovation.

"The syndicates in Lloyd's which have recently chosen to assume the worst potential of the latent disease phenomenon demonstrate that London is still the source of the most interesting and speculative initiatives - Very few reinsurance markets have found themselves able to apply rating judgment to these most volatile risks except on the basis of a limited liability. The consensus of opinion, even in London, appears to judge the unlimited aspects of such risk assumption as involving totally unacceptable long-term characteristics in view of the premiums available."

22/12/82

Letter from Attorney H to C J Ayliffe Re: Property Damage Litigation against Assured 3B.
Reports class action suits pending against Assured 3B and other defendants in Pennsylvania arising out of the presence of asbestos materials in schools and other public buildings. Status of these claims at the present time is uncertain. But separate reserve provisions should be established once additional details of potential exposure become known. In the meantime, confirmed recommendation of an expense reserve of $125,000 per year for each policy year.

31/12/82

Syndicates 604/605 (1982 Report):
"The closed year Account continues to be dominated by the Industry's problem with Asbestosis. There is very little of consequence to say since our interim report except perhaps to mention that the legal expenses are mounting at an ever increasing rate. The position continues to be monitored very carefully."

00/01/83

Munich Re: Asbestosis, liability loss of the century ...
"Extrapolating the current figures up to year 2010, when the dormant period for the presently employed expires, we obtain a total loss amount of at least $4 billion. That does not mean, however, that losses of this amount are also covered by liability insurance ... Is asbestosis really the liability loss of the century? For all insurers and reinsurers operating in the USA it certainly is the liability loss of the 80s, a very costly experience ..."

11/01/83

Press release agreed at meeting of Asbestos Claims Council.
To co-ordinate processing the mounting number of asbestos related claims and then speed their disposition, 11 major asbestos insurers and Lloyd's of London have formed the Asbestos Claims Council. "The insurance industry faces overwhelming litigation" said Ray Stahl, chairman of the Council, "with 20,000 claims pending and tens of thousands more expected over 30 years. The flood of asbestos litigation is adversely affecting not only asbestos claimants but others seeking civil resolutions ... The ultimate cost in insurance payments will be in billions of dollars ... and, if past experience is repeated, half the insurance payments will be spent on legal fees and related defence costs.

The Council, comprising senior claims executives of the insurers, formalises the objectives they have been pursuing informally: (1) Identification of the objectives as "We are prepared to move rapidly to help solve the complex asbestos claims problems, starting with co-ordinating claim processing decisions and actions among the insurers". (2) Paragraphs on the people (a long list) with whom the Council will work. Members of the Council and the insurers they represent are, inter alia, James Ayliffe, Lloyd's of London. Raymond Stahl, The Travelers Companies."

20/01/83

Attorney H to the Chairman, AWP (Rokeby-Johnson) Re: AWP's Activities During the Past 12 months in Asbestos-related Problems.
Notes the continuing increase in suits arising from asbestos related claims and the greater involvement of the London market. On coverage, the US Courts have emphatically demonstrated the desire to maximise coverage. Notes the decision of the US Court of Appeals District of Columbia in October 1981 to expand the scope of the judgment of the lower court in Keene v INA.

"... it has become the demonstrated goal for insureds in order to secure maximum possible benefits from their coverage."

Suits continue to be reported at approximately 500 per month but there are some indications that the severity of injury/disease is less serious. Too early to draw any firm conclusions. The filing of chapter 11 proceedings by Assured 22, Assured 1 and Assured 21, clearly created many problems for plaintiff and defendant alike. All suits being recorded in the data bank (which is now being extended to cover reinsurance). The AWP has established an information office and participants can inspect the print-outs produced by appointment. There is also the fortnightly publication "Asbestos Litigation Report".

During the past twelve months there have been few developments in the actions in which London are involved: no consistency in decisions to date.

Consideration being given to coordinated defence by defendants in U.S. (e.g. single counsel) given that there are 20,000 claims in litigation.

"Per case indemnity and defense cost reserves used on each insured account are adjusted annually to reflect the potential cost of known claims based on the experience of the previous twelve months."

Attorney H note that underwriters should be aware as a result of an order issued by EPA in May 1982, it is likely that considerable activity will develop in regard to property damage. The EPA has mandated that all public buildings constructed prior to January 1979 must be tested for friable asbestos. This raises substantial questions as to coverage and the date of attachment.

24/02/83

Minutes of a Panel Auditors' Meeting.
In June 1982 US Labour Department statistics estimated that 21 million workers has been exposed to asbestos in the last 40 years. Estimated that 8,200 to 9,700 deaths attributed to asbestosis would occur over the next 20 years. $38 billion worth of claims expected. Alexander Grant of New York to manage a data bank for direct asbestosis claims. The input would come from claims attorneys. At present there are 25,000 or more claims on the database. Information is available at Bankside House. Assured 1 went into chapter 11 bankruptcy on 26 August 1982 with 4,000 closed cases and 17,000 other cases. They are expected to get 52,000 cases by the end of the century. Assured 7 have 10% of the US market. No agreement on coverage. It is possible that other claims may be made (eg downwind claims or claims related to asbestos in buildings). Auditors have available to them the Attorney H year end report and the AWP report.

04/04/83

Business Insurance.
Reviews the asbestos crisis

00/05/83

Syndicates 34/652 (1982 Report):
"Names will recall my reference in last year's report to reserves we are carrying in respect of Asbestosis and other latent disease claims on years prior to 1970.

Although many of these claims will undoubtedly be settled eventually, it is heartening to report that new advices have dwindled to a trickle, and that our conservative policy of reserving has virtually obviated the need for any further loading on this front."

00/05/83

Syndicate 219 (1982 Report):
"I have referred in my last two Reports to the problems brought about as a result of asbestosis claims. These are growing and will continue to grow as time goes by. The American state courts come up with a bewildering series of totally contradictory verdicts which seem to be largely dictated by what basis gives the claimants most compensation rather than any real attempt to interpret the Law. Underwriters are anxious to get money to the claimants rather than solely to the lawyers as at present, but with the Supreme Court refusing to give any sort of lead, it is difficult to see any solution. All parties concerned are attempting to join together to form an "Asbestosis Claims Council". Whether this idea will get off the ground I don't know, but possibly this body plus ultimately some Governmental involvement is the only way forward."

00/05/83

Syndicates 310/236 (1982 Report):
"I have continued to reserve on a conservative basis. With a long-tail account, estimating a proper future to cover outstanding claims is at best an inexact science, and it is box policy to reserve with a certain amount of pessimism. To this end, I have increased our fund to cover those well known and un-noted claims on the so-called "health hazards" which I believe will be a feature in our products accounts in future years, if such hazards are ever manifested as illnesses."

00/05/83

Syndicates 584/667 (1982 Report):
"1980 has been closed with a result slightly below expectations; this was due to two factors:-

... 2. There is a general fear of the eventual magnitude of asbestosis claims.

3. In consequence of (2) and of the adverse publicity on Lloyd's accounting methods, it seemed wiser to take a very conservative view of the Syndicate's outstanding liabilities."

00/05/83

Syndicate 510/511 (1982 Report):
"The 1980 Account showed an excellent investment return together with some underwriting profit. We have watched developments within the market concerning liability claims on old years of account and believe that we have taken all reasonable steps to reserve the Syndicate in such a manner as to make it unlikely that a future increase in reserves be required for the closed years."

00/05/83

Syndicate 947 (1983 Report):
"In addition, as I mentioned in my report last year the purchase of reinsurance has relieved the necessity of making substantial reserves to cover losses arising from past underwriting years, in particular those associated with latent disease claims. All years prior to 1976 have been reinsured in full, with Lloyd's syndicates providing unlimited reinsurance in excess of a policy placed with an insurance company".

28/05/83

The Review. Cape takes on asbestosis.

00/06/83

Lloyds League Table 1980 (produced by Chatset).
In relation to Non-Marine business:
"Apart from a favourable settlement of outstanding computer leasing claims, there was little encouraging about the Underwriting Result. Asbestosis and other latent disease related claims are still causing problems and many syndicates are finding it necessary to purchase reinsurance protection, which is making a hole in their profitability." (Published in 1983).

00/06/83

Syndicate 471 (1982 Report):
"The situation on Asbestosis is still unchanged and we do not expect any problems from this source."

03/06/83

Attorney H to C J Ayliffe, Merrett's syndicates. Re: Assured 23.
"We are aware of a second school district class action, which has also been filed in the US District Court for the Eastern District of Pennsylvania. Said action which names a total of 50 defendants, purports to be a class action on behalf of all entities which own or operate in whole or in part any public educational facilities, including religious and non-profit schools as well as public schools throughout the United States ... The allegations in the national complaint, which state that approximately 110,000 public and private schools are involved are similar to the allegations made in the Pennsylvania Class Action described above."

14/06/83

Attorney H to the Chairman, AWP. Re: Asbestos Claims Council.
Contains text of press release of Center for Public Resources concerning the attempts to reduce the complexity and overwhelming costs involved in providing compensation to thousands of individuals with asbestos related diseases.

Discusses steps which have been taken to develop a "method whereby asbestos bodily injury product liability claims may be conducted on an industry wide basis."

Notes that the interests of the London market have been "fully, completely and untiringly represented during these formative stages by Messrs Jim Ayliffe and Keith Rayment who have been participating in Claims Council meetings since their inception". Concludes that although some of the members of the market may be learning of the Facility for the first time from this press release none are likely to object to it. Upwards of 20,000 asbestos cases have been filed to date (Lloyd's Claims Information Service indicate 27,548 as of May 22 1983).

While projections differ, with increased surveillance and diagnostic techniques, it is reasonable to assume upwards of 50,000 cases by the end of the day. "With the average indemnity now exceeding $100,000 per case, at the current rate that will equate to a total loss of over $5 billion. Defense expenditures at a one-to-one ratio (which is not the current experience) may equal that number. More realistically they will at least double, and more probably quadruple. It is, therefore, our view that The Facility, with certain modifications currently being addressed by Working Party members, is essential to the London Market to assist The Market to see the thousands of asbestos products liability claims to their final conclusion."

21/09/83

Letter from Attorney G to Interested Insurers and Reinsurers. A summary of decisions reached at the meetings conducted in Chicago on 6-7 September 1983.
These meetings reviewed and established year end loss payments and expense reserves for the seventeen direct asbestos assureds currently tracked by the London computerised asbestos claims information system. US attorneys were requested to provide reserve recommendations (on both an exposure and a manifestation basis) to the London market not later than 21 November 1983. Potential property damage claims are to be separately identified. They will set forth a 100% net reserve figure. And all reserves will be tied to the original assureds' policy periods. All reserve recommendations are to be calculated on the basis of an annual aggregate limit except for any specifically shown to be otherwise. It was stressed that US attorneys must adopt a consistent approach to reserving of the various accounts. London market representatives also requested full year end reports so as to justify reserves previously recommended. These are to be forwarded to London not later than the end of January 1984.

30/09/83

Syndicates 604/605 (1983 Interim Report):
"The Insurance Industry's major problem with latent disease and other latent claims continues to be the major factor in the closed year account. Many of the Insurance Companies that the Syndicate reinsured are now in a position to advise us of their potential involvement on asbestosis and its related claims and this has meant an increase in our own reserves. This increase is currently contained within the Whole Account Excess of Loss Reinsurance Protection for the 1977 and previous years account, and the position continues to be monitored very carefully."

24/10/83

Attorney H to Underwriters at Interest Re: Assured 3A/Assured 3B.
"Attached hereto is a schedule of reserves coming through to the various excess layers on the captioned account. Said reserves are for personal injury/wrongful death claims arising out of exposures to asbestos-containing products manufactured by assured. Underwriters subscribing to Policies should also be mindful of the fact that we have recommended a property damage reserve of $500,000 in connection with the Bay Point bulkhead claim ... Said reserve is on a precautionary basis and is without prejudice as to date of loss. The Reserve has not been included in the enclosed schedule ... (continue) to recommend a reserve for our fees and expenses of $125,000 per year of account."

24/10/83

Attorney H to Underwriters at Interest Re: Assured 14.
Setting out the reserves coming through to certain accounts in respect of Bodily Injury. Consideration has been given to Property Damage. However, since the policies are PL/PD combined and are fully reserved for bodily injury, the question becomes moot... (continue to recommend an expense reserve of $62,500 per policy year).

22/11/83

Attorney G to Interested Insurers. Report No. 8 Re: Assured 4.
"We submit to the London primary and excess insurers our Report No. 7 [sic] regarding the asbestos-related product liability claims brought against the Assured in multiple jurisdictions throughout the United States. This Report will provide only our 1983 year-end loss and expense reserve recommendations to the London insurers. In addition to bodily injury reserves we are also recommending herein a precautionary reserve for each policy period for potential property damage losses which the Assured may sustain in the growing nationwide asbestos-related school and public building property damage litigation."

00/12/83

E&W Insight number 19 refers to the paper by Malcolm Roscow on asbestosis.
This says that approximately 24,000 claims have been filed (each of which names an average of 20 defendants). Some 12 insurers are involved in defending litigation, another 15-20 have made payments. Costs of some 3,800 claims averaged $95,000 per claim of which only $60,000 was compensation, the rest being costs of litigation. Costs and compensation are expected to escalate over future years. Although asbestosis claims in the US will obviously continue to impact on the London Market, a recent article in the UK commented that only 267 death certificates in 1981 made reference to asbestosis.

31/12/83

Syndicate 566 (1983 Report)
"Latent disease and environmental impairment, mostly in America, continue to preoccupy the industry. Breathtakingly large claims are surfacing from back years and there is a great deal of uncertainty as to how these will impact the reinsurance market. The problems of punitive damages and astronomical legal fees exacerbate the situation which is unlikely to become clearer or less alarming over the next few years. We are carrying reserves for such contingencies."

11/01/84

Attorney B to Underwriters at interest. Re: Asbestos Property Damage Litigation.
Various trigger dates of occurrence or the more limiting term, accident. "Under the circumstances the producers of asbestos products unquestionably will contend that all of the potential triggers apply, perhaps even a continuing trigger from date of first sale to date of last possible connection to damage (a la Keene). In our opinion, absent peculiar facts, there is no basis in the policy wordings or the case law to apply Keene-type reasoning to asbestos-related property damage claims. Whatever the trigger, it is a single, ascertainable event. Continuing damage cases involving multiple periods, like California Union Insurance Company v. Landmark Insurance Company. 145 Cal. App. 3d 462 (1983), are inapplicable. We conclude that, in light of the many contradictory judicial decisions on trigger of coverage in property damage cases, the most appropriate trigger in cases involving asbestos products, which are performing the purpose for which they were intended, is the period in which the damage - the diminution in value of the property - first becomes apparent".

19/01/84

Attorney H Report to R A G Jackson (Chairman, AWP) Re: AWP Activities for the last 12 Months in Asbestos-Related Problems.
"As a consequence of the broad discovery order imposed by the Court in the California Co-ordinated Action, the Working Party were advised by both United States and UK Counsel that reports emanating from servicing attorneys should not be passed through brokers...

AWP is going to extend its role to include the reinsurance market. Because of the need to preserve privilege on attorneys' reports, the NMA Reinsurance Sub-Committee is going to make increasing use of the AWP's facilities. US attorneys were requested to provide reserve recommendations for the year-end. These will be sent directly to the Asbestos Claims Information Office. The reports will be circulated as appropriate in the Market.

The Asbestos Claims Information Office now maintains the complete record of the Lloyd's and Company Markets, by year and layer, for each individual Reinsurance Contract handled through the office. When report has been approved by the Leader/s and the Sub-Committee the Asbestos Office circulates the Market. This is done by copy report...

Although during the course of 1983 the coverage litigation has continued, the decisions that have been handed down have not assisted in providing consistent or uniform method of dealing with the date of occurrence problem ... It will be evident from the reports being received by the Market that property damage arising out of the use of asbestos is now developing into a major issue. Although litigation in this area appears to be limited to date, it may develop. The EPA order has caused a substantial number of suits to be filed in respect of public buildings (particularly schools). It is unclear what theory of coverage will be adopted in respect of property damage (date of installation or date of discovery of damage) or the extent of coverage that will be found to exist (e.g. repairs, inspection fees, etc). A suit has recently been filed by Assured 3B in Los Angeles solely related to property damage and Assured 4, one of the leading property damage defendants, has filed a declaratory action against all of its insurers in Cook County, Illinois. It is important that a uniform approach be adopted by the London Market to this issue. A satisfactory solution is being sought in the Facility discussions.

Asbestos Claims Facility ... The Facility concept will enable meritorious claims to be negotiated through a central body without the prerequisite of suit being filed.. claims which are litigated, the Facility provides for a united defence on behalf of all producers and this is likely to be more effective and less costly."

20/01/84

Attorney A to Underwriters at interest care of C J Ayliffe Re: Asbestos Property Damage Litigation.
Producers of asbestos unquestionably will contend that a continuing trigger applies from the date of first sale of the asbestos products to the date of last possible connection to damage (following the Keene case). The opinion of the attorneys is that there is no basis in the policy wordings or the case law to apply Keene-type reasoning to asbestos-related property damage claims. Concludes that the most appropriate trigger in cases involving asbestos products is the period in which the damage (i.e. the diminution in value of the property) first becomes apparent, although there is no controlling decision on the subject in the US.

26/01/84

Meeting of Insurance Partners and Managers of Ernst & Whinney.
Asbestosis will be as relevant for many London Market companies as it is for Lloyd's Syndicates. Nigel Holland informed the meeting that progress towards a settlement involving many of the main US manufacturers was being made. An announcement was imminent. The Chairman of the AWP is to address a meeting at which Ernst & Whinney will be present.

Nigel Holland will ensure that notes of this meeting are circulated to interested parties. Peter Standish commented that a useful publication entitled "Asbestos Litigation Reporter" had appeared in the London Market.

31/01/84

Letter from R A G Jackson, Chairman of the AWP to Underwriters - Non-Marine Market and Non-ILU Companies.
"The matters discussed in this letter concern the most serious claim problem ever encountered by our Industry. I cannot over-emphasise that it is essential for you to give active consideration to the issues that are addressed, and more particularly, your support to the efforts that are being made to develop a more practical way of handling the asbestos problem".

Reports the positive conclusion of talks with Producers aimed at establishing a Claims Facility. Agreement was reached in principle on the coverage issue at a meeting in San Francisco on 4-5 January 1984. Summarises the principal issues covered by the proposed agreement. Notes that it is likely to be at least two months before the proposals are put into a detailed form for all parties at interest but states that "the Working Party considers that it is essential that the Market be made aware of these important developments and be provided with some background to the negotiations and likely developments in the future if endorsement is forthcoming from the Insurance Market." States that a Market meeting is to be held on 13 February 1984 and that attendance is essential in order that the AWP and the various US attorneys can address concerns that exist within the Market.

05/03/84

Minutes of an Ernst & Whinney meeting to discuss latent diseases particularly asbestosis.
M Bolger noted that the problems for the insurance industry were:
(a) the question of what triggers coverage;
(b) the length of the latency period (17 to 18 years);
(c) the identification of the relevant insurance policy or carrier;
(d) the attitude of the US Courts (manifestation, exposure or triple trigger - the Keene case).

The number of claims is difficult to determine because of double counting but may be in the region of 25,000. New claims are arising at the rate of 500 per month. The peak may not occur until 1990. Lloyd's underwriters are heavily involved in excess lines.

A syndicate needs to establish reserves as best it can, with careful consideration being given to the adequacy of reinsurance protection and an appropriate IBNR. Legal costs are soaring but clarification of coverage issues and the establishment of a claims handling service should help reduce litigation.

Ernst & Whinney have sent out a questionnaire designed to elicit relevant information. Steve Abbot stresses the need for Ernst & Whinney's full thought processes to be properly documented on file. "There is no specific guidance from Lloyd's this year" ... but it is clear that liability should not be discounted and it is generally accepted that the higher of the reserve figures arrived at should be used. The reserves must be assessed gross and have reinsurance recoveries deducted. Steve Abbot says that he was not aware of any syndicate that has kept its accounts open because of asbestosis, although some did so for computer leasing.

