Would you let your children bury
each other up to their necks in asbestos dust? We didn’t think so.
Yet, if you head to the shore and
allow your offspring to indulge in the time-honored ritual of
burying each other in beach sand, you’re allowing them to wallow
in a substance being compared to asbestos: silica.
Silica is the compound that makes
up quartz and is the second most common mineral in the earth’s
crust. It has been with us for eons, but recently caught the
attention of commercial liability insurers after a spike in
silica-related bodily injury claims.
U.S. Silica, a producer of
industrial sand, had more than 19,000 claims filed against it in
2003 for injuries allegedly arising from inhalation of silica. That
was up from about 5,000 claims in 2002 and only 93 in 1997.
The Coalition for Litigation
Justice, a tort reform advocacy group, reports that one large
insurer has seen a surge in silica claims since 2002, and now faces
suits brought by more than 25,000 claimants. There may be as many as
100,000 silica-related bodily injury cases filed today in the U.S.,
according to an internal memo from one reinsurer.
While silica injuries appear to be
confined to people who have worked with the substance, most
silica-related claims are products liability claims involving
products that contain silica or use silica, according to a report by
Credit Suisse First Boston.
In a 2003 filing with the
Securities and Exchange Commission, 3M Corporation cited a growing
number of silica-related product liability claims in connection with
the company’s respirator masks as one reason for increasing its
estimates for litigation costs and potential liabilities.
Asbestos redux?
With silica, respirable particles
of a substance found in mining, construction, and industrial
operations have been linked to lung diseases and other ailments with
long latency periods. Sound familiar?
It has become cliché in the
insurance business to ask if a newly-identified hazard will become
“the next asbestos,” but to some observers, silica exposure
today resembles asbestos exposure in the 1980s.
Like asbestos, which breeds
asbestosis, silica has a signature lung disease, silicosis, for
which there is no known cure. Also like asbestos, silica is linked
to cancer and other ailments.
In addition, insurers are finding
that many of the same law firms that have accumulated
“inventories” of asbestos cases are starting to pursue silica
claims aggressively.
What are insurers to do in
response? Beyond reserving for past exposures and underwriting for
future exposures, is it necessary to consider a standard silica
exclusion for general liability policies, analogous to the standard
asbestos exclusion?
There is anecdotal evidence that
some reinsurers and primary carriers are introducing silica
exclusions into their treaties and polices, respectively.
Can the industry as a whole do that
before the extent of silica exposures and injuries is fully known?
Given what they’ve seen with asbestos, can insurers afford not to
assume the worst and cut their exposure as soon as they can?
Deliberations over silica involve
more than a single hazard. From them may emerge standards and
precedents that will determine how the property/ casualty insurance
responds in the future to the discovery of latent exposures.
Better known;
more confined
If the industry response to silica
depended solely on questions of public and occupational health, it
might be unnecessary to consider general silica exclusions.
Implementation of asbestos
exclusions in the 1980s came a few decades after the health effects
of asbestos inhalation were first discovered, and relatively soon
after public consensus emerged about the dangers of using the
substance.
In response to that consensus,
asbestos was steadily eliminated from private and public buildings
and from all but a limited number of industrial operations. Asbestos
is no longer mined in the U.S.
Thus, when asbestos exclusions were
first approved, insurers could argue they were reacting to a hazard
whose dangers had only recently become known.
In contrast, diseases caused by
silica exposure have been known for
centuries, and their connection to silica has been well-known since
at least the 1930s, when silica exposure was a cause célèbre among
trade unionists and social reformers. Silica is still mined and used
in sandblasting, glassmaking, medical/dental laboratories, and other
operations.
Also, silica ailments appear to be
more confined to people with occupational exposure than is the case
with asbestos, which also posed some danger to the general public.
“Asbestos was used in many more
products than was [respirable] silica,” says Dr. Arthur Langer, an
environmental scientist at Brooklyn College in New York City.
“Asbestos was sprayed as fireproofing, thereby exposing large
segments of the general population.
