Asbestos Claims Values at a 12-Year High: 3 Actions to Take Now
Lawsuits alleging bodily injury resulting from exposure to asbestos remain a costly challenge for businesses. Research by NERA Economic Consulting concludes that while new asbestos filings are declining, the average cost per claim increased to a 12-year high in 2019. At the same time, case dismissal rates are continuing to decline.
Epidemiological projections suggest that claims alleging asbestos-related injuries from legacy exposures will continue to be filed for another 20 to 30 years. This underscores the need for organizations with asbestos exposures to immediately take action to protect their balance sheets.
Companies Facing Ongoing Risks
Asbestos is not a new risk. In fact, it’s been a significant concern for businesses across a multitude of industries for a number of years.
Plaintiffs’ attorneys continue to expand the pool of target defendants, increasingly targeting organizations that have acquired or merged with businesses that have legacy asbestos exposures.
Organizations with potential asbestos risks, whether they already have pending cases, should take the following three actions to protect themselves.
1. Identify Historical Coverage and Pursue Recovery of Claims
After learning of the potential legal and financial implications, new defendants should promptly review insurance coverages that could respond to asbestos-related claims. Historic liability insurance policies, in particular ones issued prior to 1986, frequently offer coverage for the financial implications of claims — including payment for defense costs, which can be substantial.
Despite the value of such coverage, organizations often struggle to locate historic policies and documentation required to confirm coverage. Others do not even know whether that coverage exists.
With settlements and legal fees potentially amounting to millions of dollars, uncovering historical coverage is critical, especially for companies that are already dealing with claims. Insurance archaeologists provide valuable assistance by identifying historical policy information; subsequently insurance specialists can help companies better understand the coverage offered by these policies, and pursue insurers for the recovery of claims costs.
2. Forecast Potential Losses
Considering the potentially high costs of asbestos-related claims, companies with exposure should take steps to quantify the financial impact. Coupled with a thorough understanding of insurance coverage, an actuarial analysis can help organizations better understand their financial risk and budget for asbestos-related claims costs.
Due to changing litigation trends, companies should revisit their asbestos liability projections every one to three years and adjust their budgets accordingly. This is especially important for companies that must disclose information related to their reserves.
Reliable data is critical to risk and exposure management. Considering the potential changes in loss projections, organizations should create a data management system that brings together all asbestos-related information — including ongoing litigation, other potential exposures, and payments that have already been made. This type of data collection can help identify trends, including, for example, defense counsel litigation success rates.
3. Understand Coverage Options
Businesses typically rely on historical general liability (GL) and umbrella/excess policies to recover costs for asbestos-related claims. But these policies rarely cover all expenses. That means many companies — even if they have a robust archive of pre-asbestos exclusion policies — will be forced to absorb substantial fees, including those related to defense, claims administration, and claims management.
Rather than incurring these costs, companies may consider alternative solutions, including:
- Adverse development cap insurance. This solution provides coverage for claim costs in excess of an attachment point. Companies that purchase this solution will pay for claims up to the insurance attachment point. If claims costs exceed that amount, the policy will cover costs up to a preset limit (the cap). Companies that purchase adverse development cap coverage will still maintain responsibility for claims administration and management.
- Loss portfolio transfer. Companies can also transfer forecast claims costs to an insurer through a lump sum payment, with additional coverage purchased to cover potential overruns. The insurer is then responsible for both claims management and defense costs.
Asbestos claims are expected to continue for decades to come. Companies with potential exposure are more likely to see positive results by developing an aligned strategy that incorporates historical coverage, forecasting mechanisms, and alternative solutions. In order to prepare, potentially impacted organizations should discuss their defense strategy with counsel, and connect with their broker or insurance advisor to better understand potential coverage options.