00/04/84

Syndicate 440 (1983 Report):
"Being a new Syndicate we do not suffer from the problem of Asbestosis or other latent industrial disease claims nor the worrying pollution claims currently in dispute that have arisen in back years for so many Lloyd's Syndicates."

06/04/84

WIR: Asbestosis and beyond.
In a move to inform itself and, eventually, to influence reserving and underwriting standards, the Department of Trade and Industry is asking all authorised insurers and reinsurers about their worldwide exposure to industrial disease claims. The DTI particularly wants to know about potential long-tail liabilities such as asbestosis. The DTI has since circulated a private and confidential letter asking companies if they have written industrial disease/injury business in the past 50 years, whether any of it was in the named risks, whether and in what amounts there have been any claims since 1 January 1980 or indications of claims pending, whether and how much IBNR provision they have for such claims, and the extent to which the named disease/accidents and the IBNR are reinsured.

00/05/84

Assured 1 announced settlement with insurers.
Assured 1 has announced that its primary insurer, Travelers, and two of its major excess carriers, the Home Insurance Company and a group of syndicates connected with Lloyd's of London, have agreed to pay a total of nearly $315 million to settle the claims that Assured 1 brought against them. ($110 million of this sum was to be borne by Lloyd's of London).

00/05/84

Syndicate 367 (1983 Report):
"Two of these categories are causing problems, one in this year and one in the open years 1982 and 1983. The main one being the Incidental Non-Marine USA Liability Account. Here we have claims going back to the 1950's. These are mainly for Asbestosis and other latent diseases ... Adverse court judgements plus ever increasing awards and legal costs could not have been envisaged when the business was underwritten. To highlight the deterioration the following figures may be of interest: outstanding claims at 31 December 1981, on 1977 and previous years were in the region of $5m. By 31 December 1983, these outstandings had increased to $7.8m with $1.8m, being settled during the years 1982 and 1983."

00/05/84

Syndicate 927/935 (1983 Report):
"In addition to these problems there is the thorny matter of Asbestosis. We have an involvement in the thousands of potential claims now being advised to the London Market. ...

The advices received from the Asbestosis Working Party have accelerated considerably during the last twelve months and whilst the accumulation of all estimated potential claims is currently some $75,000 in excess of the scope of a Stop Loss Reinsurance that I bought covering Syndicate 60 for all losses settled after 1.1.82, I anticipate further advices in the future. ... There are steps being taken by the Market to put together a form of block settlement on Asbestosis which, whilst accelerating the actual date of payment by Underwriters, would probably have the effect of reducing substantially the legal fees associated with numerous individual settlements.

... it is because of the apparent distortion on the settlements on our Treaty Book and the imponderables allied to the Asbestosis position that I have taken the decision to leave the 1981 Account open."

00/05/84

Report of a paper presented by R A G Jackson, to the Reinsurance Offices Association, reported in Reinsurance (August 1984) - When the Wrangling Must End.
R A G Jackson explains how, four years ago, when asbestos was raising its ugly head, it was suggested that there should be some co-ordination and liaison in the passing of information around the Market, so that anybody who wished to could inform themselves of what was going on.

R A G Jackson notes that K R Rayment and C J Ayliffe, the London representatives of the US Asbestos Claims Council have been going over to America every two to three weeks for nearly 18 months. In March 1984 there was a meeting with direct insurers' representatives in London (attended by about 300 people at two meetings) to keep everybody up to date.

"There is no doubt that this is the most serious claims problem ever encountered by our industry. The seriousness of it is not only actual quantum of claim but more so in the policy interpretation". The basic rule of coverage now seems clear. It is to maximise coverage to the original insured. There are already four decisions giving different interpretations of how to maximise coverage. Although the Market may not like it, the Courts are clearly interpreting policies in that way.

00/05/84

Syndicates 105/106/109 (1983 Report):
"I have previously mentioned the 'Asbestosis' problems, they still continue. In the last few weeks of 1983 we were advised of further reinsurance involvements of American companies."

00/05/84

Syndicates 604/605 (1983 Report):
"The closed year Account continues to be dominated by latent disease and other latent claims. We have found it necessary to increase our Reserves in this sector to a level which now exceeds the amount of protection afforded by the Whole Account Excess of Loss Reinsurance for the 1977 and previous years. This increase though, has been more than covered by surpluses shown elsewhere in the Account."

00/05/84

Syndicate 108/768 (1983 Report):
"A poor underwriting result. Latent diseases contributing once again to the underwriting loss."

00/05/84

Syndicate 164 (1983 Report):
"As reported last year the 1980 account and all previous years was reinsured out with 100% Lloyd's security on an unlimited basis excess of the reserve created to close the 1980 account. There has been a further deterioration in the Asbestosis and latent disease potential claims protected by this Reinsurance."

00/05/84

Syndicate 420/377 (1983 Report):
"The 1980 account remained open beyond the customary three year period to allow Vanguard the benefit of an additional twelve months in assessing the situation. Despite achieving material progress in obtaining reinsurances recoveries during the past year our review of the Syndicate's potential commitments for future liabilities confirms a necessity to follow the general market tendency to strengthen reserves. The late notification of potential liability emerging from remote and unforeseen quarters of the long tail element of the account together with the continuation of the trend of enhanced court awards in the USA makes this action particularly appropriate for this Syndicate".

00/05/84

Syndicate 510/511 (1983 Report):
"The development of loss information concerning asbestosis and other latent diseases dating from the years when these problems were unknown to those in the industry continues to cause much concern in all markets. The involvement of this syndicate on a direct basis is negligible but we do participate in catastrophe protections for a large number of American insurance companies. Some of these catastrophe programmes cover all classes of business and therefore embrace the third party liability account written by those companies.

The calculation of our probable ultimate liability from these losses is still extremely difficult as a number of insurance companies have themselves only set up bulk reserves for all latent diseases losses and have not yet allocated reserves insured by insured, year by year and contract by contract. Only when all insurers do this can the final cost of these losses be assessed with a greater hope of accuracy. The percentage lines of our syndicate on the catastrophe covers which might be affected were not large and our participation in specific liability reinsurances was limited to a few small lines.

We believe that we must however expect additional loss advices and our reinsurance forward at the close of the 1980 account and prior years took this into account as it does at the close of 1981. We have also purchased a specific reinsurance to protect any exceptional developments in so called "long tail" losses. This protection could provide an additional US$4,000,000 cover. We may purchase additional protections of a similar nature in the event that the terms and conditions appear attractive."

00/05/84

Syndicate 404 (1983 Report):
"Being the oldest Lloyd's Non-Marine Syndicate, it is inevitable that we are going to be affected from time to time by loss developments on the old years. You have been told about Asbestosis and we are continuing to monitor the situation very closely. In the past 12 months the loss has continued to develop and it is difficult to be very precise about the ultimate outcome.

We are carrying very substantial reserves for this item and when taken in relation with the reinsurance protection in respect of the old years as referred to earlier, we feel we have made adequate provision for this situation. There are a handful of other smaller potential losses arising from late manifestation which we are monitoring individually, but none of these give cause for undue concern within our existing reserves."

11/05/84

Meeting on Asbestos Claims Facility.
Speakers RAG Jackson, K.R. Rayment

00/00/84

AWP caused Toplis & Harding (Asbestos Services) Ltd. to be incorporated.
Its letter headed paper was thereafter used, from time to time, by Mr Jackson.

15/05/84

Syndicates 799/772/771/943 (1983 Report):
"The Syndicate's results over the last few years' closing have suffered from the need to strengthen the older years' reserves, including those on asbestos-related claims... Whilst one can never make guarantees in this area, I believe now that the reserves we are carrying will prove adequate to meet the Syndicate's ultimate asbestos claims."

15/05/84

Syndicates 418/422/417 (1983 Report):
"Although 1981 at thirty-six months had settled a substantially higher percentage than 1980 at the same stage, the pure year looks reasonably satisfactory.

However, yet again there is a deterioration in the old years which has required not only the utilisation of the special rollover reinsurance for asbestosis liabilities but also some topping up."

15/05/84

Syndicates 197/726 (1983 Report):
"Latent disease and environmental impairment, mostly in America, continue to preoccupy the industry.

Breathtakingly large claims are surfacing from back years and there is a great deal of uncertainty as to how these will impact the reinsurance market. The problems of punitive damages and astronomical legal fees exacerbate the situation which is unlikely to become clearer or less alarming over the next few years. We are carrying reserves for such contingencies".

21/05/84

Syndicate 932/989 (1983 Report):
"The reinsurance to close has again been increased reflecting the increase both in the size and number of outstanding claims, especially for asbestosis and other environmental or latent disease claims."

29/05/84

Syndicate 764/763/145/196 (1983 Report):
"the syndicates' reserves have been strengthened to provide additional cover against the problems associated with various latent disease claims. Marine Syndicate No. 764, as previously reported, has taken out special reinsurance against asbestosis claims and we are confident that our liabilities arising there from will be contained within the protection provided."

31/05/84

Letter from R A G Jackson, Chairman of the AWP, to Underwriters at interest.
"I now wish to take this opportunity to advise you that over this period discussions between Producers and Insurers on the Resolution Committee continued, and a final document has now been prepared which was generally released to interested parties in the United States on Friday, 18th May... I cannot express too strongly the need for unity of approach within the London Market, for there is no question that no further opportunity will arise which can bring to an end the coverage litigation, and at the same time establish a rational and cost-effective way of dealing with the steadily increasing volume of claims that exist... With the increasing involvement of the London Market in asbestos-related matters, the development of the Facility and the increasing number of property damage claims, the Asbestos Working party has reached the conclusion that it will be necessary to seek a revised Market Authority to enable us to perform the tasks that lie ahead... As I indicated to the Market in my letter of 31 January 1984 asbestos-related claims have produced the most serious situation ever confronted by the Insurance Industry."

00/06/84

Lloyds League Tables 1981 (produced by Chatset).
General Comment:
"With the uncertainties surrounding liability business it would be foolish to predict the final outcome for 1982 but one would hope the swinging increase there was for reserving asbestosis and other latent diseases may not have to be repeated."

In relation to Non-Marine business:
"An extra £242 million was set aside by syndicates as reserves for claims, bringing the total reserves for Non-Marine liability business to 493% of the 1981 premium income. This substantial increase is due to reassessment of expenses to latent diseases, in particular asbestosis. In the last nine months of 1983 no less than 21,000 new cases of asbestosis were reported to insurers .... American Courts have, in a case known as Keene, ruled that liability of an insurer to an assured commences at the time of exposure, continues during residence i.e. during the period when particles of asbestos may be lodged in the lung, and concludes when medical evidence finds that the victim is suffering from an ailment resulting from exposure to asbestosis. This is known as "triple trigger" so any policy during that span of events can be claimed on ..... Lloyd's up to May 1984 had settled some 6,500 claims at an average cost of $89,000 each. It is estimated that over half the cost of each settlement was made up of legal fees ... There have therefore been efforts by the leading insurers involved in asbestosis claims to draw up agreed methods for settling outstanding claims. For instance, recently Lloyd's agreed with two major insurance companies and Assured 1 to settle all Assured 1 claims for $315m, in return for dismissal from litigation". (Published in 1984).

00/06/84

Syndicates 317/661 (1983 Report):
"During the last twelve months events have reinforced my opinion regarding the necessity to reserve ...I mentioned last year the impact of asbestosis (with which I would include other 'latent disease' losses). I would repeat my comments that with our auditors.... we keep such liabilities under constant review. With our reserves and our own reinsurances, we believe the position to be adequately covered."

04/06/84

Syndicate 90 (1983 Report):
"Since the late seventies there has been an increase in the reserves required for losses on closed years mostly due to latent disease claims, the most notorious being asbestosis."

11/06/84

Syndicate 701 (1983 Report):
"The exposure of the Syndicate to claims for latent diseases, especially asbestosis, remains an area of considerable uncertainty... We are confident that adequate reserves have been created to cover the Syndicate's liabilities."

00/07/84

Syndicate 975 (1983 Report):
"1979 and 1980 Accounts were turned from positions of modest profitability to modest losses by the need to make adequate provision for the more recently advised losses on business written before 1973. In an attempt to effect the impact of further determination in this latent disease area we have recently decided to purchase reinsurance in respect of 1972 and all earlier years of account. Unfortunately, such reinsurance is not available on an "unlimited" basis and, of course, the level of protection purchased has a direct bearing on the premium payable."

26/07/84

Financial Times: Sedgwick told to provide asbestos insurance facts.
Three directors of companies in the Sedgwick group, Britain's biggest insurance broker, have been ordered by the High Court to give evidence in a trial in California arising out of multi-million dollar claims by asbestos victims.

00/08/84

Reinsurance.
Article by RAG Jackson

00/08/84

Reinsurance: Asbestos: co-ordinating the settlements (Article by K R Rayment).
Outlines the history of asbestos cases and how the Asbestos Claims Facility is expected to work.

07/08/84

Lloyd's List: Syndicate has £50 million for industrial diseases.
Syndicate 799, managed by Merrett Syndicates, increased by 14% its reinsurance to close the 1981 account. Included in the reinsurance to close was £50 million to pay for losses which have already occurred but of which the underwriters are not yet aware.

20/08/84

Syndicate 540/174/542 (1983 Report):
" a small profit. arises after making substantial provision for Asbestosis claims which I anticipate on the Incidental Non-Marine Account. This provision has been made on a basis established within the Lloyd's market and has necessitated a special loading to reserves in Syndicate 175. I am confident that our approach is the prudent one to adopt in view of all the uncertainties over Asbestosis and other liability claims."

20/08/84

Syndicate 918/940 (1983 Report):
"It has not been possible to close the 1981 year of account and indeed, both the 1979 and 1980 years of account remain open. We shall, over the next 12 months, use every effort in order that we may calculate an equitable estimate of the likely ultimate claims cost for these years of account. The methods utilized in projecting claims ratios forward to their anticipated ultimate cost, whilst being founded on mathematical formulae, are also of necessity weighted by subjective judgment. In the case of syndicates under review the degree of subjectivity necessary is substantial due to their considerable involvement in long-tail classes of business, particularly General and Umbrella liability, where Asbestosis is but one, albeit currently the most serious, problem."

00/10/84

E&W Insight number 25. Insurance Technical Section.
Asbestosis: the latest estimate from Lloyd's is that this is likely to cost the Market £1.5 billion (minimum). Lloyd's global result: the 1981 account (closed at 31 December 1983) produced a profit down from £264 million to £152 million. These figures hide an underwriting loss of £43.5 million, the first for 14 years. The Chairman, Mr Peter Miller, has predicted that the next 2 years will be difficult as well. The heaviest losses occurred in the general liability market, particularly industrial diseases (£108.6 million). The amount of reinsurance to close was disclosed for the first time for the 1981 at £2.7 billion. The 1980 comparative was also disclosed at £2.1 billion, an increase of nearly 29%.

08/10/84

Financial Times: Calculating the cost of asbestos claims.
Asbestosis and other asbestos-related injuries in the US have already turned out to be the largest natural disaster to hit world insurance and reinsurance markets. It is estimated that there are more than 30,000 individual claims at various stages of processing and about 500 claims are being made per month. The insurance industries are still not able to quantify the ultimate cost of asbestos-related claims. Estimates range from £8 billion to as much as $50 billion .... Drastic situations require imaginative solutions and the insurers involved hope the proposed Asbestos Claims Facility will go some way to solve the claims handling problems .... The prime motivations for creating the facility were the need to find a satisfactory means of solving the various coverage issues and a need to develop a reasonable and practical method of handling meritorious claims at a reasonable cost.

25/10/84

Attorney H to Underwriters at interest Re: Assured 8.
Notifying year-end reserves (based on information outside the databank only). Date of loss has not been determined for property damage. The courts are yet to make a determination as to date of occurrence in property damage cases. Some argue for the date of installation, others for the date of discovery. The report suggests that the Market should support discovery but be aware that earlier years could also be at risk. Myriad of other coverage issues. "All of these factors render the assessment of precise property damage reserves most difficult if not impossible at this time." Recommend a claim servicing expense reserve of $50,000 per policy year.

29/10/84

Attorney H to Underwriters at interest Re: Assured 6 Asbestos-Related Claims.
Notes agreement between Assured 6 and the London Market as of March 1984 that reserves be based upon a five year "roll back" where the date of occurrence is derived by subtracting five years from the actual date of diagnosis. Insofar as policies provide total limits, the attorneys have not recommended separate or additional reserves referable to property damage claims.

05/11/84

Attorney H to Underwriters at interest.
Bodily Injury: outstanding claims against Assured 3A/Assured 3B have increased from 17,034 (at year-end 1983) to 20,813 (at year-end 1984).

Property Damage: myriad of problems in assessing coverage (especially Date of Loss). Difficult if not impossible to assess property damage reserves at this time.

16/11/84

Attorney H to Underwriters at interest.
Reporting Bodily Injury claims and reserves.

Property Damage: myriad of other coverage issues (especially Date of Loss). All of these factors render the assessment of precise property damage reserves most difficult if not impossible at this time. Recommend expense reserve of $125,000 per policy year.

05/12/84

Attorney H report to Underwriters at interest (Assured 14) Re: year-end reserves.
Bodily Injury: on the assumption of no aggregate limits (or $10 million limit), no reserves come through to the Market's layers under either the exposure or manifestation approach; based on per claim indemnity estimate of $8,400 (plus 100% loading for defence costs) on the 18,221 open claims.

Property Damage: no Court determination on the question of date of loss, or myriad of other coverage issues. Provisional estimate $200,000 per policy year, which would come entirely within the Market's first excess layer.

Expense reserve: confirm to recommend $62,500 per policy year.

17/12/84

Attorney G to the Interested Insurers Re: Assured 4.
"We submit herewith our Report No. 10 providing our 1984 year-end asbestos-related bodily injury and property damage reserve recommendation to the London insurers. We are recommending herein substantial increases in our precautionary reserves for the asbestos-related property damage claims. This is because the Assured clearly has become a target defendant in this burgeoning nationwide litigation... Reserve figures assume all London policies written with aggregate limits for products liability."

19/12/84

Minutes of a Panel Auditors Meeting.
Factors affecting reserving at 31 December 1984 were discussed in the context of asbestos losses.

R A G Jackson said that it was hoped to introduce a Facility with the original asbestos producers in the US. New advices of losses were still being notified at the rate of approximately 6,000 per year. $50 million had been paid out on claims in 1984. He then made a brief mention of the Assured 1 settlement.

The pattern of reserving on asbestos losses was that in the early stages direct losses were notified, then 1983 reinsurance losses were quantified and 1984 was the year for retrocessional claims.

00/01/85

Assured 1 announces it has settled its insurance coverage disputes with three of its excess carriers.
Assured 16, The Midland Insurance Company and the Allstate Insurance Company agreed to provide $112 million towards settling asbestos disease claims once the $315 million in coverage from Assured 1's prior settlement with Traveler's, Home and the Lloyd's Syndicates, was exhausted and certain other conditions were met. The agreement provided that if the settlement was approved by the bankruptcy court, and if either Assured 1 or the three settling insurers should subscribe to the Wellington claims facility, the $112 million in coverage would be dispensed under the Wellington plan. It also provided that this insurance coverage would be triggered during the period beginning with the date of a claimant's first exposure to asbestos and ending on the date of asbestos disease, or on which asbestos disease was diagnosed. Assured 1 agreed to dismiss without prejudice the actions it had brought against Assured 16, Midland and Allstate. Also announced it was to continue negotiations with the twenty one insurance carriers with whom it remained in litigation in California.

00/01/85

Rand Institute of Civil Justice Study: Asbestos in the Courts (late 1983 - early 1985).
Asbestos suits unlike any other product liability cases. By the mid-80s a surge of filings begun in 1978 had ended, but the number of dispositions continues to fall behind the number of new filings. The asbestos crisis is far from ending, with new filings projected to continue into the next century. New types of asbestos personal injury and property damage cases will continue to be filed in uncertain numbers.

