Insurers Balk at Covering the Unknown
“Corporate greed” cried California Atty. Gen. John Van de Kamp last week, as he led eight states in filing antitrust suits against major insurance companies, charging that they had conspired not to insure towns and cities against liability for environmental pollution.
But right away you know there’s more to the story, because the attorneys general are suing the companies for conspiring to turn down business, not to gain it. Greed in reverse, in other words.
And the companies make no secret of refusing coverage--although they deny conspiring to do so. Liabilities in environmental cases could sink the companies, argues William O. Bailey, vice chairman of Aetna Life & Casualty Co. “Liabilities can run 20 years,” says Bailey, “and we don’t want to be responsible for business we can’t price correctly--especially with the legal system so unpredictable.”
Aetna is being sued--as are Allstate, Cigna, Hartford Fire, Lloyds of London and others--so Bailey is hardly objective.
In opposition, the American Trial Lawyers Assn. accuses insurers of inventing the crisis to raise premiums and avoid risks.
But such claims and counterclaims aside, the problem is real. Doctors and day-care centers have difficulty getting insurance. And municipalities everywhere are self-insuring, forcing the taxpayers to shoulder the risk.
Fear of litigation is behind it all--the specter that an injured child, an uncured patient, or a group of local residents will win a staggering damage award.
The story in insurance is what is not happening. Of the 3,600 property casualty companies--those that insure houses and cars as well as towns and cities--none is rushing to supply a yawning demand from municipalities. Even Japanese firms, eager for every other market, are staying out of this one.
The risks, particularly pollution liability, remain too ill-defined for insurers to reserve for loss. Nor can they reduce risk by reinsuring with Lloyds of London, West Germany’s Munich Reinsurance or Swiss Reinsurance in Zurich.
Those international companies are always wary of U.S. courts, which base generous awards on American incomes and expectations. They want Union Carbide to keep the Bhopal disaster out of U.S. courts, for example, because it will be cheaper to settle in India. The lives of Indians are not worth less than those of Americans in the eyes of God, of course, but in the income projections that govern court awards, they are. It works the same here. The estate of Philip Estridge, the IBM executive who died in a plane crash, last week got $7.9 million, reflecting what the 47-year-old developer of the PC might have earned through age 60; your family would undoubtedly get less.
Frightening Precedent
In pollution specifically, the Jackson Township, N.J., case shook insurers. In that 1983 case, 339 New Jersey residents were awarded $15.9 million--including $8.2 million for future medical check-ups--because their well water was contaminated by pollutants seeping from a town landfill.
It wasn’t the sum as much as the precedent that frightened insurers. They had insured the township against accidents, sudden events like a brick from Town Hall hitting a passer-by on the head. But the court held the landfill’s seepage to be a “sudden accident” and that gave Hartford Accident Co. a long-term liability.
But that was five years ago. Today, despite the rhetoric, the insurance business and legal profession are working out solutions to the pollution problem, just as they coped in the past with the introduction of workmen’s compensation. Private insurance, backed by a government catastrophe fund, is one possibility being discussed.
Otherwise, the overall crisis is defusing itself. So far, 42 states have put limits on liability awards. New York state has made insurers set up assigned risk pools for day-care centers and ski areas. The federal government has increased availability through a law allowing insurers licensed in one state to practice in all. As to rising insurance premiums, more competition--Japan could be heard from--will keep them in check.
Meanwhile, the attorneys general, with their rhetoric and antitrust suits, may do no harm. But they’re not likely to help much either.
