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Posts Tagged ‘asbestos’

The Complications of Sub-limits in High Exposure Cases

Posted on: August 16th, 2019

By: Phil Savrin

Insurance coverage is essentially the transfer of risks to insurers who have pooled assets through payment of premium to cover liabilities that may arise to the insureds. As the exposures rise in value, the cost of coverage rises to meet the demands of the insurance industry.  Over the years, certain exposures have become increasingly difficult to cover, such as liabilities arising from asbestos, artificial stucco, and so-called junk faxes under the Telephone Consumer Practices Act of 1991. A single lawsuit involving these types of claims can easily exhaust the policy limit in addition to incurring significant costs of the defense.

To remain competitive while also keeping premiums affordable, some insurers offer to cover these types of claims but with a cap on the exposure through a sub-limit.  So, for example, a CGL policy that covers a bodily injury exposure up to $1,000,000 “per occurrence” might provide a reduced limit of $50,000 for a particular exposure such as a claim that involves sexual molestation or abuse. To further control the exposure, the sub-limit often includes defense costs, which could wholly eliminate the sub-limit in a case of significance.

Having a sub-limit can give the insurer an “edge” in resolving high-exposure claims where the proceeds of the policy is essentially the only recoverable asset of the insured. Even where the insured is financially solvent, a sub-limit can protect the insurer from paying more than the amount that went into the calculation of the premium. On the other hand, a sub-limit can create complications when the claimant is unwilling to accept the lower amount of coverage, or when the claimant (and/or the insured) contends that the claim does not fall entirely within the endorsement containing the sub-limit.  Once the defense costs consume the amount, the insurers may then need to determine whether to withdraw from the defense based on the exhaustion of the applicable limit or to continue to defend and consider bringing a declaratory judgment action.

This scenario can present a dilemma for the insurer; withdrawing from the defense could result in an extra-contractual claim, while continuing to defend adds unintended costs especially if a coverage action ensues. These costs may be warranted in light of the exposure presented yet incurring them over and above the sub-limit cuts against the reason for having the sub-limit in the first place.  Similarly, claimants and insureds may incur additional legal costs in litigating the applicability of the sub-limit and add uncertainty to the resolution of the claim.

In sum, although sub-limits help contain costs in high-exposure cases, careful consideration must be given to their enforcement which can present special challenges to claimants, insurers, and insureds alike.

If you have any questions or would like more information, please contact Phil Savrin at [email protected].

The EPA Acts, Kind of, on Asbestos

Posted on: April 26th, 2019

By: Koty Newman

On April 17, 2019, the EPA finalized a significant new use rule (“SNUR”) governing asbestos use. The SNUR ensures that any discontinued uses of asbestos will not re-enter the marketplace without the EPA’s review. The EPA explains that this will close a loophole in its regulatory scheme for asbestos. Thus, if a manufacturer or processor would like to reintroduce asbestos into any product that is now free of asbestos, but contained it in the past, the reintroduction of asbestos would be subject to EPA review. Under the SNUR, the following uses for asbestos are examples of uses subject to EPA review: adhesives, sealants, roof and non-roof coatings, cement products, high-grade electrical paper, pipeline wrap, and any other building material. The EPA characterizes these uses as neither ongoing nor already prohibited under the Toxic Substances Control Act. The SNUR keeps prior asbestos prohibitions in place and does not amend them in any way. The SNUR will be effective sixty days after the date it is published in the Federal Register.

Critics of the SNUR say it does not go far enough. The Asbestos Disease Awareness Organization likens the SNUR to a smokescreen, as it only applies if companies wish to reintroduce to the marketplace a product that is already obsolete. The Asbestos Disease Awareness Organization called for a complete ban of asbestos.

The SNUR is not likely to have a great impact on business because industries are already utilizing economically viable products without any significant need for the reintroduction of asbestos. Even so, if a company wishes to reintroduce asbestos to a product, it must notify the EPA at least ninety days prior to initiating manufacturing or processing of the product that falls under the SNUR.