28/01/85

Lloyd's List (Reuters textline): Implications of Inland Revenue investigations into tax matters at Lloyd's.
The Revenue is considering a number of areas including the reinsurance to close of syndicates, Lloyd's main protection against outstanding claims losses. Lloyd's has been taking a conservative approach to reserving in connection to claims such as asbestosis. A conservative approach means less taxable profits. The Revenue apparently considers that the documentation of reserving policies has been inadequate in the past and that only claims which can be quantified reasonably accurately should be allowed against tax. The tough Revenue attitude has come at a time when problems, particularly in reinsurance, have caused losses on policies written many years ago and when some observers believe the industry to be under-reserved.

06/02/85

Lloyd's List (Reuters textline): Assured 1 has reached an agreement with Insurance Companies on asbestos-related claims.
Following a deal with Assured 1, Assured 16, Midland Insurance and Allstate Insurance will fund certain asbestos-related claims to a total of around $112 million. This obligation is subject to a prior use of funds received from a settlement with Travelers, Home Insurance and UK insurers (including Lloyd's of London) with respect to coverage periods until the exhaustion of underlying coverage layers. Payment by the settling insurers of $112 million will be in full satisfaction of nearly all of Assured 1's claims against these companies. The companies said the effectiveness of the settlement was conditional on entry of a final order approving a reorganisation plan for Assured 1 of a group of its subsidiaries.

01/03/85

Attorney H to R A G Jackson, Chairman of AWP. Report on AWP Activities during the Past Twelve Months.
The Asbestos Claims Facility (ACF). Negotiations aimed at the establishment of the ACF have become somewhat protracted. Although agreement concerning asbestos-related claims was reached by May 1984, developing the necessary support has proved a slow process.

In particular, direct writers have been concerned with the negative attitude of the reinsurance market. Regrettably, as matters stand, the absence of participation by a majority of the leading companies could make the position unacceptable. If the Facility were ultimately to collapse this could cause "serious problems" in the London Market. It could be left trying to handle some 30,000 outstanding claims (increasing by some 5,000 new suits per year) and involving new issues such as damage to property. The Facility must be the best forum through which to address issues of coverage in relation to property damage. The reinsurance involvement in the problem has developed during the last year. It is reasonable to expect this trend to continue.

Asbestos declaratory actions: Owens Illinois v Aetna Casualty - endorsed the Keene "triple trigger" theory and also found that the manufacturing of the product "Kaylo" should be regarded as a single occurrence (with only one deductible applying).

Asbestos Property Damage: as anticipated, there was a continuing increase in 1984 in the number of property damage actions filed against the producers of asbestos (eg a Maryland action seeks damages of $225 million).

Reserves: the per claimant reserves continue to be reviewed annually by the Claims Committee and with reporting Counsel. These reserves are based on filed claims and no attempt has been made to project an IBNR factor in respect of the claims yet to be filed.

Databank: the London Claims Information System has proven to be the most flexible system yet designed to monitor asbestos claims. A database is being created for the Facility.

06/03/85

Financial Times (Reuter Textline) Re: House of Lords decision for the production of documents to clarify issues in Californian proceedings between asbestos manufacturers and insurers.
The House of Lords held that the English Court will not order a person to produce documents in response to foreign court proceedings if such documents are not separately described and if there is no evidence of their existence or possession by the persons concerned. The Californian case has raised issues of whether certain policies existed, the extent of cover, the construction of policies issued by Lloyd's Underwriters and disclosure.

19/03/85

Testimony of R A G Jackson, Chairman of the AWP, to Senator Nickels (Senate Labor and Human Relations Committees Sub-Committee on Labor).
"1.  The number of present and expected asbestos related claims is enormous, and the problems they are creating for the producers and insurers are unprecedented, both in terms of the total dollars involved and of the human resources needed to handle these claims...

4.  Against this background of judicial uncertainty, already catastrophic losses, and the reality of massive property damage claims yet to come, the task of fixing meaningful reserves and managing cash-flow to pay claims will continue to demand virtual clairvoyance and a near reckless courage from the executives involved at primary level, as well as from their reinsurer counterparts. You might well ask if we are getting it right. I will show you how we propose to do just that....

6.   Since Domestic USA insurance companies rely heavily upon the availability of proper reinsurance facilities both in the USA and those provided in and through the London Market, the importance of securing all reinsurers' support and cooperation on the Asbestos Claims Facility is therefore paramount....

9.  The Asbestos Claims Facility promises to bring order to an otherwise chaotic legal situation while controlling distribution of losses to insurers and ensuring efficient use of the insurance dollars available, not as legal costs, but in proper timely compensation for the victims....

10. The Facility is a good deal for producers, claimants and insurers alike because it will:

23/03/85

Daily Mail (Reuter text line).
Hopes of co-operation between insurance companies and manufacturing businesses to fight US compensation claims.

24/03/85

The Observer (Reuter text line).
Losses facing Lloyd's Syndicate 90 could be the first of many on Non-Marine syndicates according to David Robson, its manager.

12/04/85

Syndicate 406/679 (1984 Report):
" I have not found any reason to make any major alteration to the balance of our account. However, in common with other Lloyd's Underwriters and with hindsight, there is an awareness now of some of the past problems relating to liability for health hazards and the disposal of hazardous wastes."

16/04/85

Financial Times (Reuter text line).
Underwriters at Lloyd's estimate that losses on Syndicate 417/418 could reach millions of pounds.

23/04/85

Daily Express (Reuter text line).
Fears that rising number of asbestos/chemicals spillage claims could lead to over 400 Names leaving Lloyd's.

00/05/85

Syndicate 89 (1984 Report):
"I also mentioned in last year's report that the Syndicate had a small element of asbestosis in its incidental non-marine account and that this had been protected by a substantial Stop Loss policy. Unfortunately in the last four months we have been advised by attorneys acting on insurers' behalf of considerable increases in reserves on policies covering asbestosis, other latent diseases and pollution clean up claims ... The reserves we have felt it prudent to create in order to cover the potential liability of the Syndicate are so large that they greatly exceed the level of its Stop Loss policy protection and have caused the greater part of the 1982 Account's loss....

We have felt it necessary to take this decision [i.e. to leave the 1982 year open] not only because of the uncertainty as to the outcome of many of these claims but also because of our concern that there may still be more claims pressed against us of which, as a market, we are still unaware. To indicate the enormity of the problem I have had to recalculate the reserves relating to this section of the Account by upwards of £2.0 million due to the new information which has come to our attention since the beginning of March."

00/05/85

Syndicate 895 (1984 Report):
"We regret to have to report a deterioration on this account. An additional provision of £1,137,088 is required to meet this deterioration in the previous years. This arises almost entirely from latent disease risks, many of them written over 25 years ago. In this respect the syndicate's experience is similar to many other syndicates in the Market this year".

00/05/85

Syndicate 975 (1984 Report):
"It is a measure of the very significant worsening of claims in this area that our volume of outstanding claims, which has to include provision for "incurred but not reported losses", has already exceeded the upper limit of our indemnity".

"In the final quarter of 1984 we experienced a surge in the number of advices of new claims arising from asbestosis and toxic waste and, as a result, we have been obliged to recognise the probability of further claims arising from these earlier years as well as the possibility of further deterioration in our existing reserves."

00/05/85

Syndicates 927/935 (1984 Report):
"The second cause of anxiety last year related to the development of latent disease claims on the run-off of Syndicate 60, now contained within Syndicate 935. We have complete records going back to 1960, being the earliest year of our involvement, and we register all claims advised to the Market from which it is clear that the position has deteriorated yet again during the latter part of 1984. After lengthy discussions with our Auditors and a review of our Reinsurance protection, we have again decided to increase our reserves."

00/05/85

Syndicates 105/106/109 (1984 Report):
"As predicted, a very poor underwriting year. Generally speaking, Non-Marine syndicates at Lloyd's have just closed their worst account ever. 1982 was one of those years when nearly everything went badly! To start with there was competitive rating problems, to add to this further advice on Asbestosis in respect of the old years.... The reserves accumulated have made it possible to purchase a reinsurance enabling us to solve our problems for the foreseeable future."

00/05/85

Syndicate 65/67 (1984 Report):
"There have been further developments in respect of industrial disease claims to which we drew your attention last year, and we have once again found it necessary to make adjustments to our reinsurance provisions in the light of increases, particularly of legal fees, during the last twelve months. The sums involved are large and we shall continue to monitor these outstanding losses and the adequacy of our reserves very carefully."

00/05/85

Syndicate 179 (1984 Report):
"It has also been necessary to add further to our reserves in respect of Asbestosis type losses, although our involvement in this and all other claims relating to the 1959-1968 accounts are reinsured in full at Lloyd's".

00/05/85

Syndicate 223 (1984 Report):
"The 1979/80 Accounts combined have had to be "topped" up again, mainly due to the receipt of further claims advices concerning latent diseases which were received in the last quarter of 1984. In most cases the involvement is on an excess of loss basis and therefore individual claims may not ultimately be payable."

00/05/85

Syndicate 383 (1984 Report):
"We all know the damage that losses like Asbestosis, Agent Orange, and others have caused to the insurance industry. Although these are losses with which Syndicate 383 has had virtually no involvement, they do show the problems of existing and former policy wordings. Generally speaking it will not be the intention to involve the Syndicate with liability coverage for certain types of heavy risk unless the coverage is issued on a "claims made" basis".

00/05/85

Syndicate 918/940 (1984 Report):
Notes to the accounts, note 7:
"During 1984, business written by both syndicates has experienced an upward trend in settlement and notification of claims, particularly in respect of asbestosis, medical malpractice, errors and omissions and other long-tail liability business, including claims at levels where only limited reinsurance protection is now available. The underwriter has taken into account these factors in his assessment of such liabilities. However it is not possible to ascertain the extent to which this deterioration will continue to occur or abate. As a result of these uncertaintiesall years of account will remain open at 31^st December 1984".

04/05/85

Syndicate 537 (1984 Report):
"Outstanding liability is principally for Asbestos losses for which reserves have been made. There was no advised deterioration in these during the calendar year 1984".

08/05/85

K P McNamara paper on 317/661 Run-off policies (Outhwaite).

14/05/85

Syndicate 367 (1984 Report):
"I am writing this year with a really miserable set of figures ... There is no doubt that the main cause of this debate is the old year outstanding claims stretching back to the 1950s or before. They relate to Asbestosis and other similar latent diseases, but also include such nasty pollution claims as the Shell Oil Rocky Mountain claim. These could hardly have been foreseen at the time of underwriting and have grown out of all proportion to the premium received. It did not help the preparation of our figures either that the majority of the new or increased claims advices came in during the last quarter of 1984...

The Asbestosis-only figures by themselves for all years to and including 1982 are as follows...which is a 60% worsening."

15/05/85

Syndicate 566 (1984 Report):
"A major part of the bouquet of troubles afflicting the industry is the very large number of very large claims arising from product and general liabilities, pollution and the like in America. Preposterous court awards today, affecting business written long ago, are crucifying underwriters on both sides of the Atlantic and will continue to do so for some time to come... Our exposures to these problems arise from both direct-writing and reinsurance-writing clients where policies are paying claims of a size and nature which was never envisaged by the underwriters. It cannot be too strongly stressed that the attitude of the American courts represents a serious threat to the financial health of the industry."

15/05/85

Syndicate 584 (1984 Report):
"It appears that the general non-marine experience in calendar year 1984 was that the closed years behaved very badly, largely due to the incidence of asbestosis claims; our own involvement in this area is comparatively light and our reserves have proved sufficient and have not had to be reinforced."

15/05/85

Syndicates 197/726 (1984 Report):
"A major part of the bouquet of troubles affecting the industry is the very large number of very large claims arising from product and general liabilities, pollution and the like in America. Preposterous court awards today, affecting business written long ago, are crucifying underwriters on both sides of the Atlantic and will continue to do so for some time to come... We are carrying reserves for this kind of eventuality because it should be borne in mind that advices on this kind of "long tail" business will take a very long time to reach us... Our exposures to these problems arise from both direct-writing and reinsurance-writing clients where insurance policies are paying claims of a size and nature that were never envisaged by the underwriters.

... it cannot be emphasised enough, in the unstable underwriting environment of the last few years, that reserving policy is of great importance and even greater uncertainty, especially in the context of a reinsurance operation. Recent events have shown that reserves are more often too little than too much."

21/05/85

Syndicate 970 (1984 Report):
"The Incidental Non-Marine account has been affected during the 1984 calendar year by a deluge of new claims advices together with increases in estimates on claims previously reported. These date back to the start of the syndicate's trading.

. Classes of business hit have been mainly American products liability and medical malpractice.

The United States judicial system and basis of personal injury awards have become a nightmare for insurers. It is possible for, say, one over-generous award or an unexpected successful case against a manufacturer to open the floodgates of similar claims against that and other manufacturers going back a number of years.

. Because of the uncertainty, I am recommending that this account remains open."

24/05/85

Syndicate 404 (1984 Report):
"Being the oldest Lloyd's Non-Marine Syndicate, it is inevitable that we are going to be affected from time to time by loss developments on the old years. You are now familiar with the word 'Asbestosis' and the effect it is having on the insurance industry.

The loss continues to develop but for the past two years senior insurance executives on both sides of the Atlantic have been negotiating with the principal asbestos manufacturers to create what is known as the "facility" whereby the two parties can work together instead of against each other to resolve the outstanding litigation problems. The facility should become a reality very shortly and the benefits arising from this should show substantial savings in the legal costs."

24/05/85

Syndicate 557 (1984 Report):
In relation to the closing of the 1982 account:
"We believe that the syndicate's exposure to latest disease type losses and other third party expenses is adequately taken care of by our reserving policy and supporting reinsurance protections. The final figure transferred into 1983 is in excess of the Lloyd's minimum audit requirements".

24/05/85

Syndicate 401/404 (Managing Agents' 1984 Report):
"The 1982 Account has produced some very mixed results especially in the Non-Marine Market where the shadows of asbestosis on environmental hazards have necessitated Syndicates having to provide greater reserves and reinsurance protections. The Marine Market too has not escaped these difficulties and so it is of some satisfaction to see our Marine 401, Non-Marine and Aviation Syndicates showing modest profits."

28/05/85

Syndicate 33 (1984 Report):
"Significant sums have been spent from the reserves for losses prior to 1975 with the settlement in particular of the Assured 1 asbestos claims, nevertheless the reserve carried forward to 1983 is now nearly £14.3 million against £12 million this time last year (£13.9 million at current rates of exchange). The Assured 1 settlement has still to be ratified by the US courts and could still come unstitched but is notable as the first of the major asbestos producers to agree to a settlement.

The insurance industry's asbestos claims handling facility is now nearing implementation and should speed up the settlement considerably. In consequence I expect that during the next three years a significant sum will be spent from our reserves which will of course have some detrimental effect on the funds available for investment. The unlimited reinsurance for 1974 and previous years will in due time play its part and, as and when appropriate, recoveries will need to be pursued from this reinsurer with our usual rigour in order to mitigate the effect upon the syndicate's cash flow.

The balance of the reserves for 1975 onwards appears to be sufficient although we shall continue to keep a very close eye on any business which could in any way have an asbestos or North American pollution problem."

31/05/85

Syndicate 108/768 (1984 Report):
"Assured 1 (Asbestos Producer). A deal has been put together to try to settle this matter, money has been advanced and held in escrow in America. Assured 1 is in Chapter 11 (bankruptcy) this is therefore very complicated, the lower courts and Supreme Court will have to rule on this matter, hopefully in our favour. If not, we will be back to square one, therefore we must treat this matter as unsettled and continue to have a loading for Assured 1."

"Asbestosis. Bodily injury claims could peak within the next few years, however Property Damage claims are a relatively new complication. Ripping out and replacing asbestos which has been used extensively for types of building work etc. An Asbestos Office in America is to be set-up, nearly all interested parties are giving it backing. This hopefully will cut down litigation expenses which are running at 37.5% of every dollar paid out."

31/05/85

Syndicate 932/989 (1984 Report):
"The 1982 account has now been closed. The pure 1982 account has produced a small profit, but due to an increase in claims paid on the back years and additional reserves required for asbestosis and other latent disease claims and environmental pollution, there is an overall underwriting loss of 13%".

31/05/85

Syndicate 469 (1984 Report):
"Although the calendar year 1984 has produced an increase in reserves, particularly for asbestosis, the settled and outstanding claims are still approximately $750,000 short of the cover [i.e. $5m limit] Certain procedures of asbestosis [sic] and a number of Insurance Companies and Lloyd's have formed an organisation, "The Facility", which will negotiate the settlement of asbestosis claims, and thereby reduce the huge litigation expenses which currently are estimated to represent 40% of the reserves"

00/06/85

Syndicate 235/237 (1984 Report):
"Many Non-Marine Syndicates have been reporting losses on their 1982 Account and Syndicate 231 is unfortunately no exception. The Asbestos claim facility referred to by Mr Wetherell in his report required a substantial cash payment to be made during 1984 and this contributed to the underwriting loss."

"The gloomy reports of recent years have intimated the seriousness of the problems facing the worldwide Non-Marine market. The open years are plainly unsatisfactory, the extraordinary competition between insurers which has resulted in extremely low premiums, coupled with the continued necessity to increase claims reserves on back years for Latent diseases and other Long Tail claims, has been more than current underwriting results can sustain. The Nadir has now been reached when even investment income is no longer sufficient to overcome the deteriorating underwriting results. I am sorry to have to report that we have been unable to emerge unscathed in these, the most difficult days since the 1960's.

1982 Has for the first time for many years produced an overall loss. This is entirely due to inadequate premiums throughout the whole Non-Marine Account and the very considerable increase in reserves on Asbestos and environmental claims

Latent Disease and Environmental claims:
The enormous problems caused by claims arising from Health, Latent disease and Environment hazards are obvious to all. The need to build up adequate reserves has had its effect on the syndicate's results over the past three years. Unhappily this need to reserve has coincided with a particularly deep trough in the Non-Marine underwriting cycle. It is, of course, not possible to say that the problem of Health and Latent disease is over but a very important step was taken during 1983 in the organisation and setting up of the Asbestos Claim Facility involving Lloyd's and U.S. Domestic Insurers and we are now much nearer an agreement between Asbestos producers and insurers.

This will, I believe, be of great benefit to all parties. Lloyd's and two major U.S. insurance companies have also reached agreement with the major manufacturer of Asbestos and this settlement should also have a very great bearing on the Asbestos situation. Although the past year has been extremely difficult, as far as the Asbestos problem is concerned, I am sure that the steps we have taken to make very substantial provision for these claims means that our reserves are adequate and this fact, together with the dramatic change in the market, indicates we may well have "the high tide and the turn" at last."

00/06/85

Syndicates 255/258 (1984 Report):
"Previous reserves made to close the 1980 and 1981 years have so far proved adequate and Syndicate members must be happy to realise that, whilst there is always a tail, because the Syndicate was only formed in 1980, they cannot be involved to a great extent on the type of losses which have been widely reported in the press."

04/06/85

Syndicates 799/772/771/943 (1984 Report):
"The better news is that our reserving for claims, both known and unknown, for the years prior to 1970 have held up very well. It was necessary, however, to increase reserves for claims for the years prior to 1970 to meet further claims anticipated as a result of environmental health problems."

05/06/85

Syndicate 535 (1984 Report):
"Claims are also being advised resulting from the dumping of waste chemicals in the US and from the replacement of Asbestos in buildings, etc. where it has now been decided it is a health hazard..."

06/06/85

Syndicate 701 (1984 Report):
"As reported last year, the liability of the Syndicate to claims for latent diseases, especially asbestosis, still remains an area of uncertainty..."

06/06/85

Syndicate 896 (1984 Report):
"I reported to you last year that an aggregate reinsurance had been placed protecting the Whole Account of 1980 and all previous years. This reinsurance was originally taken out to protect the Syndicate from latent disease type claims, principally asbestos related. During 1984/1985 it has become apparent that many other substances, previously considered harmless, are likely to give rise to unexpected claims ... I am pleased to report that currently the amount of indemnity we have available remains adequate for all report and suspected claims."

