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The Actuary The magazine of the Institute & Faculty of Actuaries
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Asbestos claims in Europe

Asbestos it used to be known as a miracle mineral. It was impossible to set on fire, abundant, cheap to mine, and easy to manufacture into a variety of products. Unsurprisingly it was heavily used in shipbuilding, engineering, and construction industries worldwide.

The situation in the US
In the US, asbestos compensation occurs almost exclusively through the legal system. Payouts for mesothelioma the signature disease arising from exposure to asbestos have been up to $20m per person. The total cost arising from all past, present, and future US asbestos claims has been estimated to be between $200bn and $275bn. Estimates of losses to the non-US insurance market are around $30bn. To put this into perspective, the largest one-off insured loss in history the World Trade Center disaster has an estimated cost of about $40bn.
The asbestos problem doesn’t just affect insurers’ balance sheets. So far approximately 60 non-insurance companies which mined, manufactured, or processed asbestos, or used it in their products, or had some other connection with asbestos, have gone into Chapter 11 insolvency, the US equivalent of bankruptcy. The volume of asbestos claims has been rising so quickly that over half of these Chapter 11 insolvencies occurred in the last two years.
To combat the rising number of claims, the Judiciary Committee of the US Senate proposed setting up a trust fund to pay out asbestos compensation and to contain the huge associated legal costs. The committee’s proposal has met with an almost equal amount of support and opposition by the various stakeholders asbestos claimants, employers, and their insurers. By the time this article is published, we will hopefully know whether the Senate has approved the trust fund.

What about Europe?
The ways in which European asbestos sufferers can claim compensation varies significantly across Europe.

France
In France, claimants can claim from le Fonds d’indemnisation des Victimes de l’amiante (FIVA Fund for Victims of Asbestos Exposure). The fund was set up to simplify compensation procedures and speed up claim payments. FIVA guarantees to make an offer to each claimant within six months of claiming. If the claimant accepts the offer, the matter is closed and the claimant cannot return to the courts. If the claimant refuses the offer, he can then try the court system. Pierre Béchade, head of commutations at French reinsurer SCOR, recently quoted the following compensation levels given by a FIVA document: compensation from the fund for a 60-year-old of approximately E275,000 (£193,000) for mesothelioma and E90,000110,000 (£63,00077,000) for non-terminal cancer.
The intention is for FIVA to recover payments from the relevant negligent employer(s) and their insurers. The exposure of insurers is estimated at £3.7bn over the next 20 years. The fund currently has E800m (£560m) funded by the state, liable employers, and their insurance companies. It has made 976 offers to claimants, but as at 31 March 2003, the fund hadn’t fully settled any of its claims.

Netherlands
In the Netherlands, mesothelioma claimants whose exposure took place less than 30 years ago can claim from the Institute for Asbestos Victims (IAV). The IAV makes advance lump-sum payments of E16,000 (£10,500) within a few weeks of notification of a mesothelioma claim. Average payments are about E50,000 (£35,000). As with FIVA, although the government will try to recover the expenses from the negligent employer, the claimant will be paid regardless.
Mesothelioma claimants whose exposure took place more than 30 years ago can claim from the Government Asbestos Institute (GAI). However, the average payout by the GAI is E17,700 (£12,500) substantially less than that from the IAV. Workers who contracted a non-mesothelioma disease from exposure to asbestos cannot claim from either fund. Their only option is to sue their employer, and therefore insurers end up paying most of these claims.

Germany
Any worker who succumbs to an asbestos-related disease after exposure in Germany can claim from the state Berufsgenoßenschaften (occupational health) system. To date, no German industrial companies (or any insurers) have had to compensate asbestos sufferers, but commentators think this situation may change. Currently, all German companies pay a premium to public law occupational accident insurers who cover their corporate liabilities.
Since 1980 there have been 11,000 asbestos-related deaths in Germany. Scientists predict that between 2002 and 2020, 20,000 more Germans will die. It is not clear whether the state will seek to recoup money from companies and their insurers, given the potential increases in future payments.