“Silica is less likely to have
exposed a large portion of the general population to levels of dust
sufficient to cause disease,” Langer adds. “Unlike asbestos,
silica is naturally ubiquitous, but too large in size to be much of
a pulmonary problem.” (Thus, no need to panic when the kids bury
each other at the beach.)
“Asbestos reduces to particles 10
to 100 times smaller in diameter than most forms of crystalline
silica. [Asbestos] is airborne and respirable longer.”
“We see a number of people with
asbestosis, we rarely see anyone with silicosis,” adds Dr. James
Pearle, an expert witness on pulmonary diseases who runs the Western
Pulmonary Medical Group in Anaheim, Cal. Pearle’s clientele
includes a range of people representative of the general population.
Family members have been known to
contract asbestosis from their proximity to a person with
occupational exposure, says Pearle, as when a worker’s wife washed
clothes that had asbestos fibers. “I haven’t heard of
second-hand silicosis,” he says.
Statistics suggest that silicosis
is less of a killer than asbestosis. According to the National
Center for Health Statistics (NCHS), the mortality rate for
silicosis is 1.21 deaths per one million persons, compared to 5.41
per million for asbestosis.
If mortality statistics are any
indication, the incidence of silicosis appears to be falling. The
NCHS reports that 187 people died from silicosis in 1999, following
a steady drop from 305 in 1990. (Although silicosis is not the only
disease linked to silica, it is usually present as a risk factor
contributing to other diseases, and thus a reasonable barometer of
the health effects of silica.)
Litigation dynamics
If the insurance exposure from
silica involved only demonstrable cases of bodily injury arising
from exposure to silica, consideration of a general silica exclusion
would be less pressing.
What insurers have to consider,
however, is the potential for an explosion of silica claims of such
a magnitude that the claims cannot be adjudicated on their merits.
“Silica today looks like asbestos
in the 1980s,” says Steve Carroll, a senior economist with the
RAND Corporation’s Institute for Civil Justice (ICJ), Santa
Monica, Cal.
“Asbestos was first viewed as a
problem in 1982 and then exploded, becoming vastly larger than
anyone dreamed,” he says. “Silica is not a huge problem now, but
has the possibility to explode.”
“The success of asbestos for
plaintiffs has more to do with the manner in which the claims have
been brought than their merit,” says attorney Randy Maniloff, a
widely-published insurance coverage expert with the Philadelphia
firm Christie Pabarue Mortensen & Young.
“Whether silica claims will cause
significant exposure for the insurance industry is tied to whether
such claims can replicate the ‘asbestos business model,’”
Maniloff says.
That “model,” says Maniloff, is
a litigation strategy wherein plaintiffs’ attorneys generate
enough claims against multiple defendants to make it necessary to
institute mass settlements based on diminished standards of injury
and causation.
“Will plaintiffs’ counsel be
able to game the system with silica in the same manner as they have
asbestos?,” Maniloff asks. “This will depend on whether they
generate the system clogging numbers that it takes to do so.”
Clocks ticking
Advocates of civil justice reform
hope to fend off those “system-clogging numbers” by enacting
tort reforms to change the litigation dynamics.
While the U.S. Congress continues
to wrestle with a comprehensive asbestos settlement bill, insurers
and manufacturers are backing attempts to create “inactive
dockets” in asbestos and silica claims that would prevent the
distortions they see in mass torts and allow individual cases to be
judged on their merits.
With inactive dockets, people
exposed to asbestos and silica would be able to file claims to
satisfy statutes of limitations, but the claim would not be heard
until the claimant actually manifested an injury.
A form of this approach was enacted
this year in Ohio, which now requires a plaintiff, upon filing a
case, to demonstrate that he or she has suffered a substantial
impairment of health due to exposure to asbestos or silica for which
a defendant might be liable.
Tort reform advocates say measures
like those enacted in Ohio restore the basic rules of evidence in
asbestos and silica cases, and give truly injured persons an
opportunity to seek compensation they might be denied when dockets
are flooded by claimants who may have been exposed to the substances
but have not become ill.