06/06/85

Syndicate 660 (1984 Report):
"I cannot place too much emphasis on this syndicate's position regarding old years, with particular reference to the latent diseases (asbestosis etc.) and environmental pollution including the enormous cost of cleaning the thousands of toxic waste sites. These and other long-term bodily injury claims such as Agent Orange and D.E.S. from the old years are plaguing the market to produce huge underwriting losses now. This syndicate is protected by an unlimited reinsurance excess of a retention which is reserved in full. The reinsurance protects 1978 and all previous years of account. As the syndicate has not written casualty for many years, its exposure to similar losses in 1979 and subsequent years is virtually non-existent."

06/06/85

Syndicates 735/178/473 (1984 Report):
"The fund established to close the 1981 and earlier years of Account, and the reinsurance premium to close the 1982 Account are considered sufficient to meet the liabilities of the Syndicate, bearing in mind the continuing deterioration on claims in respect of Asbestosis and other latent diseases as well as pollution losses."

07/06/85

Syndicate 362 (1984 Report):
"As regard to losses, we have had to make substantial increases in our reserves against Asbestosis and other latent disease claims, as well as increase our reserves on the Shell Oil pollution case."

10/06/85

Syndicate 421 (1984 Report):
"During the latter part of 1984 these risks showed a very substantial deterioration, due principally to major increases in reserves for asbestos-related diseases, together with brand new advices of losses emanating from seepage and pollution dating back to the 1950's and beyond. The bulk of these advices only became known to underwriters during the course of the 4th quarter of 1984, so that it was only subsequent to this that we became aware of the amounts involved. The deterioration was of such a magnitude as completely to exhaust, on an incurred basis, the reinsurance protection in force."

10/06/85

Syndicate 112/114/316 (1984 Report):
"Asbestosis and Pollution Claims

As a Syndicate, I do not believe we have other than a fairly small involvement in this problem. All the same, it did prove necessary for us to strengthen our reserves on closing of the 1982 account to take care of these claims. These losses, in our case, are caused by small lines on some Non-Marine liabilities written in the 1950s and 1960s. This strengthening of reserves came straight off the balance of the 1982 account, and without this the 1982 profit would have been that much larger."

11/06/85

Syndicate 319 (1984 Report):
"We regret to report a worsening of settlements on the years 1978 to 1980 in respect of asbestosis pollution and general US casualty claims. This unexpected increase in settled and outstanding claims has been caused by considerable deterioration in a Syndicate run-off written in 1978. Because of the difficulty surrounding the estimating of reserves from these long- tail claims the 1982 year of account will be left open, with an audit deficit of 239%..."

"...The claims on asbestosis and environmental pollution will be seen to be one of the largest disasters to hit Lloyd's and the insurance market..."

14/06/85

Syndicate 90 (1984 Report):
Refers to "...The unacceptable loss on the 1982 account and the decision not to reinsure this account into the open years ..."

Increase in losses incurred (e.g. $17m in December 84), of which 97% was Asbestosis and Pollution.

"...we currently have almost 900 separate entries for Asbestosis losses which have all been reviewed for year-end purposes..."

14/06/85

Syndicate 275 (1984 Report):
"The decision last year not to close the 1981 underwriting account because of the number of outstanding latent disease claims remains justified. However the cash call we asked for last year appears at this moment to be an appropriate sum in as much as whilst the syndicate has received a number of new advices of losses, a number of outstanding claims have been settled and the overall situation, taking into account syndicate investment income and capital appreciation on the retained fund, shows a small improvement at December 1984. It is my intention to continue to hold this year of account open."

14/06/85

Syndicate 334 (1984 Report):
"We have experienced a considerable increase in notified claims attaching to 1975 and previous year of account arising out of latent disease and pollution liabilities. This strain is catered for by the unlimited reinsurances which protect these years."

14/06/85

Syndicate 707 (1984 Report):
"1982 settled 3.5 points better than 1981 but in spite of that our overall underwriting result was worse. This being due to further enhancement of our asbestosis and environmental pollution reserves .... ... I have had to make a difficult decision in connection with these very old liability claims, and I came to the conclusion that the fairest way to resolve the problem was to keep a section of the 1982 Account open, namely the Liability and Incidental Non-Marine. The advices we have received are making the outcome difficult to accurately predict. I do not want Names to be unduly alarmed by this decision, we do have considerable reserves, but we need time to see how settlements in the American Courts will effect us.

It may be a comfort to Names that the one major asbestosis settlement that was achieved last year did not go beyond our estimated position. I mentioned in my last year's report that I would endeavour to seek some relief on those old years. This has not proved possible as I will not purchase protection which I do not consider to be of the highest order."

19/06/85

Wellington Agreement - signed by 30 firms in US asbestos industry and 16 US insurers, as well as Lloyd's and London Market companies. Set up the Asbestos Claims Facility ("ACF").

24/06/85

Financial Times (Reuter text line).
Deal between US asbestos companies and their insurers to bring more equitable treatment to victims of asbestos-related disease.

24/06/85

Lloyd's List: Asbestos pact will help cure litigation "epidemic".
"Soaring legal fees in asbestos cases - already well past the $5,600,000,000 mark - at last look set to be reined in ... The London insurance market is expected to give formal backing to the establishment of the new Asbestos Claims Facility next month. ... Support by 50 companies and affected interests, including all the Lloyd's syndicates involved, has nonetheless been a greater (and a) giant step forward in dealing with what must be the US's - and the world's - greatest occupational disease compensation problem."

"Mr James Ayliffe of Merrett Syndicates, has been nominated London representative, with Mr Keith Rayment of Sturge an alternate. The two men have been leading proponents of the Facility. Mr Robin Jackson, chairman of the Asbestos Working Party set at (up) by the London market said it was clear that London representatives have committed greatly to the success of negotiations."

24/07/85

Syndicate 493/494 (1984 Report):
"As the Non-Marine account is relatively young it is felt that it should not be open to the extreme vagaries that the general market Non-Marine account is suffering from at the moment, so far as Asbestosis and Agent Orange exposures are concerned. Nevertheless, during 1984, the Non-Marine account has experienced an upward trend in settlement and notification of claims on long-tail liability business. I have taken this into account in my assessment of outstanding liabilities but it is not possible to ascertain the extent to which this deterioration will continue or abate".

19/08/85

Telex from Karen Ruby of Merretts to Attorney H. Re. Year-end reserve report.
"Jim [Ayliffe] has reviewed the draft report and has made the following amendments which he would like incorporated in a second draft report to be in London in time for the Asbestos Working Party Meeting on 22 August ... Page 4 para 2 amended to read as follows: "However we must point out that there has been a noticeable increase in the rate at which new suits are being filed which raises the annual rate to 8,500 new cases per year. It is therefore inevitable that an increase in reserves will result but we are hopeful that the facility concept will enable our recommended reserve to be contained at a lower level than would otherwise have been required. For the reasons already stated there are likely to be noticeable variations between different producer insureds. Finally we wish to again emphasise that our recommendations do not make any allowance for IBNR and the market should not lose sight of the fact that new filings are being reported at a rate of 700 cases per month."

22/08/85

Attorney H to Underwriters at interest, Re: Year-end Reserves on Various Asbestos Accounts:
Notes the execution of the Wellington Agreement on 19 June 1985 establishing the asbestos claims facility. "It has yet to be demonstrated that the necessary co-operation will be afforded by the plaintiffs' bar to enable the Facility to achieve its objective of providing a viable cost effective alternative to the tort system." This Facility has made setting of reserves a much more difficult exercise. US attorneys therefore recommend that the market maintain a conservative approach to establishing reserves at the end of the year, adopting an average per claim base of $85,000.

"However we must point out that there has been a noticeable increase in the rate at which new suits are being filed which raises the annual rate to 8,500 new cases per year ... New filings are being reported at a rate of 700 cases per month ..."

The market is aware that the Facility does not address property damage. There are still no appellate court coverage decisions providing guidance on this. (Only a District Court of New Jersey decision on 31 July 1985 - which adopted a Keene type coverage trigger.)

00/09/85

Association of Lloyd's Members: Lloyd's Syndicate Results for the 1982 Year of Account.
In relation to Non-Marine business at Lloyd's generally:
"Results are now seen to be deteriorating more quickly than rates are increasing, however, with underwriters becoming unwilling to write such business. Business written at low rates is now requiring massive increases in reserves as latent diseases such as asbestosis begin to affect the market.

Another cause of the increased reserves has been the application of the "deep-pocket" principle in the US courts, where ever-higher awards are made and insurers expected to pay the price. It is interesting to note that the level of reserving of syndicates with long experience in the casualty market is at a significantly higher level than some of those that are either new to the class or new to the market. The run-off of earlier years reinsured into the 1982 account has produced a significant deterioration across the market, affecting each syndicate differently. Its effect on an individual syndicate is dependent on its retention levels before reinsurance recoveries are available, the depth of such reinsurance programmes, the purchase of run-off protection and the state of awareness of possible future problems at the time of the last audit".

00/09/85

Syndicate 954/986 (1984 Report):
"During 1984, business written by Syndicate 986 has experienced an upward trend in settlement and notification of claims, particularly in respect of asbestosis, medical malpractice, errors and omissions and other long-tail liability business, including claims at levels where only limited reinsurance protection is now available. The underwriter has taken into account these factors in his assessment of such liabilities. However it is not possible to ascertain the extent to which this deterioration will continue to occur or abate. As a result of these uncertainties all years of account will remain open at 31^st December 1984 ".

05/09/85

Letter from N F Holland to D Evers of David Evers Limited.
"Thank you for your letter of 16th August regarding the audit opinion issued in respect of syndicate 317 ... My firm has received a number of enquiries from various agents regarding the issues raised by the audit opinion given in respect of syndicate 317 and although we have heard of several agents wondering why there is a discrepancy in opinion between 317 and syndicate 418/417, your letter is the first occasion in which we have actually been asked to give a formal explanation. As you can imagine, at the time of the audits, this was a matter which concerned us considerably and, indeed, it was a matter that was considered by a group of partners within this firm on account of the significance of the issue for the syndicates themselves and also for Ernst & Whinney. I believe the best explanation can be given by drawing your attention to note 2 to the accounts of syndicate 317 which sets out the 3 key points to which the reinsurance to close is sensitive ... As between syndicate 418/417 and syndicate 317, there is no difference in the question of the problems surrounding the ultimate amount of claims except for one major factor. Syndicate 317 has, in total, almost 60 run-off reinsurance policies whereas syndicate 418/417 is involved in only 12. Inevitably therefore, the impact of the run-off policies is substantially less as a proportion of the total reinsurance to close in respect of 418/417 than in the case of syndicate 317. You must remember that 1982 was the first account on which we were expressing an opinion as to the truth and fairness of its result. Both underwriters wished to close the account and therefore all the relevant factors that could affect that result needed to be considered and depending on the materiality of the variations to the result so would depend whether or not we could conclude that the result was true and fair. As well as the matters described in note 2, there are uncertainties that attach to the run-off of a long-tail account. In the one extreme are the many lines that will increase for all sorts of reasons over time; in the other extreme are the recoveries, savings or withdrawals of claims.

As a consequence the result and the potential extremes of the variations to that result needed to be carefully weighed up and a decision reached as to whether or not those variations were within an acceptable range in relation to the result. In summary, we consider that because of these highly subjective and potentially material variations that it was right to issue a different opinion in respect of 317 compared to syndicate 418/417. You may also care to consider the further position in respect of syndicate 421 where we also did not give an unqualified opinion. The circumstances there, albeit on a smaller scale, were between the position of syndicate 317 and syndicate 418/417 ... Could I suggest you join me for lunch one day?"

13/09/85

Letter from AWP to Insurers at interest discussing subscriptions to the Asbestos Claims Facility.
"At this stage (it is) difficult to predict impact of the Facility on reserve movements. There has also been an acceleration of new claims filed currently running at 8,500 per year ... realistically the Market must anticipate increases in existing reserves, but it is also likely that we shall see greater variation in reserves movements from one account to another."

27/09/85

Financial Times: (Reuter textline). Mr Robert Day, head of Assured 4, has said that the company is close to settling the claims against it for asbestosis.
Assured 4, and other large groups in the building material sector, have agreed a joint deal to speed up settlements and keep legal costs to a minimum. As a result the remaining 3,000 out of 6,000 injury claims are likely to be dealt with quickly. It is hoped that a similar pact can be secured in respect of 87 of the outstanding 90 property claims.

00/10/85

Lloyds League Tables 1982 Part 2 (October 1985) (produced by Chatset).
General Comment:
"The market is haunted by its US liability account. Not just asbestosis but other major claims have arisen

However, Lloyds increased the reserves for liability business by £342m to £1.86bn, so it is to be hoped that syndicates are now adequately reserved against future losses ... These liability claims spread themselves throughout the different markets from an asbestosis related claim from a ship-repairer insured in the Marine Market to the manufacturers of a light aircraft built twenty years ago."

In relation to marine business:
"However, the good result for the marine sector of the market was spoilt by the high incidents of claims reported during 1984 on the liability portfolio of the old years. Some of this was marine liability from pollution claims but the bulk of the losses comes from the incidental Non-Marine (INM) account that many marine syndicates have traditionally written, and although it cannot exceed 10% of the gross premium capacity, losses for Asbestosis, Agent Orange, Love Canal, DES and the Shell Oil Pollution from the Rocky Mountains, have forced syndicates to buy extra protection to increase their reserves and spoil an otherwise reasonable year."

In relation to Non-Marine business:
"To these losses have been added liability claims from old years, but it is not possible to accurately apportion the blame for the appalling bottom line loss in this market."

00/10/85

E&W Audit Planning memorandum for year ended 31 December 1985.
"The main reason for the large loss in 1982 is the Syndicate's exposure to asbestosis in back years for which there is vastly inadequate reinsurance protection. At the same time, prelims have arisen in relation to other "specials" and "run-offs" requiring the creation of additional reserves ... (in the) General Non-Marine Market. However, it is rapidly becoming apparent that the potential claims arising from asbestosis will dwarf any claim in the history of the Non-Marine Market. It is a fact, however, that in the United States to date under half of the money paid out by the industry has ended up in the hands of the injured party; the balance has ended up in the pockets of the lawyers involved. It is to be hoped that the newly formed Asbestosis Facility, which after many years of being discussed has now been established, will enable settlement of claims to be made at a faster rate with a consequent saving of legal expenses. In addition to this considerable problem, the market is also currently dealing with other products - related claims dating back to the Vietnam War and unexpected side effects of certain medicaments. New laws regarding liability following pollution and other forms of environmental impairment could also produce problems for Underwriters as these new laws appear to apply retroactively, thus making it difficult to underwrite against such circumstances. Such subjects require constant reappraisal of the reserves set up in the past to deal with future claims."

11/10/85

International Herald Tribune (Reuter text line).
Assured 3B has gone to court in a bid to force cigarette companies to share liability.

17/10/85

Lloyd's List (Reuter text line).
Thirty-two US states and 1,000s of cities and schools have agreed to a plan to settle most of the $80 billion asbestos property damage claims against Assured 1 for as little as US $155 million.

18/10/85

Memorandum from K E Randall to R A G Jackson, Merrett Robson.
Relatively few of the asbestos claims reports have been received and analysed. However, the trends indicated by the early reports (approximately 20% to date) look encouraging and it is to be hoped that the 1985 reserves will be within the IBNR provisions raised last year. However, there is potential for further deterioration on the large numbers of reports not yet seen and the impact could vary quite significantly from syndicate to syndicate.

28/10/85

A Seminar given by Jim Ayliffe and Keith Rayment in Vienna on "Asbestos-related Claims".
[NB:  This document has a covering memo from JM Dowlen submitting it as a first draft transcript of the seminar (with some light editing and the addition of sub-headings) to CJ Ayliffe and K Rayment for them to change as they wished. The first five out of sixty-seven pages have been corrected.]

Jim Ayliffe: "Keith Rayment and I have been intimately involved with the subject of our discussion this morning ....we have been involved in dealing with problems relating to Asbestos claims since the end of the 1970's... Keith and I have participated in the London Asbestos Working Party ... (171) Before I deal with the development of the Products law in the USA, I would like to quote to you the opening paragraph in a publication which was put out in 1983, and an additional publication in 1984, by the Institute of Civil Justice in the USA. The reasons why that body, a totally independent organisation, became involved in the Asbestos problem was the recognition at that time that vast sums of money was [sic] being expended in paying lawyers but...... The Institute did an analysis ... I think the opening statement in that study puts the whole matter into some sort of perspective: "Exposure to Asbestos and consequent litigation involve potentially enormous personal and economic stakes. Approximately 24,000 people have filed Products Liability lawsuits claiming Asbestos-related injury as of March 1983. Many times that number have been exposed to Asbestos." The severity of the Asbestos problem is such that the Chairman of the Asbestos Working Party in London has identified it as the most serious problem ever to be encountered by the insurance industry. From a financial impact point of view there is no question that that overview is perfectly correct. To address this problem we have worked diligently over the past few years to find a way of containing the problem, a way in which we can handle the tort litigation and more particularly, a way in which we can use the available funds in a manner which addresses claims and does not enrich lawyers...

(175) In the 1970's, there was a case brought by ... a man called Borrell [sic], who had suffered workplace exposures from the Asbestos products supplied to his firm by a number of Asbestos suppliers... Now that was really the start of our Asbestos problem that we know today... It didn't take long for the Unions to recognise that there was now a way of getting compensation for their members which didn't require them to go through the workman's compensation route and get minimum compensation even if they qualified. ... They started in a small way ... For the past three or four years we have seen those actions running at a level of approximately 500 new lawsuits per month. Over the past year, that rate has increased to approximately 750 new lawsuits per month. We have at the present time no real feeling how long it will be before we have seen a peaking of the legal activity that has been gradually developing, but we now have had filed approximately 45,000 separate actions by individuals. The problem that Asbestos produced from the injury aspect, was obviously the latency period. The time from the first exposure of the individual to an environment that has Asbestos dust in the air, to the point when the individual can show a physical disability arising from the accumulation of that dust or fibre, can range between 20 and 40 years. ... If we therefore assume say, a 30 year exposure, it is likely to be the end of this century before we see a major fall off in claims being filed in regard to Asbestos exposure. Not all claims arise from individuals exposed in their workplace ... members of families who have been exposed... We also have claims from persons who live near existing plants that use Asbestos ... (180) A Review of the USA Court Decisions on Insurance Policy Coverage ... (183) the decisions on coverage interpretation coming from the US courts have been, from the insurers' point of view, ever increasing and broad in their findings and in the context of the Asbestos problem, I think you have to recognise that nearly every decision that has come down has, to an extent, been insured orientated ... (184) What we were seeking was equity in the way our contracts were interpreted. Unfortunately as is typical in the USA, we have not received equity. We have received punitive treatment and our contracts have been expanded far beyond anything that was ever intended when they were written. So the present situation is that we are now forced to accept that the Keene situation is not an aberration, it is a fact of life with which we have to live ... (186) The Concerns Facing Producers, Plaintiffs, Insurers and Judiciary, Regarding the Asbestos Problem... (187) Asbestos litigation is slowly clogging up the whole operation of justice within the USA... (188) From insurers' point of view, ... The coverage litigation has occupied a tremendous amount of time, effort and expense on the part of the insurance industry. Dare I say, that not only are the producers concerned about their financial ability to respond to Asbestos claims. There are not a few insurers who have equal concerns about their ability to remain financially solvent due to the problems that have been gradually developing in the Asbestos matter. ... Many insurers can address Asbestos providing it is phased out in the manner in which it has its impact on us. None of us could pay the total cost of Asbestos today because we would all be bankrupt.

That was the big fear that we had, that unless as an industry we could find a solution, we had the threat of a solution being imposed on us. (189) That is the background of the problems that all the different parties involved in Asbestos claims were facing ... let me just give you some figures These come again, from the Rand study. The Rand people are an independently financed prestigious body in the USA. They operate under the name of the Institute of Civil Justice... Dealing with the total expenditure, the amount expended overall in a similar time-frame in addressing Asbestos-related matters, was just in excess of $1 billion..."