Regarding ongoing uses of asbestos in the United States, the EPA is evaluating those uses in the context of its separate asbestos risk evaluation. Some uses that the EPA is looking at in the context of its risk evaluation, but that are not affected by the SNUR, are sheet gaskets, oilfield brake blocks, and aftermarket automotive brakes/linings. If the EPA finds that a use constitutes an unreasonable risk of injury to health or the environment, the EPA could decide to prohibit the use.

If you have any questions or would like more information, please contact Koty Newman at [email protected].

In the Land of Insurance Coverage, Specificity is King

Posted on: December 13th, 2018

GA Court of Appeals Finds Insurer Must Cover Millions in Damages Because of Policy Ambiguities

By: Brandon Howard

Whenever a court suspects an insurance policy is “ambiguous,” anxiety strikes the minds of both coverage counsel and insurers alike. For coverage counsel, combating an alleged ambiguous provision of a policy typically occurs on the back-end, after an incident has occurred and the claimant or plaintiff has already made underlying allegations of liability. As a result, coverage counsel can only advise clients or litigate matters within the framework of any given insurance policy’s established language. Yet, as policy issuers, insurers are uniquely positioned to monitor trends in litigation, on the front-end, in an effort to anticipate and revise policy language which may appear ambiguous in light of unique or uncommon facts. By proactively taking on vague policy provisions, a prudent insurer may avoid unanticipated exposure and a public battle over any alleged ambiguities during litigation.

Recently, in Nat’l Union Fire Ins. Co. v. Scapa Dryer Fabrics, Inc., 2018 Ga. App. LEXIS 634 (Ga. Ct. App. Oct. 26, 2018), the Georgia Court of Appeals demonstrated how a pair of ambiguous policy provisions can expose an insurer to millions of dollars in unanticipated liability. In that case, over a period of five years, the primary insurer, National Union, issued commercial general liability policies to an entity selling asbestos-containing dryer felts (Scapa). Three of the policies had $1 million occurrence/aggregate limits, while the last two policies purported to cap the insured’s liability limits for any one occurrence at $7.2 million. Citing the policies’ non-cumulation and limit erosion provisions, National Union argued that its duty to indemnify Scapa was discharged when the Scapa’s liability reached $7.2 million. Scapa, however, argued that both the non-cumulation and limit erosion provisions were ambiguous, thus allowing it to “stack” the limits of each of the primary policies, for a total coverage limit of $17.4 million.

On appeal, the Georgia Court of Appeals held that Scapa was allowed to stack the coverage limits of the five National Union policies because the policies’ non-cumulation clauses were ambiguous. The policies provided that if “[Scapa] has been provided with more than one policy by [National Union] covering the same loss/losses, the limit of liability stated in the schedule of this endorsement is the total limit of [National Union’s] liability for all damages which are payable under such policies. Any loss incurred under this policy shall serve to reduce and shall therefore be deducted from the total limit of [National Union’s] liability.” Confronted with this language, the Court concluded that the non-cumulation provision is ambiguous because “[it] does not indicate whether the limit applies to [each discriminate] policy period only or to the aggregate period under the original and renewed policies.” Construing the policy in favor of the insured, the Court held that the non-cumulation provision did not apply in the aggregate and, therefore, Scapa could stack its policy limits to gain an additional $10.2 million in coverage beyond what National Union contended was due.

On the issue of policy limit erosion, the Court also sided with Scapa. National Union had argued that, under its policies, the liability limits were eroded by the costs expended to defend Scapa against liability. For support, Scapa pointed to the policy, which provides that the limits of liability are reduced by “all expenses incurred by [National Union], . . . in any claim, suit[,] or other action defended by [National Union].” The Court noted, however, that National Union’s limits “[are] eroded only by the total sums that National Union ‘become[s] obligated to pay due to’ any bodily injury or . . . property damage.” The erosion provision, according to the Court, “is ambiguous as to whether such expenses include defense costs National Union is obligated to pay solely as part of its contractual duty to defend (as opposed to those sums it is legally obligated to pay by reason of the liability imposed upon Scapa by law for damages).” Again, construing the policy in favor of the insured, the Court held that National Union’s limits were not eroded by the costs incurred defending Scapa.

If you have any questions or would like more information, please contact Brandon Howard at [email protected].