Maniloff questions whether insurers
will be better off with inactive dockets, however. While inactive
dockets may restore the basic rules of court procedure in asbestos
and silica cases, he says they will likely add a series of
contentious and costly proceedings as plaintiffs seek to demonstrate
they have become ill. This will drive up settlement demands, in his
view.
Tort reform adds another dynamic to
the silica question for insurers. While tort reforms are designed to
limit liability exposures in the long run, they may actually
increase those liabilities in the short run as plaintiffs rush to
the court house to file claims before the tort reforms take effect.
The recent surge in silica claims
is explained, in part, by the campaign for tort reform in
Mississippi, where an estimated 17,000 silica claims have been
filed. Observers believe those claims were filed in anticipation of
limitations on liability awards that were debated for several years
in the state and enacted this year.
Defenses
Where does all this leave insurers?
What are they to do while others try to determine the breadth of
exposure posed by silica?
For policies previously or
currently in force without silica exclusions, general liability
insurers can try to invoke the pollution exclusion to argue that
coverage is not in place, but without great chance for success.
According to a report on silica by
General Reinsurance Corp., Stamford, Conn., “a number of courts
have found that the absolute pollution [is] inapplicable to products
liability claims.”
General liability insurers stand a
better chance of containing silica cases in the workers comp arena
by invoking “sophisticated user” defenses.
In two 2003 cases, one decided by
the Minnesota Court of Appeals, the other by a U.S. district court,
it was ruled that suppliers of silica sand do not have a duty to
inform their buyers’ employees about the risks of silica.
The buyers themselves, as
knowledgeable users of the product, were judged to be aware of the
dangers of silica and bore the burden of informing their employees.
Even if a manufacturer is deemed
liable for silica-related injuries, insurance carriers may be
shielded from some of the exposure by known-injury, or
“Montrose,” exclusions implemented in recent years to exclude
coverage for any damage or injury reported to an insured at or
before the beginning of the policy period.
That said, GenRe concludes that
“it appears that silica exclusions are the most reliable means to
avoid silica exposures.”
A move to exclude?
There are some indications that
carriers and reinsurers are introducing silica exclusions. The
Council of Insurance Agents and Brokers reported in April that, for
the first time, respondents to its latest quarterly survey on market
conditions volunteered that carriers were introducing silica
exclusions.
To date, however, there’s been
virtually no discussion of silica exposure within the National
Association of Insurance Commissioners (NAIC), according to Eric
Nordman, director of research.
“There are likely not many
[silica exclusions] filed so far,” he says.
Approval of a general exclusion may
face tough going among regulators until there is a track record of
claims payments, Nordman says.
“Until you’ve paid some claims,
regulators are not inclined to approve a general exclusion,” he
says. “When insurer solvency is threatened, that’s when it’s
appropriate to put on a generalized exclusion.”
One longtime observer of policy
form development thinks insurers would have little difficulty
implementing a general silica exclusion if they are determined to do
so.
“Insurers desiring to add
exclusions no longer have to make a big case about it, unlike a
couple of decades ago,” says Donald S. Malecki, nationally known
author of numerous books, articles, and newsletters on insurance
policy forms.
“Insurers have been able to add
exclusions even before large losses have taken place,” he adds.
“An example is [loss to] electronic data, which insurers view as
not being tangible property.”
For their part, reinsurers have
been reluctant to make public statements regarding their positions
on silica, but an officer for the U.S. arm of one major
international reinsurer says that “we will definitely look to
exclude loss arising from silica exposure under our reinsurance
agreements.
“We may entertain exceptions to
that standard, but they will be very rare and focus on risks with
minimal exposure and must be accompanied by a compelling reason.”
Others were less forceful on the
question. A researcher for another major reinsurer said it detected
more cedants coming to it with manuscripted silica exclusions, but
offer his personal observation that it is “way too early” for
the industry to implement a standardized silica exclusion.
An account executive for a third
reinsurer noted that, while it had an asbestos exclusion in every
treaty and its cedants uniformly had asbestos exclusions in their
policies, they had not taken such a position regarding silica.
“Are we going to have numerous
exclusions for specific products?” he asked.
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Sandstorm