Keith Rayment: "(190) The Formation of the Asbestos Claims Facility. I would like to take up from about half way through Jim Ayliffe's talk this morning. The Keene decision came down in about October 1981. I think from London's stand point, we saw the writing on the wall that the court's main objective was to maximise insurance coverage for the insured and that whatever we did, the judge would be looking at what was best for the Asbestos producer. We felt that we should probably try to make contact with the American domestic insurance companies and the Asbestos producers themselves to see if there was a way we could try and resolve our differences without relying upon the American judiciary. In May 1982, there was a Defence Research Institute seminar on Asbestos in Florida, which a number of people from London attended, including Jim Ayliffe and myself... We left that meeting in May 1982, somewhat despondent... But in October 1982, Jim Ayliffe and myself were invited by the major direct insurers in America to join a committee of insurers, at that stage, to endeavour to find alternative solutions to the Asbestos problem. (195) How The Facility Intends to Resolve the Problem Issues...

(201) Asbestos Property Damage Claims. Unfortunately, this is only half the story. Perhaps a greater liability, certainly more difficult to evaluate at this stage, is Asbestos property damage. Reports say that it could be much larger than the bodily injury claims that we are seeing to date. ... We fear that ultimately there may be claims from utility companies, even house owners which have got insulation in their roofs or wherever. Certain examinations have been done just of small areas of private house owners and over 60% have got Asbestos contained within their houses. The claims alone against Assured 1 (who currently still reside in Chapter 11 of the bankruptcy laws) exceed $50 billion. ... (203) The Assured 1 Bankruptcy ... The unique thing about Assured 1's bankruptcy was that there was another creditor group, the Future Plaintiffs Group. This body represented those out there who have a cause of action in the future but at the moment don't know this. So there is a committee set up to protect those claimants as well and the court employed Leon Silvermann to act as their representative..." (208)

Jim Ayliffe: "Asbestos-Related Claims: Reinsurance Issues. (213) Reserving for Asbestos Insurance and Reinsurance Claims. ... That was the professional reinsurers' approach so far as the USA is concerned. It has, I think, produced a degree of comfort to direct writers, it has brought out of the discussion a meaningful relationship on all the parties knowing exactly where they stand. There are a number of spin-off benefits that actually evolve out of this, which if anything, benefit the reinsurance industry more than most. One is the area of reserving. The Facility as it is now becoming a much stronger voice (it's one voice speaking for 55% of all defendants in the Asbestos scene), can now produce much more meaningful statistics that all of us badly need, to get a handle as to where we stand in regard to our potential exposures, whether we are direct writers, reinsurers or involved on retrocessions... (220) ... All the problems are capable of discussion, but they need to be aired, to be considered, on a commercially sensible basis so that we all know exactly where we stand. We think the Facility has contributed to this because we now have developing a solution to the handling of the original problem. We have in formation the ability to contain the extreme wastage of money on legal costs that we had in the past, the money can now go towards directly settling claims, which is where it should be going. There is a clearer line coming through of where the liability of original insurers will attach under their policies. We are able to give a clearer indication as reinsurers how we will respond to that liability and people can now get on with their business of dealing with the Asbestos problem and trying to chart what we do in the future as the problem develops. The big difficulty is none of us know how long it will be before evidence comes through that the Asbestos issue appears to be fully under control. ... The uncertainty is how long it will be with us, and the hope that many of us can continue to withstand its impact over the years to come."

30/10/85

Attorney H to Underwriters at interest Re: Assured 2.
The average per claim base for Bodily Injury has been established at $85,000. It is estimated that Facility members will be obliged for 55% with defence expenses estimated at 35% of indemnity limit. The property damage issues are no closer to resolution than they were at year end 1984. Property damage is not yet addressed by the Facility Agreement. Notes that there is to date only one case addressing the trigger of coverage for property damage issues, that of Lac D'Amiante du Quebec v American Home Insurance Company decided in District Court of New Jersey. Judge held that a "triple trigger" coverage spread applied to both personal injury and property damage claims. The case is presently on appeal and "it is therefore of no precedential value at the present time". The setting of reserves for property damage is "most difficult". The attorneys continue to recommend $200,000 per policy year, although this is precautionary only and underwriters should establish a reserve which they consider appropriate. In addition, recommending a servicing/expense reserve of $125,000 per policy year.

00/12/85

Ernst & Whinney report to the Assignment Partner.
Asbestos: These provisions are difficult to assess because there are known uncertainties with respect to the Fireman's Fund (manifestation or exposure), and also with regard to potential new advices for property damage claims. Last year saw a marked deterioration in the number of asbestos claims; the number of sufferers making claims having risen from 500 to 700 per month. This year the number of claims per month has risen to 1,000 per month. The Claims Facility which was being promoted last year has now become effective and it is hoped that it will eventually result in a reduction in costs per claim, although these effects will not be seen for the first year. While some reserves may appear ultra-conservative, it must be considered against potential under-reserving in the case of asbestos losses. Run-off contracts: Last year, the run-off contracts written into the 1981 and 82 years of account saw marked deterioration. Additional information was sought from reinsureds, to provide the latest information, particularly in respect of various latent disease claims, including asbestos, and also in respect of Shell and the actuary then projected what he felt the IBNR factor should be, based on the factors used for 799. The IBNR provision determined by him was 75% of the then outstanding losses. However, in view of the poor reinsurance protection enjoyed by Syndicate 417, by comparison with 799, together with the experience of 417 itself and knowledge of some of the underlying insureds, such an IBNR provision appeared inadequate. Thus the IBNR provision became 100% of the outstandings. Syndicate 418: ... In respect of the run-off contracts the policy adopted has followed Syndicate 417, which is written in greater detail below. A special loading of $4 million was provided at 31.12.84, which brought the overall loading on noted outstanding claims to £15.3 million or 90% of noted outstandings. As with Syndicate 417, this is considered prudent in view of the possible inadequacy of the reinsurance programme of the underlying insureds. The run-off contracts, written by Syndicate 418 have proved to be particularly exposed to latent disease losses and it has been recognised that the reserves provided to date may prove to be inadequate in the long term.

09/12/85

Financial Times. Break through in Assured 1 asbestos claim wrangle.
Although Mr. Silverman has not released details of the settlement plan, it is believed to incorporate elements of previous proposals aimed at providing $52.5 billion for present and future asbestos victims. A further $125,000,000 or more is likely to be allocated for property damage caused to organisations -particularly schools - which have had to remove asbestos insulation from their buildings.

07/02/86

Travelers 1985 Annual Report.
"In relation to all hazardous and toxic substance claims The Travelers carries on a continuing review of its overall position ... The latest review confirms that adequate provision has been made for obligations now foreseen under these prior insurance contracts. It is management's opinion that the possibility that the ultimate resolution of all claims arising from hazardous and toxic substances will have any material adverse affect on the consolidated financial position of The Travelers is remote."

18/02/86

Memorandum from Mr Bolger to Insurance Partners referring to a recent meeting between Lloyd's and Recognised Auditors.
In the Non-Marine Market, the Asbestos Claims Facility which was signed in June 1985 by 34 producers will lead to a revision in reserves at 31 December 1985. There are at present about 46,000 claims in the Market. Claims are being notified at the rate of about 1,000 per month but now appear to be "cheaper". On the expense costs as a result of the facility, defence costs have fallen to about 20-25% but the facility is making a charge of about 10% which is to be borne in the direct market only.

The Assured 1 money invested in New York includes a London Market share of about $110m. This money is soon to be dispersed and this will represent a large cash outflow in 1986 on both direct claims and retrocessions.

It was reported that asbestosis will also extend into property damage claims.

17/04/86

Lloyd's List - Asbestos Claims Facility 'to save insurers billions'.
The Asbestos Claims Facility which began operating on Jan 1, 1986 will save hundreds of millions, perhaps billions, of otherwise wasted dollars for insurers and reinsurers, Professor Harry Wellington, of Yale University, told the conference. In settlements made so far without the facility, for every dollar a plaintiff kept it cost the insurers $2.71, as legal costs were enormous.

16/04/86 - 18/04/86

Presentation by Robin Jackson to the European Product Liability Congress of the Cologne Re: "Asbestos-the London Response."
"As is clearly indicated from the enclosures, the London Market as long ago as 1980 recognised the potential problems that could arise for the reinsurance industry out of asbestos related bodily injury claims. The unique position occupied by London in the international reinsurance community has tended to emphasise our predominant involvement for many decades, and it was our perception that in the interests of the reinsurance community it was necessary for London to be seen to be providing leadership in addressing the problems that would arise in the context of asbestos related claims."

20/04/86

Syndicate 47 (1985 Report):
"Just to sound a word of caution, although we have taken appropriate action to protect our past years by reinsurance, we will not be completely insulated from claims relating to environmental pollution. Much the same can be said about Asbestosis; indeed some reinsurers are taking the stand that certain costs associated with procedures to dispose of these claims are not recoverable from reinsurers. We do not hold this view but no doubt some years will pass before this point is settled."

30/04/86

Syndicate 584 (1985 Report):
"As with many other syndicates of our age, we have an involvement with claims arising from latent disease and pollution type losses which at this time appear to be containable, especially taking into account the considerably smaller involvement that Syndicate 584 has compared with many other Lloyd's syndicates. Furthermore, we take comfort from the fact that we have an unlimited reinsurance of years 1961 and prior and a limited reinsurance of years 1962 to 1975 inclusive."

00/05/86

Syndicates 927/935 (1985 Report):
"The run-off of Syndicate 60, contained within 935, continues during 1985 at a very low and acceptable level However, against that improvement we were advised by our lawyers in the United States of further increases in reserves required for Asbestosis and DES drug claims We have every reason to believe that the Asbestos facility that has been set up by Insurers involved on both sides of the Atlantic in an attempt to expedite the settlement of claims and to restrict the associated legal costs, will, once it begins to operate, save the industry substantial sums."

00/05/86

Syndicate 975 (1985 Report):
"Unfortunately, our back year situation has maintained the trend which has been a feature of our reports for the past few years and has once again produced a further deterioration although this worsening has been brought about, in the main, by the need to increase existing provisions rather than by a surge of new claims."

00/05/86

Syndicate 65/69 (1985 Report):
" The package type of general liability policy, however, which often includes a degree of Non-Marine exposure, is now being written on a "claims made" form. The effect of this is in practice is that such claims as industrial disease, i.e. Asbestosis, Agent Orange, DES etc. will in future be paid by the policy in force when the claim is made instead of the policy in force when the claimant was exposed to the hazard, maybe 30 years prior to the manifestation of the disease."

00/05/86

Syndicate 179 (1985 Report):
"As in previous years it has been necessary to increase provisions to cover the potential worsening of the Asbestosis type losses and, stemming from this, our need to increase yet again our provisions to cover losses that may well result from the overall Lloyd's results. These losses arise from the protection given of some Names by way of Personal Stop Loss Policies, a class of business which is no longer written by your syndicate in the same way as hitherto. We do retain however, a small interest in the reinsurance of other Lloyd's underwriters who continue to write the original business at greatly improved terms. It is very difficult to be exact about our commitment arising from the market 1983 Account results but we consider that the increased provision made again this year is both prudent and necessary."

00/05/86

Syndicate 782 (1985 Report):
"The reinsurance to close the 1982 account and previous proved to be more than adequate; it is also nice to report that there has not been any dramatic worsening in the market's major problem areas, such as asbestosis, pollution and DES as far as the Syndicate is concerned".

02/05/86

Syndicates 283/284 (1985 Report):
"The extent of the asbestos and latent diseases exposures of the Syndicate now appears to be better known to us - we have not had a significant increase in new claims advices this year, but we are continuing to exercise caution in our approach to the toxic waste and similar environmental type claims where we have received substantial new advices of all years' involvements."

08/05/86

Syndicate 570/347 (1985 Report):
"Two subjects deserve particular comment. First, the old years' deterioration. Our 1970 and all prior years reinsured in Lloyd's are a clear example of the underlying problems experienced by any insurer active in the US liability market in those years. The deterioration has caused headline hogging news when many American domestic insurers have been forced to top up their reserves to cope, and then very often on a discounted basis. It is of fundamental importance that clear action is taken now to respond in a responsible way to valid pollution claims but ensuring that the vast legal costs incurred with asbestosis are not repeated again on this problem."

13/05/86

Syndicate 275 (1985 Report):
"The syndicate has continued to receive new advices of latent disease type losses but there has been an improvement in the general marine account. There is still considerable uncertainty surrounding latent disease type losses and thus we must continue to leave the 1981 account open."

15/05/86

Syndicate 345 (1985 Report):
"... an increase in reserves for Latent Disease risks following upon additional and revised advices which have been received. Latent disease and pollution claims arise from risks such as ship building and ship repairing policies and from the incidental non-marine part of the whole portfolio ... There are still fresh Latent Disease advices being notified to the market and the eventual pollution loss advices ... remain as the unknown factor."

16/05/86

Syndicate 582 (1985 Report):
" the calendar year 1985 demonstrated a serious acceleration in claims development virtually across the board of our liability book on all years back to 1980, but particularly on 1981, 1982 and 1983 It is our view that the current crisis in America where the market for Liability Insurance has collapsed has occurred as the result of persistent underpricing of premium rates during a period of years when it is now clear the American legal system seems to have run amok I decided at the beginning of April this year that the uncertainties associated with writing a liability account, when we are not a specialist in the area, are now such that we should to all intents and purposes entirely withdraw from the class."

22/05/86

Syndicate 367 (1985 Report):
"Unfortunately, yet again the back years have had an adverse effect on our result ...We are plagued by the likes of Asbestosis, DES, Agent Orange, Environmental Pollution and other such nasty sounding horrors which produce claims going back forty years or so in our Incidental Non-Marine and old Non-Marine syndicates. Although Asbestosis shows that it may be beginning to peak as the deterioration has not been so bad as in the last two years, it still poses a problem. Because of this I have taken out a further long term excess of loss reinsurance policy or "Time and Distance" reinsurance policy."

23/05/86

Syndicate 896 (1985 Report):
"The amount of the loss is, I regret, greater than anticipated ... The reason for this is that in the light of recent US Court awards and after detailed consideration I have deemed it prudent and necessary to make additional reserves against our small book of US Casualty business written in past years ... As is well known, during the last few years the market has been plagued with 'latent disease' type claims and more recently also environmental pollution problems ... Many of the claims have only been advised in the most general terms and when fixing a reserve we have had no alternative but to take what is in our opinion a very cautious view."

26/05/86

Syndicates 604/605 (1985 Report):
"There has been a further deterioration on latent claims in the Closed Year Account which has been well contained within the Whole Account Reinsurance purchased to protect the 1982 Account and all prior years."

28/05/86

Syndicate 735/178/473 (1985 Report):
"Fortunately, claims for Asbestosis and other latent diseases, as well as pollution losses, represent a very small proportion of our outstanding claims except in respect of Non-Marine Syndicate 964, a run-off of part of which was taken on with effect from 1 January 1967. However, this run-off was, in turn, reinsured 100% with effect from 1 January 1977 with other Syndicates at Lloyd's..."

29/05/86

Syndicate 319 (1985 Report):
"The old years are developing in much the way we anticipated ... However, there is still uncertainty over the potential development of these years and we intend to leave the 1982 year open until the clearer picture develops."

"Our 1982 year and prior are fairly typical of what is happening throughout Lloyd's and the insurance market in general regarding asbestosis and U.S. liability claims ... "

30/05/86

Letter from RAG Jackson, Chairman of the Asbestos Working Party to Insurers at interest.
"I forwarded to you under cover of my letter of 7 May a copy of the presentation made on behalf of the London Market to the European Product Liability Congress in Berlin on 16 April 1986 ... It is almost a year since the inauguration of the Facility and, bearing in mind the problems that inevitably arise in setting up such a major undertaking, remarkable progress has been made in addressing asbestos claims ... It is too early at this stage to project the reserve movement the London Market is likely to see at the coming year-end, however there are now in excess of 40,000 claims outstanding, and the rate of new suits filed over the past year has reached the level of 1,000 filings per month. There has in addition been an increase in the average per case settlement level achieved by the facility, which is in part affected by the recent resolution of a major class action filed in Texas. If no relief develops in these trends, it is likely that reserves will see a further deterioration, particularly when coupled with the growing asbestos property damage problem, which will impact on I.B.N.R. provisions already established."

30/05/86

Syndicate 219 (1985 Report):
"At the end of this report Members will find an addendum giving the background to the Asbestosis and Pollution problems. This has been done to save undue repetition in this report each year, to ensure that new Names are fully briefed.

... Asbestosis ... has posed one of the most serious problems ever encountered by the World Insurance and Reinsurance Industry..."

30/05/86

Syndicate 108/768 (1985 Report):
" our provisions, made at the close of the 1982 accounts, appear to have been generally adequate despite some significant movement on Asbestosis and other latent disease claims and overall we have had to strengthen these reserves by some £204,000 or less than 1% of the gross reserves created as at 31.12.1984. Our aggregate reserves for Asbestosis, Agent Orange and Pollution claims amount at 31.12.1985 to $14,015,045 compared with $12,292,256 at 31.12.1984. We have settled $470,616 during the year and it is gratifying to see that these movements have been contained."

30/05/86

Syndicate 537 (1985 Report):
"Outstanding liability is principally for Asbestos losses for which reserves have been made in prior years. Taking into account paid losses during 1985 and losses outstanding at the end of 1985, the reserves provided at the end of the previous year were adequate".

30/05/86

Syndicate 557 (1985 Report):
"We have carefully reviewed the old years and are satisfied that the reserves are adequate to take care of all reasonable expectations for future liabilities. The 1983 year is notable for its large outstandings, to which we have added an amount for incurred but not reported losses. After taking credit for reinsurances the final percentage carried forward was 26.5%. This figure is in excess of Lloyd's audit minimum but we consider this prudent under the circumstances".

31/05/86

Syndicate 221/776 (1985 Report):
"The additional loss on the 1981 and previous account has been caused by having to increase reserves for latent disease and environmental pollution loss advices. These additional losses are mostly late advices in reinsurance of Lloyd's Syndicates which have been received during 1985.

the 1981 and previous account will continue to be left open."

31/05/86

Syndicate 764/763/145/196 (1985 Report):
" We are confident that the position regarding asbestosis and environmental damage claims will have been sufficiently clarified to enable us to make a sound judgement on the reserves required when the 1986 account is closed"

31/05/86

Syndicate 469 (1985 Report):
"It is impossible to predict the final outcome of this account, but the "Facility" established to settle asbestosis claims will greatly reduce legal costs and new claims advices are more likely to attach to the late sixties and seventies."

00/06/86

E&W INSIGHT No. 32. (492) Audit brief - Lloyd's syndicates.
"In March 1986 the Auditing Practices Committee of the Consultative Committee of Accountancy Bodies issued an audit brief dealing with Lloyd's syndicates ...

The issue of this brief, however, has not given rise to any changes in the Ernst & Whinney audit approach for Lloyd's syndicates ... The Asbestosis Facility: This facility was set up following the finalisation of an agreement on asbestos-related claims (dated 19 June 1985) in an attempt both to speed up the payment of compensation to claimants and to reduce legal costs associated with such claims. ... When a claim is settled, it is allocated to those participating in the facility using a complex formula; this recognises the involvement in each policy year to which the settled claim is deemed to relate. There is no distinction as to a definitive producer to whom the claim relates as this is almost impossible to determine accurately, because the claimant may have been exposed to asbestos products from different producers over the relevant time period. Obviously such a basis does mean that certain producers and their insurers are going to contribute towards claims which do not relate to them; however, it must be borne in mind that they will not be bearing the full cost of a claim which does relate to them because of the sharing mechanism ... . ... It is understood that, by about the end of March 1986 some 8,000 claims had been cleared from an initial notification to the facility of about 52,000 claims."

