Jury Rules Against Asbestos Insurers
A Los Angeles jury has found that a group of British and U.S. insurers must pay $188.7 million to an insulation company’s asbestos trust fund to cover future injury claims expected to arise over the next 36 years.
The ruling in the closely watched case establishes potentially huge liabilities for the insurance industry from the asbestos litigation crisis, which has forced 60 companies into bankruptcy proceedings and is expected to cost U.S. firms $200 billion.
The case hinged on the obligations of insurers under a 1995 amendment to federal bankruptcy law that allows a company to resolve all pending and future asbestos injury claims through a trust into which the firm must put all its assets. If other cases are similarly resolved, insurance companies would have to pay off the full values of the policies when the trusts are formed rather than over time as the claims come in.
Fuller-Austin Insulation Co., a subsidiary of Virginia-based defense contractor Dyncorp, established the first asbestos trust under the new rule in anticipation of receiving 100,000 injury claims through 2039 worth $1 billion. The firm pressed its insurers to pay it the amount remaining on its coverage immediately.
Fourteen insurers reached settlements, but a group of British and American insurers held out, contending that they were not required to pay the trust until actual asbestos claims arose.
Superior Court Judge Judith C. Chirlin ruled in a pretrial decision last year that California law required such liabilities to be paid upfront if they could be projected with reasonable certainty. The jury determined they could be projected and, on Monday, ruled that British insurance groups Lloyd’s of London and London Market insurance companies and two U.S. firms, Stonewall Insurance Co. and Highlands Insurance Co., must pay their coverage limits upfront.
Patrick Cathcart, a lawyer for the London insurers, said the group would appeal its share of the verdict, $80 million.
“It’s our position that the decision is the result of many erroneous and prejudicial rulings made by the trial court before the case went to the jury,” Cathcart said.
Advancing insurance payments in anticipation of claims contradicts California law and federal bankruptcy law, he said.
Asbestos causes cancers and other chronic lung conditions that often develop decades after initial exposure. Asbestos trusts are required to preserve funds to pay all anticipated victims.
Many firms file for bankruptcy only after exhausting insurance coverage. The Fuller-Austin case could influence up to 20 firms with remaining coverage that are setting up asbestos trusts and other firms that are considering a bankruptcy filing to resolve asbestos liabilities.
“The insurance industry views Fuller-Austin as the battleground for all of the [asbestos] bankruptcies,” said Michel Horton, the Los Angeles lawyer who represented the Fuller-Austin Settlement Trust.
“It’s a national issue,” Horton added. “It’s got such a huge potential impact on the industry as a whole because there are so many bankruptcies. If they lose, insurers will have to pay the money when the bankruptcy trusts are formed, rather than 10 or 20 or 30 years down the road.”
If the decision holds up, it could help preserve assets for future victims, said Steve Kazan, an Oakland lawyer who represents victims of mesothelioma, a rare and deadly asbestos-related cancer, and sits on several bankruptcy trust committees.
“It will increase the risk to other insurance companies and increase the pressure on them to settle,” Kazan said.
