Developing Exposures
CAS Seminar on Reinsurance
Washington, D.C.
July 12, 2001
Michael A. Frantz, J.D.
American Re-Insurance Company
Format of the Presentation
“Identified” Exposures
“Developing” Exposures
Questions and Discussion
Identified Exposures




Asbestos
Pollution
Breast Implants
Sexual Misconduct



Repetitive Stress
HIV/AIDS
Fen-Phen
Developing Exposures
Developing Exposures




Advertising Injury /
Intellectual Property
Firearms
Latex Sensitivity
Lead




Managed Care
Mold
MTBE
Tobacco
Advertising Injury/Intellectual
Property

Types of claims include:



Offenses committed in the course of advertising
activities
Libel, slander, defamation, violation of privacy,
piracy, copyright, trademark, tradedress, style
of doing business or patent infringement
Interference with potential business advantage
Advertising Injury/Intellectual
Property
New insurance products address some of these risks, but
coverage issues under the CGL form exist, including,
Advertising Injury Coverage
 Whether Insured is in the business of advertising
 Whether in the course of advertising
 Whether it fits one of the “offenses”
 Whether during the policy period
 Whether 1st publication exclusion applies
Advertising Injury/Intellectual
Property




Personal Injury Coverage
Whether it fits one of the “offenses”
Whether claims are invasion of recognized
privacy right
Whether during the policy period
Whether 1st publication exclusion applies
Firearms
Product liability actions are a recent
phenomenon
 Lawsuits include:



Private recovery actions
Public recovery actions modeled after the
government’s efforts against the tobacco
industry
Firearms
8/4/99 Journal of the AMA report puts the
annual cost for medical treatment of
gunshot wounds at $2.3BB (1994 data)
 A Cal State/Tulane Univ. study in October
1998 indicates 29% of high school boys
possess a firearm
 The Bureau of ATF estimates handguns are
used in 71% of all armed crimes

Firearms

Typical defendants include:




Gun manufacturers
Pawn shops
Firearms trade associations
Recent Developments


USDC in Brooklyn found 15 of 25 gun
manufacturers guilty of negligent distribution
Cities across U.S. filed product liability/cost
recovery actions against firearm industry
Firearms

Since claim activity is recent, it is difficult
to predict insurance implications



Several manufacturers have placed their
carriers on notice
There are generally no specific applicable
exclusions
Market share distribution of liability remains
speculative
Latex Sensitivity
Latex is a natural rubber compound used to
make protective gloves and other products
 About 2.5% of the population is sensitive to
the proteins contained in latex
 Increased demand due to AIDS led to higher
levels of protein in gloves
 Powder in gloves carries irritants into the air

Latex Sensitivity
Hyper-sensitivity can cause skin and
respiratory reactions leading to disability or
death
 Types of Claimants:




Healthcare workers
Patients
Latex glove use in the US rose from 800
million in 1987 to 10 billion in 1995
Latex Sensitivity

The potential impact to the insurance
industry appears manageable
 Courts have generally frustrated the plaintiff
bar’s attempts to certify class actions.
 Most courts now address product
identification before allowing additional
discovery.
Lead

The primary cause of human contamination
is lead paint
Nearly 1.7 million children in the U.S. have
elevated blood lead levels (BLL>.10)
 At high levels, lead can cause a variety of
health problems, including death

Lead

Primary defendants include:




Building owners
Paint and pigment manufacturers or distributors
Plumbing manufacturers and distributors
Frequency and severity of lead claims have
been less than the industry’s initial
expectations
Managed Care
As the population ages, there will be continued
growth in the Managed Care industry
Congress is currently considering Patients’ Bill
of Rights legislation
An increase of claims/litigation may likely
follow

Coverage Issues limited
• Occurrence
• Expected/Intended
Mold
Mold is a fungus, not a bacteria, that
occurs naturally in the environment.
Examples - aspergillus, penicillium and
stachybotrys
Mold can cause health problems depending
on individual sensitivities and amounts
involved.
Mold
Three things mold needs:
Water

Food Source (paper, wood, etc.)

Temperature
There are no state or federal guidelines on
acceptable levels
There is a lack of information on health
effects

Mold
Mold can be very costly to investigate
and remediate.
Ballard v. Farmers Insurance - $32M verdict
($6.2M in actual damages, $5M in mental
anguish, $12M in punitive damages and
$9M in fees)
Mold
Among the claim handling issues are  timely response mold can grow in 24-48 hours
 appropriate consultants and experts
 identification of coverage issues
 appropriate response (e.g. health issues)
 adequate remediation & prevention
Mold
Coverage Issues Presented
1st Party Property (e.g. water damage)
Exclusions for fungus, mold, wear & tear
deterioration, seepage, etc.
Liability (PD, BI or PI)
Does the Pollution Exclusion apply?
MTBE
Methyl
Tertiary
Butyl
Ether
MTBE




MTBE has been used since 1979 as an antiknock compound in gasoline
In 1992 petroleum companies and the USEPA
began using MTBE to improve combustion and
reduce carbon monoxide emissions
“Reformulated Gasoline” use in areas plagued
by poor air quality became mandatory in 1995
85% of reformulated gasoline uses MTBE and
makes up 30% of nationwide gasoline sales
MTBE



MTBE has been identified as a possible
carcinogen
There has been alleged widespread
groundwater contamination from petroleum
that contains MTBE
MTBE can cause symptoms when inhaled,
ingested or absorbed through the skin
MTBE
Insurance Implications




Use of MTBE was stopped by the EPA last
year. Ethanol has been the substitute
Non-specific symptomology may lead to claims
If a product claim, some courts have held that
the pollution exclusion may not apply
The government’s virtual mandate to use
MTBE will likely be used as a defense
Tobacco
U.S. tobacco litigation remains active
 Types of exposures include:



Private lawsuits
Reimbursement actions
• Government recovery of medical costs
• Private reimbursement actions

Ancillary exposures
• Professional liability
Tobacco

State medical cost recovery actions




Settlement of 46 states Medicaid actions
Payment of at least $206 billion
Includes changes in business practices
Insurance industry exposure remains
uncertain
Tobacco
The Engel Verdict
• $145 Billion in Punitive Damages
• $12.7 Million in compensatory damages
awarded to three smokers representing the
class
• Class is comprised of 300,000 to 700,000
sick smokers in the State of Florida only
• Recent commitment to pay $710 Million
Tobacco
Foreign Exposure
• Canada has several reimbursement
actions pending
• EU, Columbia, Guatemala, Israel and
others have also filed actions
• There may be no operable exclusions
So...
What else can we
expect to see?
The End
Thank you!