02/06/86

Syndicate 421 (1985 Report):
"... during the latter half of 1985 ... there was a worsening in the results of some contracts primarily due to increases in reserves for asbestos, seepage and pollution and other environmentally related losses dating back many years."

02/06/86

Syndicates 418/422/417 (1985 Report):
"As you are already aware, this syndicate has had to bear a heavy cost in respect of claims for asbestos-related and similar injuries and there was further deterioration on the old years when we came to review the provisions at the close of the 1983 account ...

We have undertaken a major review of the reserves created for prior years and have strengthened them accordingly, as is reflected in the increase in the reinsurance to close the 1983 account."

02/06/86

Syndicate 860 (1985 Report):
"The most significant development during the last year has been the establishment of the Asbestosis Claims Facility. This facility will enable meritorious claimants to receive compensation in a fair, timely and consistent manner and will, with time, reduce the horrendous legal costs that the insurance industry are currently incurring for this type of loss ... This year end, I am pleased to report that reserves previously established for this type of loss have provided to be sufficient and am confident that reinsurances purchases to protect the Syndicate against any further deterioration in reserves will prove to be adequate."

04/06/86

Syndicate 56 (1985 Report):
"Calculation of the proper reserve for the liability account on old years has become increasingly difficult because of the size of the awards being given in American courts on risks written forty or fifty years ago. Liability has deliberately never amounted to more than 10 or 15 per cent of our account, but the overall reserve has nevertheless had to make an allowance for some forty years of business."

04/06/86

Syndicate 601 (1985 Report):
" Cover in many cases is being restricted and policies are being switched to "claims made" rather than "losses occurring". The main result of this change should be to prevent a recurrence of the flood of "health related" and similar claims going back decades, which are currently causing so many reserving problems for underwriters."

05/06/86

Syndicate 660 (1985 Report):
"I cannot place too much emphasis on this syndicate's position regarding old years, with particular reference to the latent diseases (asbestosis etc.) and environmental pollution including the enormous cost of cleaning the thousands of toxic waste sites. The syndicate is protected by an unlimited reinsurance excess of a retention which is reserved in full. The reinsurance protects 1978 and all previous years of account. As the syndicate has not written casualty as such for many years, its exposure to similar losses in 1979 and subsequent years is very small."

06/06/86

Syndicate 362 (1985 Report):
"Firstly, the 1978 Account and prior years show a further deterioration due largely to continuing increases in latent disease notification. These years are protected by Stop Loss reinsurance and thus deterioration does not therefore result in a loss to Names.

Secondly, the 1979 to 1982 Accounts show a faster rate of payment than we would expect. After thorough investigation of the claims payments we have reached the conclusion that this is a the result of a small number of unusually large payments, and that it does not represent a change in the underlying trend ... The Syndicate has now come through three years when the pure underwriting results have been poor. In addition, we have set up reserves in excess of $40,000,000 for asbestosis and other latent disease claims."

09/06/86

Syndicate 701 (1985 Report):
"The liability of the Syndicate to asbestos-related claims and claims from professional indemnity risks continue to be the major areas of uncertainty for which substantial reserves have been established."

09/06/86

Syndicate 992 (1985 Report):
"The account itself continues to deteriorate largely due to asbestos and industrial deafness claims and because of the continuing new advices to the Syndicate involving this type of loss, I have determined to increase the Syndicate's level of reserving."

11/06/86

Syndicate 329 (1985 Report):
Reported that able to close 1982 year into 1984 year (due to arbitration on shipping loss) ... "This is in spite of a worsening in the potential loss position on the account written prior to 1968, due to revised settlement compromises suggested by the "Asbestos Facility", which has been set up jointly by Insurers and producers of Asbestos materials in order to reduce the litigation costs and to accelerate the settlement of genuine claims."

13/06/86

Syndicate 231 (1985 Report):
"In the case of asbestosis and environmental claims it may be very many years after the expiry of the policy that the claim is made. Obviously, this makes quantifying and reserving of claims extremely difficult. Plainly, the hostile climate towards insurers in courts in some parts of the world, coupled with the bizarre philosophy of using insurance coverage as an additional social welfare benefit, has necessitated a radical reassessment of wordings and policy forms to be used for third party and general liability insurance."

13/06/86

Syndicate 932/989 (1985 Report):
"The pure 1983 account has produced a small profit, but due to an increase in claims paid on the back years and additional reserves required for asbestos, latent disease claims and environmental pollution, there is an overall underwriting loss of £9,190,334."

13/06/86

Syndicate 602 (1985 Report):
"It has been reported to you that we are pursuing an underwriting policy which would reduce the amount of long tail business accepted by the Syndicate. It is a source of concern to us that the reinsurance to close the 1983 year of account proved to be inadequate largely due to an unforeseen deterioration of the US non-marine long tail account."

26/06/86

Syndicate 895 (1985 Report):
"There has been a deterioration of £412,000 during 1985 in the estimated result of the 1980 account, into which the 1979 and all earlier underwriting accounts were closed by reinsurance at 31 December 1982. Of the remaining estimated liabilities of this account the majority relate to latent disease claims arising from asbestosis and DES and to environmental pollution claims. The syndicate is participating in market-wide arrangements being made in an effort to control the costs of administering and settling claims of this nature."

18/07/86

Syndicate 540/174/542 (1985 Report):
"Prior to 1983, some North American casualty business was written into the INM (Incidental Non-Marine] Syndicates. During 1985, additional claims (including some for Asbestosis) have been settled and further outstanding liabilities notified on this account. I have therefore added an additional £5.5 million to the Account Retained in the 1983 account. The consequential effect of this extra retention has been abated by the purchase of an aggregate Excess of Loss reinsurance cover, under which a maximum of US$16.3 million is recoverable in or before 1993. The maximum account recoverable has been recognised in determining the 1983 account. This arrangement reinforces the substantial retention which was created for the 1982 and prior years on the closure of the 1982 account last year, and should enable us to cope with future claims arising from this North American Casualty business. The writing of this class of business was discontinued during 1982, and I have no present intention of re-entering this market."

19/07/86

Minutes of an AWP meeting.
C J Ayliffe reported on the recent annual meeting of the Asbestos Claims Facility in Princeton on 3 July. "At present there were 40,700 outstanding [Facility] cases. 4,050 new cases had been notified to the Facility during the months of January to April. This was continuing the 1,000 new cases a month rate which had been experienced at the commencement of Facility operations. This was unexpected. It had been felt that notifications of new cases would fall off once the facility was established."

The average settlement figure was $67,000 per claim. "This was considered to be high ... It was felt that this average figure would fall."

30/07/86

New York Toxic Torts (Statute of Limitations) Act.
"S4. every action for personal injury, injury to property or death caused by the latent effects of exposure to asbestos, which is barred as of the effective date of this Act is hereby revived and an action thereon may be commenced provided such action is commenced within one year of the effective date of this Act."

14/08/86

Letter from R A G Jackson to members of the Asbestos Working Party enclosing a draft Attorney H Report.
The draft report discusses the basis of calculating reserves for the individual accounts in the Asbestos Claims Facility.

Reporting on the meeting (week of 28 July 1986) with Attorney G and representatives of the AWP, to discuss latest settlement data. It is important to note the wide variations in settlement levels for different physical conditions as between different states ... a realistic average per claim indemnity cost within the facility would be slightly in excess of $52,000 ... The average indemnity settlement level achieved by the Facility to date is slightly in excess of $58,000 per claim. Therefore recommend reserves of $55,000 per claim, plus 15% for defence costs.

Reserve projections are based on the most up-to-date loss information available but no provision has been made in the calculations to provide for future deterioration. The rate at which new law suits were filed has steadily increased to an average filing rate of 900 new cases per month during the course of the current year; well in excess of 40,000 outstanding claims have yet to be addressed. The continuing upsurge of claims is of concern although there is some evidence to indicate that more current filings relate to less serious disabilities. Further difficulty caused by a recent New York amendment allowing formerly time barred claimants a 12 month period of extension. Difficult to foresee how much activity will result.

02/09/86

Letter from R A G Jackson, Chairman of the Asbestos Working Party to C S Restall, Guardian Royal Exchange.
"The report which you have been receiving outlines the difficulties faced by our US representatives over a year ago ... quite independent of inflation factors, it was decided to adopt a $85,000 base reserve in the light of our general experience. It was perhaps coincidental that had one applied an annual inflation factor of 10% to the average cost reflected by the Rand Study in 1982, the present day figure would then be approximately $80,000. Nevertheless, it did afford us some additional support for the conclusion that we reached, particularly with the uncertainties that then existed. As is indicated in Attorney H's report, it had formerly been the practice to assess reserves based upon the historical experience of each separate defendant insured, and in those times a loading of approximately 20% was factored into the calculation. Bearing in mind that with the development of the Facility, claims for some 34 asbestos producers were all handled by one entity, and that economies were anticipated, the loading was dropped as part of the consideration for year end 1985. ... as in the past many imponderables continue to exist in projecting reserves for claims of this nature, the most significant being whether there is now developing a change in the severity levels in more recent filings. There will shortly be available to the Market the latest Attorney H report outlining the developments during the past year and the changes that are now indicated for forthcoming reserve projections. In summary, indemnity per case reserves will be increased and defence cost-loading will come down, with the net result that little change is likely upon total per case reserves. However, due to the substantial volume of new filings, there will inevitably be some major reserve increases, recommended for this year end. ... The settling of asbestos reserves is certainly not an exact science and whilst our attorneys endeavour to reassess the various considerations that arise at yearly intervals, the Working Party has always emphasised to the Market the need to give specific regard to IBNR loadings to reserve recommendations."

03/09/86

Attorney H to Underwriters at Interest Re: Assured 3A/Assured 3B.
Assured 3B has not yet applied to join the ACF, accordingly reserves still calculated on the exposure and manifestation concepts.

"We continue to use a per claim indemnity figure of $6,500 and a per claim expense figure of $6,000. In view of the general overall increase in property damage litigation and in view of the fact that certain of the target defendants have been found liable for substantial damages, we are recommending that Underwriters establish a reserve of $200,000 per year where policies are not otherwise exhausted by bodily injury claims."

14/09/86

Attorney G to Interested Insurers Re: Assured 4.
This Assured is a subscriber to the ACF and so reserves are determined by the Facility Agreement. In relation to property damage, however, rather than precautionary reserves, the attorneys are now recommending substantial indemnity and costs of defence reserves for claims against the Assured, which continues to be a principal defendant in the increasing asbestos related property damage litigation.

19/01/87

Ernst & Whinney meeting designed for all UK Partners, Managers and Assignment Leaders with Insurance Clients.
Chairman, Nigel Holland. Agenda: "the market" (John Philpott); asbestosis and other latent diseases (Stephen Hill).

04/02/87

Recognised Auditors meeting held at Lloyd's. Notes dated 17 February 1987 circulated from M A Bolger to Ernst & Whinney Insurance Partners and Managers.
New asbestosis cases being advised at a rate of 1,500 per month, higher than previously. The ACF is running which means that expenses are down. There are some reinsurance to close calculation problems which have led to litigation and arbitration. The Assured 1 facility is likely to pay out when the company comes out of Chapter 11 in 1987. However, if an early settlement is not reached, an extra call from syndicates may be necessary. A market letter on this will be circulated in good time. Despite other concerns (eg pollution) the main concern is still asbestos. The hoped for drop in claims in 1986 has not been evident. 900 new cases per month were reported in 1985, 1,500 new cases in November and December 1986 respectively. The ACF settled claims at a higher rate than was expected. During the course of 1986 the London Market spent approximately $70 million in Facility billings. Emphasised that reserves in underwriters books are well in excess of payments made even on the basis of accelerated claims. The payments are easily contained in the incurred reserves. Known claims will account for an increase of 25-30% in asbestosis reserves at year end (31 December 1986). Much of this increase will come from reinsurance and retrocessional contracts.

27/02/87

Letter from R A G Jackson, Chairman of AWP, to Insurers at interest.
The Facility has expressed concern at the substantial increase in the number of new suits arising from asbestos related causes. "During the course of the first half of 1986 new cases were arising at the rate of approximately 900 per month but this reached 1,500 new cases for both November and December 1986. The reserve projection contained in the year end reports was based on a lower level of claims and if the current level continues during the course of 1987 this will have a material impact upon the reserves in the year end 1987 reports." The tentative goal for 1987 is a budget of $89.75 million although whether this proves attainable must depend on the future litigation activity. On the favourable side, Assured 3B has entered the Facility. The experience of the Facility will be a major consideration when the AWP comes to address the setting of reserves for the 1987 year end. "The main area of concern is the substantial increase that has developed in new filings which are clearly arising as a result of an all out effort by the plaintiffs' bar. ...the problems arising out of asbestos related claims continue to become more serious with the passage of time. Indeed many producers are now being forced to recognise the present trends are such that they must now contemplate that there will be a future point in time at which they exhaust all insurance coverage."

27/04/87

Syndicates 448/50 (1986 Report):
"Generally, all parts of the Marine Account settled within our reserved allowance[but] Even in the Marine Account, pollution and asbestosis remain the two threats which are very difficult to gauge."

"Syndicate 448 was one of several syndicates whose 1983 Account Reinsurance to close was scrutinised by the Inland Revenue and, though this was not followed through, their estimate of what they termed out "over funding" was quite frightening. I would have considered it totally irresponsible to reduce the carry forward to the figures they suggested."

29/04/87

Syndicate 584 (1987 Report):
"Much has been written about claims arising in North America from asbestosis and environmental pollution but, in brief, this is still very much a growing concern. Although our syndicate's involvement in US liability business over the years has been comparatively modest, the effect of these issues upon us is still material. We have, therefore, felt it necessary to increase our provisions at 31 December 1987 for latent disease and pollution - related claims ..."

30/04/87

Syndicate 342 (1986 Report):
"Since the beginning of the 1980s, legal decisions taken in the U.S. have produced a tidal wave of claimants alleging exposure to and some form of injury arising from common every day products that are an integral part of modern day life ... asbestos, benzene, ... contraceptives, insecticides, medicaments and solvents ... there are early days with much litigation already ... it is the syndicate's past involvement in these long-tail U.S. contracts which is the root cause of the bulk of the bottom line loss to Names ..."

30/04/87

Syndicate 367 (1986 Report):
"The asbestosis outstanding claims are not increasing as they have in the past few years."

00/05/87

Syndicate 975 (1986 Report):
"The main area of liability in this Account is Asbestosis, which again saw some deterioration during 1986, but the element put aside at 31 December 1985 to meet new advices and potential worsening of known advices, has generally stood up well."

00/05/87

Syndicate 917 (1986 Report):
"From 1968 to 1970 the syndicate was still involved in Casualty underwriting and during the past year has had several new claims advices as well as considerable increases on existing outstanding, again largely due to asbestosis."

00/05/87

Syndicates 105/106/109 (1986 Report):
"Asbestosis. The situation is a little disappointing. I was hoping that the claims advices would be reducing, but I regret we have had further increases ..."

01/05/87

Syndicate 33 (Managing Agents' 1986 Report):
"Perhaps it is our failure of 'P.R.' or education of the relevant people - it is clear that no underwriter with an exposure to asbestosis or environmental pollution claims in his old years has had dinner with Chancellor Lawson, or if he has that he was allowed to speak. If he had, I am sure that we would, on the contrary, have legislation to force us to reserve twice the amount we think necessary in order to maintain the British Insurance Industry's dominance position in the world."

08/05/87

Syndicate 33 (1986 Report):
"So far as 1974 and previous is concerned this area is covered by Robert Hiscox's report to you on the subject of the stop-loss policy that we purchased in respect of these years. However, it is without doubt that the claims will continue to develop at a rapid rate and I quote a letter from the Chairman of the London Asbestos Working Party, pointing out that, "approximately 1,500 new cases for both November and December (1986) ... have been advised and that these will have a 'material impact upon reserves' at the year end 1987. He makes reference to new forms of 'ambulance chasing' for asbestos victims. With tactics ranging from dragnet medical screenings to direct-mail solicitations, they are sweeping new groups of workers and companies into the asbestos fray .... At present I think it is virtually impossible to quantify the final cost many years hence, particularly when environmental pollution is added to the foregoing."

11/05/87

Syndicate 179 (1986 Report):
"The result of the 1984 Account with the benefit of the reinsurance shows your Syndicate's strong position as indicated in the accounts last year. Increased reserves, however, are still necessary for Asbestosis related losses that are retained by the Syndicate in respect of years 1969 onwards and it is difficult to see an end to the deterioration of these old years."

12/05/87

Syndicate 10 (1986 Report):
"As with many of the syndicates which were underwriting in the distant past, we have some involvement in asbestos and environmental pollution losses. Fortunately, our syndicate was small in those times and so had losses of similar proportion. We have established substantial provisions for possible incurred but not yet reported losses in addition to those that are known. This position is reviewed on a regular basis and our current settled losses are a small proportion of the overall total amounts already provided.

Our larger exposure in this type of business has arisen from the underwriting back in 1974 of the run-off of three old Lloyd's syndicates. When I became underwriter back in 1982, I reinsured these risks with another Lloyd's syndicate for unlimited coverage. We have already received recoveries from our reinsurer in this account and he has agreed our figures at 31 December 1986."

13/05/87

Syndicates 317/661 (1986 Report):
"Reserves for outstanding losses on the 1982 account have increased during the last year to a greater extent than expected. The increase is largely due to further claims arising from asbestosis and environmental pollution."

15/05/87

Syndicate 209 (1986 Report):
"The syndicate is, I believe, properly and well reserved to cope with claims from latent disease, the environment and most significantly claims of a general marine nature. The syndicate is young enough that disease related or environmental claims should not develop to its detriment and I now look forward to a period of consolidation."

15/05/87

Syndicate 47 (1986 Report):
"The run off of the older years particularly continues to deteriorate further and are affected by increasing asbestosis and environmental claims which were certainly not envisaged when the original business was underwritten."

15/05/87

Syndicate 65/69 (1986 Report):
"The reduced underwriting profit is largely the result of the need to provide a further $2,500,000 in our reinsurance to close to take into account increased outstanding claims for asbestosis and other old industrial disease losses together with a number of newly advised pollution losses."

19/05/87

Syndicate 345 (1986 Report):
"The 1982 Account ... settled during 1986 on an acceptable pattern, although an increase is required in reserves for Latent Disease and pollution risks because of additional and revised advices which have been received ... Latent Disease and pollution advices being notified to the market and the eventual pollution loss advices that the market may have to face, remain as the major unknown factor ... pollution claims may well become a greater market problem than the asbestosis affair."

21/05/87

Syndicates 418/422/417 (1986 Report):
"The result for 1984 is disappointing and is worse than anticipated when we reported a year ago. The loss arises principally through a further deterioration of reserves for pollution and asbestos-related claims in both the direct account and on the so called run-off contracts ... Whilst there has been some acceleration on settlements on asbestos cases, we believe it will be many years before the syndicate will be called upon to settle its obligations for latent disease and environmental claims. We have therefore deemed it appropriate, to purchase more "time and distance" reinsurance which effectively allows the benefit of the future investment earnings relating to those reinsurance premiums to be taken by the 1984 Names ... We have adopted a prudent basis for reserving against future claims for latent disease and pollution: our reserves assume that the older years will see some further deterioration in the years ahead."

21/05/87

Syndicate 421 (1986 Report):
"... a further deterioration in the 1983 open year due, almost entirely, to a worsening of the "run-off" contracts. If any vindication were required for leaving this year open, it is certainly provide by the substantial increases required in our reserves for asbestos and environmentally related losses ..."

21/05/87

Syndicate 701 (1986 Report):
"Previous reserves for ... outstanding [asbestosis] claims have proven to be more than adequate and we have made a reduction in the reserve for those claims in the light of the developing information from the Toplis & Harding Asbestos facility."

