Insurer Calls for Reforms in Tort Law : Says Chapter 11 Filing in Dalkon Shield Case May Become Typical
A. H. Robins Co., which last week filed for bankruptcy in the face of mounting claims relating to its Dalkon Shield intrauterine contraceptive device, could be just the “tip of the iceberg” of liability-triggered bankruptcies, according to John A. Bogardus Jr., chairman of New York-based Alexander & Alexander, the world’s largest property-casualty insurance broker.
“More and more companies are going to have to close down because they can’t obtain insurance,” Bogardus predicted in a Los Angeles interview Friday. “I believe that A. H. Robins is going to become typical.”
“I guess that’s what it’s going to take” to bring needed reform in tort law, he said.
Manville’s Example
Robins followed the example of Manville Corp., which earlier sought protection under Chapter 11 of the federal Bankruptcy Code because of the magnitude of asbestos claims arising from its production of asbestos, widely used as an insulator a generation ago. Total liability for asbestos-related disease, Bogardus said, approaches an estimated $100 billion.
“The situation is dangerous and the time is late,” he said. “What we need is to precipitate some action at the state level, (but) there is no leadership that everyone can rally around.”
An important first step, he said, would be for business, labor and consumer groups to form a coalition to press for reform of state tort laws, specifically seeking to set a limit on the size of awards, whose growth over the last 15 years has made multimillion-dollar judgments almost commonplace, he said.
So far, however, top management has tended to view sharply higher premiums and difficulty in obtaining sufficient insurance as merely “something that will go away.” But it’s not, Bogardus insisted. “If it were just the prices, I wouldn’t worry so much,” he said.
What worries him, he explained, is that insurance in such areas as pollution liability, product liability and professional malpractice is becoming far less available. Day-care centers are being forced to close for lack of affordable insurance, he noted. “It’s affecting all parts of the economy, and it has happened so quickly that people haven’t realized that it’s happening.”
Record Loss
Sharply higher prices for what insurance is available are necessary to overcome the cut-throat competition that has characterized the property-casualty insurance business since 1979, he said. The casualty insurance industry lost a record $3 billion last year.
Because brokers such as Alexander & Alexander earn commissions based on the price of insurance they place for clients, commission revenues have declined along with the premiums. Sharply higher prices since mid-1984 bode well for the brokers over the next few years, he said.
On the other hand, Alexander & Alexander’s 1982 acquisition of London-based Alexander Howden Group Ltd. brought with it several insurance subsidiaries, now up for sale, that contributed heavily to a 1984 net loss of $49.6 million; insurance operations generated $77.1 million in red ink. Meanwhile, revenues remained essentially unchanged at $550.4 million.
But the merger consummated last July 31 with Toronto-based Reed Stenhouse Cos. will push revenues close to $1 billion by the end of next year, Bogardus said. It also establishes Alexander & Alexander as the largest broker in Canada, Australia, New Zealand, Malaysia and “possibly” the United Kingdom, he said.
Series of Mergers
It also was only the latest in more than 200 mergers and acquisitions that have transformed Alexander & Alexander into a major international financial consulting institution in the 87 years since brothers Charles and William Alexander opened their insurance office in Clarksburg, W.Va.
While the company intends to spend some time digesting the Reed Stenhouse merger, he said, it is “actively considering” opening offices in fast-growing markets in San Diego, Phoenix and Tampa-Orlando.