Italy
In Italy, asbestos claimants must notify INAIL (Istituto Nazionale di Assicurazione contro gli Infortuni sul Lavoro Institute of National Insurance for Accidents at Work). INAIL assesses each case and then notifies the INPS (Italian state pension department). The package of benefits available for sufferers of asbestos-related diseases in Italy includes:
– early retirement;
– increase of pension benefits; and
– increase of salary.
Typically, the increase in pension benefits is estimated by increasing the pension contribution for the period they were exposed to asbestos by 50%. However, this applies only to workers who have been exposed to asbestos for a minimum of ten years.
INAIL is able to recover payments to claimants from any negligent employer. The employer can then claim back under a specific insurance policy RCO (Responsabilità Civile Operai). However, for claims before 2000, RCO policies will reimburse only pain and suffering awards. To date, INAIL has made little use of this ability to recover costs.

UK
UK asbestos claims were examined in more detail in my earlier article in The Actuary (July 2002). Briefly, there are three ways for people suffering from asbestos to obtain compensation:
– They can sue their former employers (or the companies responsible for the exposure to the asbestos).
– They can claim benefits from the Department for Work and Pensions and the state benefit system.
– Some can claim under the Pneumoconiosis, etc (Workers Compensation) Act of 1979.
The largest ever UK mesothelioma payout was made earlier this year: a payout of £4.25m. However, this was an exceptional payment. According to the TUC, average payouts for mesothelioma vary between £50,000 and £100,000. An analysis of newsletters produced by the London law firm Norton Rose showed average payments were £98,127 for mesothelioma and £57,726 for lung cancer.

Will European claims follow the US?
Although the European culture is not as litigious as that of the US, there are signs that European countries are adopting more litigation-friendly practices. The 2002 House of Lords Fairchild ruling last year allowed UK workers to claim compensation even where the asbestos exposure related to more than one employer and the employee couldn’t prove which employer’s exposure was responsible for the mesothelioma. In France, the Supreme Court of Appeal ruled that an employer’s inability to provide a safe workplace was an ‘inexcusable fault’, which made it easier for French workers to sue their former employers. In March 2003 a UK asbestos company (Cape plc) was sued successfully in the UK by South Africans who were exposed to asbestos from its mining and processing operations in South Africa. This particular ruling has negative implications for asbestos multinational companies that operate in other countries. US lawyers have proved adept at spotting opportunities to obtain compensation for their clients. There is no reason to expect European lawyers will be less adept. There are still, however, important differences between the US and European asbestos claims environment.
In the US, non-malignant claims have typically been bundled with a single malignant mesothelioma claim. To avoid the high costs of court awards, US insurers settled these bundled claims. However, this strategy backfired as lawyers actively searched for people with asbestos exposure rather than for people with asbestos diseases. Consequently, the surge in US claims is being driven by claimants who do not actually have an asbestos-related disease. Of the 91,000 cases filed in 2001, only about 6% of the claimants were suffering from asbestos-related diseases.
Compensation in Europe has generally been paid only to people with asbestos-related diseases, rather than to the lawyers and co-claimants in these bundled lawsuits. In Europe there is an absence of lawyers’ contingency fees, cost recovery, bundling of claims, and punitive awards, although the UK does allow the limited use of contingent fees and cost recovery. There is consequently less incentive for lawyers to attempt to pursue claims for people without malignant tumours through the courts.

Should the industry be worried?
In a 1999 study of mesothelioma deaths in the EU, Professor J Peto et al estimated that 250,000 people will die from mesothelioma over the next 35 years, and the total number of deaths arising from asbestos (not just mesothelioma) could range between 250,000 and 400,000 people. The latest epidemiological studies suggest the incidence of asbestos-related diseases in Europe is about 20 years behind that of the US.
In recent modelling exercises, PricewaterhouseCoopers estimated that total discounted European asbestos liabilities may be in the region of £20bn50bn. The insolvencies of Builders Accident and Chester Street in the UK are reminders that European asbestos liabilities although smaller than in the US need to be taken seriously. Insurers and companies that worked with asbestos need to evaluate their reserves carefully, based on a detailed understanding of the underlying exposures and factors influencing claims. For each country, they must consider legal judgments, future legal uncertainty, the propensity of citizens to claim from the private sector, and epidemiological data.
The existence of European state schemes and safety nets may mean there will be fewer corporate and insurance insolvencies than in the US. However, European asbestos claims are likely to adversely affect companies’ future trading results, reputations and share prices. The increasing number of asbestos-related deaths, and the continuing exposure of people to asbestos even now, suggests that insurers and affected companies should, at the very least, ensure they work with their claims teams to identify all possible exposure to asbestos, and regularly review their reserves and the quantitative and qualitative factors affecting the reserves.

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