21/05/87

Syndicate 927/935 (1986 Report):
"The particular areas when problems have arisen over the years are twofold. Firstly, ... over the last five years or so many of these assured have suddenly found themselves involved in either Asbestosis, DES Drug, Agent Orange or one of the environmental pollution problems. Reserving has proved to be an inexact science on these matters and although underwriters clearly have to be guided by lawyers' recommendations, frequent conflicting results of comparable court cases in different parts of the United States make predictions extremely difficult. ... With regard to the second problem area, Syndicate 60 wrote a book of reinsurance protecting a number of non-marine Lloyd's underwriters ... Asbestosis continues to be the largest element of about 60% of the total advised outstandings on Syndicate 60 at 31.12.86, though further developments on various environmental problems have also necessitated increased reserves."

22/05/87

Syndicate 362 (1986 Report):
"This year, the 1978 year and prior years of account have seen a slower rate of growth in their latent disease claims, although major settlements on Asbestosis losses have accelerated the rate of payment of these claims."

22/05/87

Syndicates 604/605 (1986 Report):
"The closed years, being 1983 Account and previous, have experienced very heavy settlement of claims principally from asbestos related losses, the bulk of which have fallen between the 1950 and 1975 Account. Given these circumstances and with these uncertainties it is impractical at this time to determine an equitable premium to ceding and accepting Names to effect a closing Reinsurance premium. Thus, while the 1982 Account and prior years oustandings are still contained within the Whole Account Reinsurance Protection for these years, the decision has been taken to leave the 1984 Account open."

22/05/87

Syndicate 90 (1986 Report):
"Asbestosis - As I predicted, the facility ("the Wellington Plan") has accelerated loss settlements ... The outstanding loss movement of this group of losses has improved for the second year running although much of the improvement has been generated by savings made on two major loss settlements made for amounts substantially within the reserves carried for them by the syndicate."

22/05/87

Syndicate 329 (1986 Report):
"... a deterioration in settlements and outstanding claims arising from Asbestosis liabilities written prior to 1968. Now that the Asbestos Facility ... is fully operational settlements are being expedited ... Asbestosis is a worldwide problem in which the insurance markets are now co-operating to provide an equitable solution ..."

22/05/87

Syndicate 707 (1986 Report):
"It is now twenty four months since we took the decision to keep part of the account open. The asbestos facility which was constituted to achieve an orderly settlement of underwriters' liability in this regard and reduce lawyers' expenses has achieved a number of settlements and in overall terms we have not exceeded our reserves in respect of such settlements. There has been some increase of loss advices in respect of environmental damage and asbestosis claims on both the Incidental Non-Marine and Marine Liability Account, offset to some extent by reductions in the reserving on years of account that are not affected by these claims."

25/05/87

Business Insurance. New Avalanche of Asbestos Claims Hits.
The number of new asbestos claims doubled in the last few months to 2,100 per month compared with 1,000 per month at the end of 1985.

Knowlton: "It causes me to think this is going to go on forever." Leonard Minches, VP claims for Gerling Global Reinsurance Co. said "reinsurers are concerned about the increase but they don't yet know whether the increased claims are an acceleration of anticipated claims or were unexpected ... Tyre workers alone could eventually bring 20,000 claims", Mr Gerry predicts. "In addition to tyre workers sheet metal workers are also being screened as part of various medical studies ..."

No-one yet knows how much this new onslaught of claims will cost asbestos producers, insurers and reinsurers. Previously the cost of asbestos bodily injury claims has been estimated anywhere from $4 billion to $100 billion. The new wave of lawsuits not only names the major asbestos manufacturers but also many additional small and large manufacturers that used asbestos in their products.

" Even before this new wave more bankruptcies of asbestos producers had been expected, and the insurance industries ability to fund asbestos claims had been questioned. William Bailey, former VP of Commercial Union says there is not enough insurance to cover all the asbestos claims that will be filed "

27/05/87

Syndicate 469 (1986 Report):
"I have to report that there has been a serious deterioration in the claims advised on asbestosis. Nearly all our losses emanate from reinsurance policies written prior to 1968 and it is likely that they will absorb all policy limits. In addition environmental damage claims are now being advised and these could become potentially very serious, although likely to fall more heavily on the direct underwriter."

27/05/87

Syndicate 235/237 (1986 Report):
"Results in recent years have been greatly depressed by two major problems. Insurers have been faced with enormous claims going back many years. Liability business written on the "losses occurring" policy forms have produced asbestosis and pollution claims which have recently had to be paid and provided for in the outstanding reserves. This syndicate has had to reserve many millions of pounds for these old years."

"Asbestosis:
The deterioration continued and additional costs were incurred for this problem. The asbestosis claims facility has speeded payments considerably."

27/05/87

Syndicate 537 (1986 Report):
"Reserves for outstanding liabilities on Asbestosis claims continue to form the major part of the Syndicate's reserves. Taking into account paid losses in the calendar year 1986, and the re-assessment of the outstandings at year end, there is some deterioration. The Syndicate has written a participation in the run-off of an old Lloyd's Non-Marine Syndicate, [N.B. Hill] Syndicate No. 773, for the 1978 year of account and prior.

There has been a substantial deterioration in the reserves established by the Managing Agent of Syndicate No. 773 during the course of the 1986 year and the [assessed reserves] required form a substantial part of the underwriting loss being reported. It has been explained to us by the Managing Agents that they have had great difficulty in collation of outstanding reinsurance claims and there is now some doubt as to whether recovery will eventually be made. Some re-assessment was therefore necessary".

27/05/87

Syndicate 764/763/145/196 (1986 Report):
"the old years of account have deteriorated so badly that extra reserves have had to be established to cover possible pollution claims arising our of risks written by this syndicate in the years between 1950 and the late 1960's.

You are already aware of a further problem which has arisen at this year's end, concerning the non-payment of a reinsurance. This reinsurance was taken out with Lloyd's underwriters to cover losses which the syndicate may have to pay on "Asbestosis", again on policies underwritten in the years between 1950 and the late 1960's. We have, therefore, had to reserve in full for all these outstanding claims

The situation in respect of Asbestosis Excess of Loss reinsurance has developed significantly. As I mentioned previously, one of three underwriters concerned failed to pay his proportion of the lossesand as a result a Writ was issued against him

In view of the dispute I regret we are unable to close the 1984 account."

27/05/87

Syndicate 782 (1986 Report):
"The Reinsurance to Close the 1983 Account performed well and proved to be adequate. Although the Syndicate's involvement in Asbestosis and DES has not substantially worsened, we have of course been advised of some further pollution losses."

28/05/87

Syndicate 108/768 (1986 Report):
"Despite considerable activity on asbestosis and other latent disease claims and growing concerns about pollution risks, reserves created at the end of last year have generally been adequate."

28/05/87

Syndicate 471 (1986 Report):
"At the moment, the Syndicate has not had to make significant reserves for pollution, asbestosis or other latent disease losses. However, the current improving trend may not continue."

29/05/87

Syndicate 895 (1986 Report):
"The eventual cost to the syndicate of asbestos-related claims will not be definitely ascertainable until the very last asbestos-related claim has been disposed of and all disputes as to coverage provided by the policies have been resolved."

29/05/87

Syndicate 219 (1986 Report):
"... We continue to be advised of a substantial number of settlements, revised estimates of outstanding claims and new losses, mostly in respect of Asbestosis and pollution type claims."

08/06/87

Business Insurance. Asbestos firms to gain $275,000,000 from ruling.
Three of the asbestos producers involved in landmark litigation stand to gain more than $275,000,000 in insurance coverage to pay asbestos claims following San Francis's Superior Court Judge Ira A. Brown's long awaited decision. All attorneys generally agree that Judge Brown's decision gives the broadest insurance coverage possible to policy holders for bodily injury asbestos claims. Judge Brown ruled that producers are entitled to recover from all insurers that wrote liability insurance policies for them from the time the victim was exposed to asbestos through to the time that the victim filed a claim and on until the victim's death. In many cases this has been more than 4 decades. Judge Brown also found that every policy figured by an asbestos related bodily injury claim must respond in full to the claim and that policy holders do not have to pay a proportionate share of defence and indemnity costs for periods when they were self-insured or uninsured. But, in a part of the decision that favours insurers, Judge Brown held that under pre 1966 policies, insurers are not liable for defence costs after policy limits have been exhausted. Judge Brown also ruled that insurers bear the burden of proving that their policy holders acted intentionally or maliciously in order to deny coverage on the basis the policy only covers losses which are not expected or intended.

10/06/87

Letter from R A G Jackson, Chairman of AWP to Insurers at interest.
"I have no doubt that you will be aware that on 29 May Judge Brown announced his tentative decision on the Phase III issues in the California Co-Ordinated Action. The issues relating to Phase III are of material concern to the Insurance Industry and specifically concern the trigger and scope of coverage, expected and intended defence and obligations relating to defence ... copies [of the decision] can be provided on request. At this early stage our Counsels are still assessing the impact of the decision but I can record that there is substantial concern at the way Court has ruled upon trigger of coverage, particularly in view of their conclusion that the contracts under review were unambiguous. Although basically rejecting the Keene rationale the Court finds that injury commences from the date of first exposure and continues until either the death of the claimant or until a claim is notified to the assured. The injury process is considered to continue over the entire period and as there is no basis on which to measure the damage during each policy period the Court has determined that each policy is liable to respond in full. Bearing in mind insofar as bodily injury claims are concerned the London Market had concluded settlement with those insureds involved in the Co-Ordinated Action, the decision has no direct impact on our Market. However, bearing in mind that this case is the most extensive coverage action ever to come before the U.S. Courts and already has consumed over two years for the Bench to reach this stage, the precedential nature of the ruling will be apparent to all ... I must emphasise that Judge Brown's ruling is not at this stage a judgment, bearing in mind there are two further phases to be addressed by the Court ... However Counsel have cautioned that little substantial change is likely to occur from the tentative decision now handed down.

Although many critics of the Facility, and in particular certain Reinsurers have maintained that the Facility Agreement was too generous, the latest decision clearly justifies our commitment; indeed the terms of the Facility Agreement are more restrictive in many respects than the latest pronouncements of Judge Brown (in the California Co-ordinated case). The number of claims disposed of by the Facility continues at the rate of approximately 500 cases per month with total indemnity running in the area of US $30 million. It is unlikely that we shall see any material increase in the number of settlements processed in the foreseeable future. With the dramatic upsurge in new cases being reported, we are now facing an ever increasing volume of outstanding claims as each month passes. There were in the region of 25,000 outstanding claims when the Facility started operating in September 1985; by the end of April 1987 we had disposed of 8,500 cases which represents nearly 35% of our original case load. Of much greater significance is the fact that the number of outstanding claims is now in excess of 50,000 cases ... The Working Party is becoming increasingly concerned at the steadily increasing number of claims alleging property damage due to the installation of asbestos products.

The general deterioration gives cause for concern for it is now clear that the Market must prepare itself for significant reserve increases in year end reports."

07/08/87

Asbestos Litigation Reporter: Assured 7 Withdraws From Facility.
"All claims after Oct. 3. Assured 7 informed the Asbestos Facility in a letter Aug. 3 that the company was withdrawing its resignation of the Facility as its sole agent for handling asbestos-injury claims filed after Oct. 3 1987. It is the first withdrawal by any of the Facility's 51 members ..."

24/08/87

Attorney H to the Underwriters at interest Re: 1987 Year-end Reserves on Various Asbestos Accounts.
During the past three years (1984-1987) filings have increased from 700 per month in 1985 to 1,000 in the latter half of 1986. During 1987, there has been further deterioration with new filings thus far averaging 2,000 per month. Various sources with whom the Facility are in contact have reached the provisional conclusion that there is unlikely to be any material fall off over the next two years. The reasons include the well publicised activity of the Plaintiff Bar in enlisting clients. There is no tangible evidence to suggest that the existence of the Facility has been the cause for the vast increase in number of law suits.

"... Since the Facility's active involvement in settlement of outstanding law suits in September 1985, they have processed some 8,500 cases to conclusion and removed from the active trial calendar a further 1,500 cases which have been transferred to the Pleural Registry or for which Green Cards have been issued... the average compensatory cost of disposition achieved by the Facility from September, 1985 through to December, 1986 ranged between $59,000 and $62,000 ..."

To some extent the Facility is a victim of its own success for it is now regarded as the only viable entity to reduce cases pending on the Court calendars, as a consequence, certain Courts are pressing for an increase in the rate of dispositions. Although this may result in a slight increase in the cases disposed of, it is unlikely to be significant, bearing in mind that the handling capacity of the Facility as presently structured is limited to about 6000 cases per year.

Asbestos property damage is continuing to develop into a major concern for the asbestos manufacturers and the insurance industry. The Asbestos Hazard Emergency Response Act 1986 passed by the US Congress had began what is likely to be long term effort to remove hazardous asbestos from buildings.

After extensive discussion with the London representatives, this firm and Attorney G feel it necessary to recommend that the Market adopt a figure of $64,000 per claim for the purpose of reserve projections to be contained in our year end reports ...

US Attorneys have not attempted to address the IBNR potential of this problem which "we have been advised is a separate consideration of each individual insurer".

"It is extremely difficult for us to provide any reliable advice as to how the asbestos problem is likely to develop over the ensuing years except to the extent that it now appears that the total insurance limits of most insureds could be consumed by this enormous problem."

26/08/87

Letter from R A G Jackson, Chairman of AWP to Insurers at interest.
"The Asbestos Working Party have been extremely concerned at the adverse reports reaching us during the course of this year and the potential impact the deteriorating loss situation was likely to have on reserves for the coming year end. In my last report I warned the market of what was likely to be in store and as it now transpires the situation is perhaps worse than I had feared. Attached to this letter you will find Attorney H's annual report upon the developments they and Attorney G perceive over the past year. The most significant feature of the report relates to the basis on which reserves will be projected both in respect of bodily injury and property damage. When the necessary allocations to the various accounts have been completed there is no doubt that substantial increases will fall upon the London Market. ... As a result of these developments it is apparent that the Facility is at a cross-roads and short of a change of direction could founder. ... Unfortunately problems tend to come in threes and I must tell you that it was announced at the last board meeting that a significant producer, Assured 7, gave the requisite 60 days notice of withdrawal from the Facility in respect of new filings.

... In the face of all these problems I must report to you that the conspiracy and anti-trust suit being pursued against the facility by a consortium of members of the Plaintiff Bar has now reached a stage where discovery has been served."

00/09/87

Lloyd's League Tables 1984 published in September 1987 (produced by Chatset).
In relation to Non-marine business:

"Undoubtedly 1986 will be a vintage Non-Marine year, but the market as a whole still has the problem of US casualty business and losses and the 'old years' to grapple with".

28/09/87

Lloyd's List. U.S. Courts set to tackle asbestosis in seafarers.
The U.S. legal system is preparing to head the way in the international scene in handling the growing number of asbestosis claims from seamen - but the issues involved are complex and daunting.

30/12/87

Letter from Toplis & Harding to the Insurers at interest.
An enormous increase in the volume of new claims over the past two years has arisen from the activity of the Plaintiffs' bar. There is no evidence to indicate that the existence of the Facility has generated this activity.

"Perhaps more to the point it is an acknowledgement that claims arising from the more traditional shipbuilding industry are now on the decline." The massive financial burden on many producers now threatens to exceed insurance coverage of some of those involved and the underlying tensions have effectively split the producers into two groups, which is impairing the Facility's ability to perform its intended functions. It appears reasonably certain that within a short time three of the producers will leave the Facility in the belief that in the outside world they will be able to exercise greater control over their cashflow. This will cause complex difficulties with outstanding law suits and there is every likelihood that settlement levels will increase overall as a result.

"It is a pity that so many so-called professional reinsurers are using negative delaying tactics on such an all important matter ... They should have thought of that before they wrote the business and not now".

03/03/88

Joint Statement of the Asbestos Claims Facility and Assured 7.
"At a regular Facility Board of Directors meeting (on) March 2, 1988, Assured 7 stated that it no longer believes the Facility is the most effective means of resolving meritorious asbestos-related bodily injury claims ... and, as a result, announced that it wishes to withdraw its pending asbestos cases from the Facility ... Six previously identified Producers (Assured 24, Assured 10, Assured 6, Assured 14, Assured 12 and Assured 7) have indicated an unwillingness to go forward with the Facility..."

09/03/88

AWP letter to Insurers at interest Re: Problems facing the ACF.
R A G Jackson provides the Market with a review of the developments in the situation regarding the Asbestos Claims Facility. The much publicised difficulties encountered by the ACF has been adversely affecting its credibility and morale. The major producers precipitating the difficulties are Assured 7, Assured 14, Assured 10 and Assured 12. They have made clear that their concerns have not been dealt with and have indicated that they are anxious to sever their connection with the Facility at the earliest opportunity. Prospective notices of withdrawal have already been given by Assured 14 and Assured 12. Together this group of four producers hold 42.08% of the total indemnity shares.

R A G Jackson also reports that Assured 6 withdrew from the Facility with effect from the end of February 1988. This will take the likely loss of support from producer members to well in excess of 50% which is likely to affect the whole future of the Facility. Those producers remaining (including Assured 2, Assured 3B and Assured 17) have urged the board to continue the Facility. Assured 7's position has been unclear but it believes it is unlikely that that Facility can survive.

The Board has concluded that there is no alternative but to face the fact that the Facility may have to be dissolved. It remains to be seen whether something can be salvaged from the claims operation. It is disappointing that the purpose of the ACF may have been frustrated by the short term objectives of certain producers.

From the perspective of the London Market there is a potential increase in defence costs, although ideas are being looked at for continuing to co-ordinate defences.

R A G Jackson concludes that no matter how innovative the insurance industry in seeking to develop practical solutions, these may be defeated where the corporate survival of insureds becomes an issue. "In short the asbestos problem is now becoming so large that short of federal relief it becomes questionable whether the asbestos industry can ultimately survive".

14/03/88

Business Insurance: Two more firms quit Asbestos Claims Facility.
Claims filed by tyre, steel and sheet metal workers have become the most common type of asbestos injury claims filed. The same producers that paid the largest shares for claims filed by shipyard and insulation workers also became liable for the largest share for the new types of claims. These producers contend that tyre, steel and sheet metal workers were not exposed to their asbestos products ...

21/03/88

Business Insurance: Save the Facility.
"We can't fault these asbestos producers for pulling out of the Facility. They have good and valid reasons. A new wave of asbestos claimants who are exposed to asbestos not produced by these six companies has hit the facility."

19/04/88

Syndicates 927/935 (1987 Report):
"Syndicate 60, contained within the run-off of Syndicate 935, has undergone a thorough review again this year and it has become apparent that the deterioration in the Asbestosis claims position that was forecast by the Chairman of the facility in mid-1987 report, does not appear to have come through to Syndicate 60 to the extent that might have been expected."

21/04/88

Syndicates 448/50 (1987 Report):
"During 1985 rates began to improve as the insurance world realised the impact of asbestosis and pollution. We all became more selective in the breadth of coverage offered, most importantly putting Product Liability on to a "claims made" form"

29/04/88

Syndicate 342 (1987 Report):
"Sadly, the situation has continued to deteriorate and my predictions have proved correct ... During the last 12 months, the syndicate has experienced a surge of new asbestos and pollution related claims from U.S. liability policy holders. The size and number of these new loss advices have been quite dramatic ..."

00/05/88

Syndicates 105/106/109 (1987 Report):
"There are four basic reasons why these old years have developed unprofitably ... Asbestos-related claims. There has been a further increase in notified potential losses during 1987 in respect of policies dating back many years. Consequently it was thought prudent to make further reserves based on statistical projections ..."

00/05/88

Syndicate 89 (1987 Report):
"Over the last 3 years, the position of the insurance industry with regard to these US liability claims has become more and more critical, with a deteriorating situation requiring further substantial increases in reserves and no evidence that this deterioration is slowing down. As a result, I have felt it necessary again to increase reserves substantially, particularly bearing in mind:

(1) Large increases in the existing advisory reserves recommended by US lawyers handling the asbestos related liability claims, plus further increases arising as a result of the first advice during 1987 of our involvement on many policies ..."

