CAS Seminar on Ratemaking Megatort Update Alison Drill, FIAA, MAAA Trevar Withers, ACAS, MAAA...
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Transcript of CAS Seminar on Ratemaking Megatort Update Alison Drill, FIAA, MAAA Trevar Withers, ACAS, MAAA...
CAS Seminar on RatemakingMegatort Update
Alison Drill, FIAA, MAAATrevar Withers, ACAS, MAAATILLINGHAST – TOWERS PERRIN
Tampa, FloridaMarch 7-8, 2002
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Current and Potential “Megatorts”
Excluding asbestos, mold, pollution, terrorism and tobacco
What factors cause or contribute to a “megatort”? How have these factors changed in recent years? What impact will these changes have on future costs?
Current status and the outlook for: Silicone Breast Implants (SBI) Lead Drugs and medical devices Electromagnetic Fields (EMF) Other emerging megatorts
3
Most costly megatorts include some or all of these factors...
Large exposed population
Substantial bodily injury (BI) or property damage (PD), often with long latency periods
Causation of BI or PD relies on expert testimony
Signature diseases (e.g., asbestosis)
Injured parties’ propensity to sue
Contingency legal fees & class action lawsuits
Many exposed policies
Favorable judicial and legislative climate
Large indemnity and/or defense expenses to insurers
4
Changes for plaintiffs and corporations?
Potential plaintiffs Technology and the internet have improved
identification & information sharing Propensity to sue stable (or increasing?)
Corporations Better risk management may speed identification
of potential injuries and mitigation Increasing cost of insurance Higher levels of risk retention & self-insurance Wider product distribution, but better safety
standards
5
Changes for legal system?
Tort reform Stricter standards for technical evidence and use
of expert witnesses (e.g., Daubert rules in 1995) Limitations on damage awards
Shift towards continuous triggers for coverage (e.g., Montrose decision)
Class actions more common Multi District Litigation (MDL) Large contingent fees for attorneys Greater motivation for defendants to settle May increase size of plaintiff pool
Alternative dispute resolution
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Changes for insurers?
Underwriting standards Coverage wording tightened (e.g. “loss in
progress” exclusions, occurrence definitions) Aggregate coverage limits Requiring insureds to retain more risk (e.g. SIRs or
experience rating)
Higher defense expenses Shift to expense within policy limits
Improved claims management with toxic tort specialists
Declaratory judgement actions on coverage issues
Reinsurance availability and cost
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What is the impact of these changes?
Plaintiffs and legal system increasingly looks to class action litigation to tort damage
Corporations and insurers attempt to respond more quickly with better risk management
Most other megatorts in litigation involve limited number of plaintiffs and insurers
Lower likelihood of another “asbestos” sized megatort
Examples of current and emerging megatorts on following pages, none of which are likely to be as costly as asbestos
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Silicone Breast Implants (SBI)
Manufactured 1962 to 1991
Alleged bodily injuries: fatigue, cancer, auto-immune disorders
Defendants: limited number of manufacturers
Recent scientific studies doubt causation, but many insurance settlements already done
Settlements by Dow Corning ($3.2 billion) and other major manufacturers
Dow Corning in bankruptcy; joint reorganization plan approved 1/2002. (few outstanding appeals remain)
9
Lead
Lead paint and other lead products (e.g., water pipes, lead-containing gasoline, ceramics)
Defendants are landlords, housing authorities & municipalities and pigment/paint manufacturers
Mitigation costs and bodily injury to exposed children, building occupants, construction workers
Legislation & courts driving lead abatement EPA “pre-renovation” rule in place Market-share laws State/city suits versus lead paint industry
Lead exclusions included sporadically by insurers
10
Drugs & Medical Devices
DES litigation continues with 2nd & 3rd generation claims
Norplant settlement proposed
Fen-Phen & Redux diet drugs manufactured by American Home Products: class action settlement of $3.75 billion
Contaminated blood products (HIV and Hepatitis C): US hemophiliac exposures now generally settled
Anti-diabetes drug Rezulin
Heartburn medication Propulsid
Anti-depressant Prozac
Anti-cholesterol drug Baycol
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Other megatorts already in litigation..
Chemical exposure claims continue but are generally limited to few insureds, (e.g., benzene, Agent Orange)
MTBE: widespread contamination of groundwater
Latex gloves: plaintiffs mostly medical profession; exposure concentrated with glove manufacturers, MDL underway in Pennsylvania
Gun manufacturers: increasingly sued by individuals and cities/counties; federal judge ruled in 11/2000 case that insurers have no duty to defend or indemnify
Chromate Copper Arsenate: chemical used in pressure treated wood, including playground equipment, which contains arsenic, a known carcinogen
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Potential megatorts with litigation looming...
Diet drugs: Metabolife complaints
EMF: Studies continue regarding effects (e.g., cell phones). Causation difficult to prove, litigation less likely
Genetically modified food: political issues versus scientific evidence
Gulf War Syndrome: studies validate veterans’ concerns
HMO: claims under RICO and ERISA
Intellectual capital: Napster litigation settled, but Supreme Court to review copyright laws