00/05/88

Syndicates 510/511 (1987 Report):
"With the increase in incidence of asbestos bodily injury and property damage claims coupled with the danger of pollution losses, we felt that it would be sensible to increase the reinsurance protections on the United States dollar reserves for the 1984 and prior years. We have therefore purchased additional coverage relating to these reserves."

04/05/88

Syndicate 469 (1987 Report):
"The Chairman of the asbestosis committee had warned the market to expect substantial increases at this year end. We have experienced a large increase to existing claim advices, but an insignificant number of new advices ...Environmental Pollution is still in its early stages of litigation and it is too early to predict how this account will be affected ..."

04/05/88

Syndicate 764/763/145/196 (1987 Report):
"The delay in closing this account has enabled us to reassess both existing and new claims on environmental pollution and various other latent diseases resulting from the "long tail" business written during the 1950's and 1960's. In addition to the increased provision for asbestosis mentioned above, we have reserved a further US$2,850,000 against these potential claims."

06/05/88

Syndicates 604/605 (1987 Report):
"The 1984 Account in run-off will have to stay open as the uncertainty surrounding the ultimate liability remains such as to preclude closing the Account at a figure equitable to both reinsuring Names and those assuming such reinsurance. It is ironic that following the Inland Revenue's assertion that the Account was over-reserved a year ago it is now found necessary to increase these reserves by £5.5 million, most of this increase being necessitated by the enormous increase in year-end Asbestos related advices some of which were only advised to the Syndicate in the first quarter of 1988. Latent type claims reserves dating back as far as the 1940 Underwriting Account now represent 63% of the US Dollar gross outstandings and some 83% of the 1977 Account and earlier years' outstandings."

10/05/88

Syndicate 367 (1987 Report):
"We have examined our back years thoroughly with our Actuaries, Messrs Bacon & Woodrow, and our Auditors, Messrs Ernst & Whinney. This exercise has led to a substantial increase in our environmental pollution and asbestosis reserves ... Pollution claims from the USA are a threat to most syndicates, be they marine, non-marine or aviation, and it is amazing to see asbestosis claims increasing again when they seemed to be falling last year."

10/05/88

Syndicate 404 (1987 Report):
"There are three aspects that require specific mention under this heading. Inevitably Asbestosis requires comment and in this respect further claims development has taken place, which represents the bulk of the movement since last year. Most of the losses under this heading are dealt with through the Asbestosis Claims Facility in the U.S. (known as the Wellington Agreement) and currently there are moves afoot for certain of the "Asbestos Producers" to withdraw from the Facility thus disturbing the balance of the scheme. Attention is being given to this problem to protect insurers' interests..."

"Individual year-by-year protection is in place up to and including 19[  ] and to date our practice has been to consolidate each individual year upon closing in the overall closed year protection. This reinsurance has been in force a number of years now and has assisted the Syndicate in coping with the latent development of loss particularly from Asbestosis..."

12/05/88

Syndicate 33 (Managing Agents' 1987 Report):
"Insurance tends to be long-term business and yet Names are grouped annual syndicates which are not ongoing concerns but separate each year from the next. Due to the ever changing composition of syndicates, long-term insurance policies are not permitted to be underwritten ... However, long-tail business with a infinite time possibility of claims has been freely underwritten. The occurrence today of pollution and other losses on risks underwritten many years ago is the major reason behind the growing problem of syndicate accounts being left open.

The fact that nearly 100 syndicate accounts are now left open must call into question whether Lloyd's syndicates should be allowed to underwrite the longer-tail risks or whether the system of annual syndicates should change."

12/05/88

Syndicate 33 (1987 Report):
"1974 and previous go from dreadful to worse and the eventual outcome is still not properly quantifiable. There are few small hopeful signs that the US courts will pause before committing the insurance industry to cleaning up polluted America but these decisions are not consistently adhered to in all courts and are in any event balanced by the possible imminent demise of the Asbestos Claims Handling facility. This would presumably lead to an explosion of legal costs in addition to the indemnity which we would be required to pay our Assureds."

13/05/88

Syndicate 2 (1987 Report):
"The overall position of the run off of the old years remains satisfactory. But the Court awards for latent related diseases still cause some concern."

13/05/88

Syndicate 362 (1987 Report):
"We have seen a substantial deterioration in the closed years. To a great extent this has been caused by a $5,000,000 increase in our reserves for incurred and IBNR Asbestosis losses from $39,000,000 to $44,00,000. Of this $22,500,000 deterioration, $18,000,000 relates to years prior to 1978 and has the benefit of our unlimited stop loss reinsurance but the remainder falls to our own account."

16/05/88

Syndicate 582 (1987 Report):
"In that it indicates the closing of an unhappy chapter in the history of the Syndicate, it is with an inevitable sense of relief that I can begin my report by telling you that we have felt able this year to close the 1983 Account

the deterioration during calendar year 1985 in loss ratios for several of the prior seven years, but particularly 1983, was unprecedented. Therefore, notwithstanding an underwriting profit on the balance of our book, in view of the uncertainty generated by the development of our US Liability account, we felt it necessary to hoist reserves massively, announced a very substantial loss, and left the year open. it is an immensely difficult task on this type of account to assess ultimate loss ratios with genuine accuracy. This is because of the nature of the brute being handled; namely nothing less than the American legal system itself, a beast which in the recent past has proved to be one of such volatility, unpredictability and downright bias against the insurance industry as to make statistical analysis and projection of claims ratios an absurdly inexact science

Reserves have been increased very largely as the result of the continuing flow of new advices on Asbestosis claims and a marked increase in the number of potential pollution claims advised during the year".

18/05/88

Syndicate 15 (1987 Report)
"Asbestosis and Pollution claims continue to be advised to the Syndicate at an alarmingly high level. The nature of these two particular difficult types of claims and the eventual ultimate discussions of the American courts makes it an extremely onerous task to predict the final liability of the Syndicate. The current incurred figure for these years has increased over and above the previously advised amounts. The amount estimated at 31 December 1986 for the anticipated incurred position during 1987 has proved to be inadequate by approximately 125%... I have grave concern over the gross liability of the Syndicate.

New advices and increases in reserves in respect of Asbestosis and Pollution losses, many of which are late notifications, this is an inherent problem on this type of Reinsurance business."

19/05/88

Syndicate 992 (1987 Report):
"During the course of 1987, new losses continued to be advised to the Syndicate. These covered mainly Asbestosis and Industrial Deafness losses."

19/05/88

Syndicate 90 (1987 Report):
"The result on the 1982 "open" year is caused by considerable worsening on the twin problems of asbestosis and of seepage and pollution. We can give no indication as to when the account could be closed or what its eventual outcome could be ..."

"Asbestosis accounts for 42 per cent of the deficit [on 1982 'open' account]."

19/05/88

Syndicate 701 (1987 Report):
"Previous reserves for the outstanding [asbestosis] claims are adequate and are being maintained."

20/05/88

Syndicate 47 (1987 Report):
"There has been some deterioration in the back years, namely in the late 70s, but these are nearly all due to our old enemies asbestosis and pollution which it must be said have largely fallen on years which were reinsured out."

23/05/88

Syndicate 329 (1987 Report):
"There has been further deterioration in the syndicate's participation in environmental pollution and asbestosis claims. In an increasingly uncertain situation with regard to some of the outstanding liabilities from 20 years or more ago, I consider it right and proper to leave this account open until such time as a more accurate estimate of possible losses from environmental pollution, and other products liabilities, together with asbestosis, can be evaluated ..."

25/05/88

Syndicates 317/661 (1987 Report):
"The reasons for this accelerated increase are not altogether clear, but there are two major factors. One is the continuing advice of asbestosis losses, and the second is the inclusion of pollution and clean-up losses from the US. The difficulties in establishing a proper IBNR are severe. Asbestosis will be a declining factor as the numbers of people affected by exposure to asbestos decline."

25/05/88

Syndicate 122 (1987 Report):
"During 1987 there was a further increase in the reserves the Syndicate holds for its exposure to such risks as Asbestosis, where we have suffered a set deterioration of 34%."

25/05/88

Syndicate 56 (1987 Report):
"The deterioration in the 1984 open year has required an additional reserve for future liabilities. This has been further increased to allow for possible future development of pollution and asbestos related claims."

25/05/88

Syndicate 65/69 (1987 Report):
"with the number of health hazard and pollution claims increasing alarmingly in both numbers and size, the loss to our market during the next decade from these claims may well be horrendous, and may far outweigh the advantages of investment income.

This unquantifiable problem causes us concern. Perhaps because of the American legal system combined with the unpredictable judgments and outrageous awards in the courts, American casualty business is becoming uninsurable, and it may therefore be prudent to withdraw from it altogether. Whilst this would go against the grain and be an admission of defeat, to continue or to withdraw is a decision I will make in the near future."

25/05/88

Syndicate 537 (1987 Report):
"This syndicate continues to run-off having ceased business in 1977. I am sorry to report that the syndicate has again shown a deficit in its account following settlements during 1987, together with the reassessment of the outstandings at 31 December 1987. This deficiency is due in the main to the Syndicate's exposure to latent disease, particularly asbestosis, where there continues to be deterioration".

26/05/88

Syndicates 418/422/417 (1987 Report):
"The losses emerging from these contracts relate largely to claims in respect of asbestos and environmental pollution. Whilst the level of advised claims has increased significantly during 1987, the determination has been absorbed to a large extent by the high level of 'IBNR' reserves carried in earlier years. ... A similar problem exists with asbestos property claims, where insurers will still contend that removal of asbestos products from buildings should not expose policies to property damage claims. In this uncertain environment it is difficult to reach conclusions on where to pitch the year end reserves. In the case of the run-off contracts there is the added problem that we get these claims

"second hand"... we must be realistic in assessing the possibility that we may be exposed to potential further claims, and this is reflected in our cautious approach to reserving. ... The areas where there has been activity which is not matched by available reinsurance are our own casualty underwriting and the run-off accounts. In the first category we have increased our noted outstanding reserves and especially our IBNR to watch the developing actuarial evidence for the casualty excess of loss account written in the early 1980's and we have made similar provisions for asbestos and other latent disease losses, and environmental damage claims."

26/05/88

Syndicate 945 (1987 Report):
"For the 1982 Names, the calendar year 1987 has produced a return of approximately 2.2%. This has been possible due to the re-assessment of reserves for asbestosis and other long-tail liability business."

27/05/88

Syndicate 895 (1987 Report):
"As far as concerns bodily injury claims arising from the asbestos problem, the extent of the Syndicate's liability is gradually becoming clearer as US courts make their determinations concerning the basis of coverage and, in many cases, the policies to which the syndicate subscribed became exhausted by the payment of losses. A few new exposures arising through reinsurances continue to be identified, but there have been very few new exposures arising on policies directly protecting US companies.

One factor which may tend to increase the cost of disposing of the remaining claims is the doubt which has arisen over the future of the Asbestos Claims facility following the withdrawal of some of the asbestos manufacturer members ... [This] is likely to increase the cost of the claims to the insurance industry as a whole and this may well give rise to increased reinsurance claims against the syndicate.

The coverage issues relating to asbestos property damage are still unclear. However, because many of the policies potentially affected will be exhausted by asbestos bodily injury claims, and do not provide separate cover for property damage, this aspect of the asbestos problem is not thought to have such a significant effect on the syndicate."

27/05/88

Syndicate 219 (1987 Report):
Records that the 1984 account suffered "substantial deterioration" during 1987, due to general bodily injury and new wave of asbestos claims from railroad employees; asbestos property damage reserves "have escalated dramatically following a major reassessment of potential liabilities by lawyers representing insurers."

Report attaches an Addendum (Pollution and Asbestosis) explaining history and nature of the problem etc.

30/05/88

Business Insurance: Wellington defections kill Asbestos Claims Facility.
"When the Asbestos Claims Facility was formed, the formula for determining each producer's share of liability was based on the litigation and settlement history of claims filed by shipyard and insulation workers, which at that time was the most common type of asbestos injury claim. Beginning in early 1987, however, claims filed by tyre, steel and sheet metal workers became the most common type of claim filed ..."

31/05/88

Syndicate 860 (1987 Report):
"... Asbestos related losses continue to be advised to the market. We have always reserved on a conservative basis but have had to further increase our reserves this year. Within these reserves there is an amount for so called Asbestos "Property Damage" claims. There is much uncertainty in this area and despite a recent favourable legal decision we are maintaining reserves where advised by our Attorneys. However, should the legal climate change we may have to revise our position accordingly."

31/05/88

Syndicate 235/237 (1987 Report):
"I also felt it necessary to continue to add to the reserves for Asbestosis and potential pollution claims."

"Our results in recent years have been adversely affected by notifications late in the year of heavy claims relating to Asbestos and Pollution. These have had to be provided for in the Reinsurance to Close and it is pleasing to be able to report that the reassessment of Outstanding Claims at the end of 1987 brought a reduced volume of first notifications. However, Asbestosis and Pollution claims are far from over and reserving for these claims will continue for some years, especially as, in addition to Bodily Injury claims, the spectre of Property Damage related losses for asbestos products in buildings looms before insurers and no accurate reserving for these potential clams can yet be quantified."

31/05/88

Syndicate 932/989 (1987 Report):
"The Run-Off of the years 1984 and earlier has proved expensive as a result of additional reserving for Long Tail Non-Marine claims continued with large settlements in the last twelve months. The main problem remains Asbestos with the spectre of Pollution claims a further threat to the Syndicate and the whole market. We do believe, having taken into consideration all known facts and notwithstanding the vagaries of the American Courts, that we are adequately reserved. On the Asbestos front the Wellington Facility, claims handling organisation, is running into difficulties. Although we have seen a considerable increase in the number of claims advised, coverage settlement per claim does not appear to have increased".

08/06/88

Syndicates 283/284 (1987 Report):
"We are clearly monitoring the involvement of the Syndicate in environmental pollution and latent disease claims from the United States. The Asbestos and Pollution market committees advise each Syndicate of the policies which are likely to be affected. Previously we were less able to anticipate the relevant policies and had to take a view that the recent years could well be involved. It is only now in closing the 1985 year that we are able to apply the working parties recommendations, which has resulted in a release of some of the previous reserves. I am nevertheless concerned that we may be liable for further seepage, pollution and latent disease claims. The difficulties of reserving in this inherently unpredictable area are well known and must remain a mater for the individual Underwriter's judgement. My concern has led me to investigate the possibility of reinsuring the Syndicates' old years against further deterioration and I have now purchased an aggregate policy jointly covering the closed years of both Syndicates 284/283 and 282/323 for US dollars 10,000,000 in excess of our current notified outstandings in respect of all aspects of our liability exposures, including the products, latent disease, and pollution type of claim."

20/07/88

Attorney G and Attorney H to Underwriters at interest. Re: 1988 Year-end Reserves Asbestos Building Claims:
As of May 1988, at least 209 asbestos property damage suits had been brought against major assureds of the London market. Attorneys are unable to estimate the number of such suits that will be filed in the future. Note that, although there were some early defence victories in property damage litigation, most of the recent jury and court decisions had been adverse to the asbestos manufacturers. "We are now not optimistic that the defence will win a fair percentage of these cases." Assured 1, in bankruptcy, has been sued for $62 million by 9,031 property damage claimants. The attorneys conclude that asbestos property damage claims continue to present a growing problem to the insurance industry, albeit one that is at present impossible to quantify accurately. However, potential damages appear significant. There have been 200 suits filed by building owners involving thousands of buildings. Whilst there have been only a limited number of settlements and judgments, the amounts paid out are in excess of $100 million. On this basis, the attorneys recommend a year end reserve of $4 billion for property damage indemnity claims (noting that this does not include any IBNR factor).

01/08/88

AWP letter to Insurers at interest.
"So far as bodily injury claims are concerned the Working Party are encouraged to see that there is a noticeable reduction developing in average settlement costs and but for the increased reserve levels necessary to address defence obligations by reason of the dissolution of the Facility, it would have been likely that there would have been little movement in Year end reserves . We have all been aware of the significant increase in activity relating to Asbestos Property Damage and our representatives have now developed greater in-depth detail of the problems ..."

01/08/88

Attorney H/Attorney G report to Underwriters at interest Re: 1988 Year-end Reserves Various Asbestos Accounts.
"It is our intention to deal with the unfortunate events that have led to the demise of the Asbestos Claim Facility and the uncertainties that this creates in endeavouring to provide realistic reserves projections for the purpose of Year End reports ... It is our view that the Facility represents the only practical and effective way in which the never before encountered volume of underlying tort claims can be properly adjusted and disposed of in the most expeditious manner to all concerned. The virtual trebling of the outstanding case load since its inception in June 1985 has imposed significant burdens upon the Facility's operation and had been directly responsible for the dissention which arose from certain of the Producer membership and this has ultimately led to the Board's decision to dissolve the Facility on or before 3 October 1988 ...

While it is still too early to hope that the new claims may have peaked, we are nevertheless somewhat encouraged to observe that the rate of filings has not only declined since last year, but also reflects a consistent rate for the last ten months ... Most of the seven major Producers express the view that in the outside world they believe they can reduce the financial outlay presently incurred within the Facility ...

The Courts have given a very clear message as to the concerns that arise from the collapse of the Facility, and our major reservation is that the seven Producers that have brought about dissolution may be selected against as cases come up for trial As a result of the past year's activity, the mesothelioma content in pending cases is now down to approximately 3% of the whole. A similar pattern exists in respect to other cancer conditions, which in percentage terms are reducing. This fact, coupled with a less severe disease mix in new filings, has effect of reducing average settlement levels based on the five basic disease categories that are involved."

00/09/88

Lloyd's League Tables 1985 (published September 1988) (produced by Chatset).
In relation to the 1985 year:
"Those syndicates with open years such as Outhwaite 317, Warrilow 553, Pulbrook 90 and Holloway 604 were not alone in suffering a spate of claims emanating from US casualty business in 1987. Particularly in the form of new advices at the end of the year. Many Marine and Non-marine syndicates were also caught in this Maelstrom of asbestos and pollution claims that have seriously affected their 1985 result and have forced them to leave the 1985 year open."

In relation to asbestos in particular:
"Asbestos: Asbestos, by its properties of withstanding searing temperatures and yet being soft and pliable, has been widely used as an insulating material in many industries. However, the inhalation of asbestos fibres has caused asbestosis and similar ailments in those workers who have mined, milled or processed asbestos.

A wave of claims against the Asbestos manufacturers caused them with their insurers to set up the Wellington Agreement in 1985 in order to settle claims without expensive recourse to the Court. A new wave of claims against producers has threatened the Agreement. In any case with or without the Agreement, producers will exhaust insurance coverage and be faced with seeking the protection of bankruptcy proceedings. Additionally new industries such as Railroads and Tyre manufacturers are receiving claims in volume, as well as Municipalities who are being required by USEPA to clean up and dispose of asbestos used in their school buildings.

As with Pollution there remains confusion within the insurance industry as to which policy should be called upon if there is a case to answer. To date the results have not been encouraging, with one court ruling that asbestos in buildings was property damage, and all policies between the time asbestos was installed through to removal were jointly and severally liable. This despite the fact that the asbestos in building has properly carried out its function as an insulator and had not given rise to any present claims.

Apart from the burden of US liability claims, which as well as pollution and Asbestosis also included continuing claims from Darrah Trucking, Transit Casualty and Shand Morahan (although the former two are showing signs of running off), 1985 year was an excellent year for Non-Marine."

00/10/88

Business Insurance: Asbestos firms launched facility to settle claims.
"The former Asbestos Claims Facility was dissolved earlier this year after seven of the largest asbestos producers withdrew ... Inflexibility was the main reason the Asbestos Claims Facility died, observers say ... for example, under the Wellington Agreement the percentage of liability costs paid by each producer was based on historical data on claims paid until 1983 and could not be changed significantly. The Center for Claims Resolution has created a more flexible system for allocating liability costs. The Center's liability formula is based on several time periods and different occupational categories to reflect the changing mix of asbestos cases ..."

03/10/88

Asbestos Claims Facility - certificate of dissolution filed with the Dept. of State of the State of Delaware.