Document 06z2zzYKwEZ6E6110xM0nvVjJ

PLAINTIFF'S EXHIBIT L E fllW I ASBESTOS ii I EXPOSURE i ! who's going to pay for it?! think that for a while there's going to be insurance that's not yet been tapped... that would be insurance that's in a different category than the insurance that would cover the personal injury suit. "The other thing is that the companies do have money. Our primary target is the manufacturers, though we have gone after some of the installers. But 1 think you're right, that if all 50 states filed suits similar to Maryland's, tt would be difficult for them to pay the amount.. . It's go ing to be a long line." --Evelyn Cannon, Assistant Attorney General, State ofMaryland, comment ing on that state's $500 milium suit against 47 asbestos producers for the cost of cleaning asbestos out of 3,000 state-owned buildings. Sometime this year, asbestos abatement -- much like hazardous waste cleanup -- ceased to be an approachable market for contractors because of the virtual disappearance of liability coverage. This shortage of coverage is oed to the fact that property claims have become, for the insurance industry, un conscionable. For instance, while the total surplus of aO property-casualty car riers is estimated at around $60 billion, property claims against Manvilie Cor poration alone are expected to reach $69 billion. The "long line" already forming behind Maryland could expect -- assum ing all were treated equally -- the award of some $25 trillion. Small wonder the in surance industry recoils at the mere mention of the word "asbestos." An informal polling of insurance exec utives reveals that today there are pro bably no more than two established com panies willing to underwrite new asbes tos removal policies on a regular basis. The terms of these policies -- offered only to highly experienced contractors and invaribly on a claims made basis -- include liability limits ranging from $500,000 to $1 million, with premiums of 15 to 20 percent of gross revenues. As recently as the last quarter of 1984, however, several companies were writ ing occurence-based coverage for less than two percent of revenues with limits ranging from $2 to $5 million -- available to pretty much anyone! (UKOT SHUTDOWN? ' `The situation will virtually shut down the asbestos abatement industry if it isn't solved," savsijenrv Nocka. Jr..-vice presidenfofAcmat Corp. of East Hart ford, a leading abatement contractor now in the process of forming its own in surance company. "In this country there's going to be $26 billion of asbestos removal required over the next three years. The insurance available now can't even scratch the surface of what's ! needed." I Some insurance analysts say the prob- | lem isn't so much with the nature ofM* asbestos abatement work as with theT* tremendously cyclical nature of the w-O surance business itself. "At the top ofO the cyde they cut prices... ,"J. Robertfi- Hunter, head of the National Insurancqq- Consumer Organization told Congress uwj testimony recently.' `At the bottom they^Tj cancel everyone, even businesses that--, never once had a claim, just because of-' the fear they feel of any possible nsk.'' And according to Nozko, that is exactly what has happened to the asbestos abatement industry: "They are ridicu lously overreacting. In the whole field there has yet to be one health-related habfiity claim made in the United States." Broad statements aside, Acmat's new in surance company will scarcely improve on going rates when it starts up in Octo ber, offering claims made coverage for 18 to 20 percent of gross revenues with liability limits up to $1 rmlbon -- if you're a contractor with five or more years of experience. The fact is, asbestos related claims are > .1 >0 'r S'3' Jut* CONSTRUCTOR/SeptemDer 1935 macros undeniably costing the insurance industry a lot of money, and this plainly has them spooked. "Most of the major earners in the U.S. have had claims submitted to them as a result of being involved with either asbestos insulation contractors or manufacturers," explains Joe Walsh, president of Great American Express and Surplus Lines, the most visible com pany soil writing asbestos abatement policies. "Over the years it's ac cumulated into a pretty serious amount of dollars, and with the reinsurance market generally dried up, companies are simply saying, 'we've had it with asbestos.' It's a kneejerk thing, but you're not going to talk them back into it easily." Albert Amend, spokesman for Aetna Life and Casualty, takes an even harder line: "Asbestos work is utunsurable." Citing the fact that any health complica tions hnked to current asbestos work would "probably take years to show up,'' insurance companies, be says, are unable to assess the risk the're being asked to insure. MOIIUM1JTT Determining where the ultimate nsks are for insurance companies, however, is a tricky question. An EPA survey of buildings other than schools estimates that 700,000 commercial, residential apartment, and federal buddings contain friable (crumbling) asbestos, and owners | are increasingly concerned that occu[ pants may sue over future asbestos related diseases. That previously ated three-year/$26 billion abatement figure? "The needs will be multiples of that," predicts one insurance industry observer Says Ned R. Wilson, president of National Environmental Engineering, Inc., an Indiana-based abatement firm: "Look, we're the good guys. Contrac tors are willing to remove the fiabQity that a building and property earner has right now but may not be aware of." In the meantime, abatement contrac tors with blemished claims records or lit tle experience are unable to find insur ance. In Iowa, for example, contractor ranks have been reduced from 17 to 2 i smee January, while nationwide fewer , than 100 are said to be seriously work; ing in abatement. Totally inexperienced ' contractors, those who have yet to make ' the requisite SI00,000 startup invest; ment m equipment, have only raw mar' ket projections -- and possibiy the EPA -- to encourage them. "There are an awful lot of people who want to do this, but unfortunately, very few who are qualified to do it." says Great American's Walsh. Great Ameri can policy applications, in fact, require that a contractor describe in writing the details of his removal operation -- type of air filtering machine, which outside monitoring services are used. etc. "If he can describe to us what we thmk is a credible and property organized outfit to take this stuff out safely," says Walsh, "then we'll consider him -- but obvi ously, we accept very- few." Outside of Acmat's new insurance company -- which hopes to write $30 million to $50 million in premiums the first year -- hope for contractors is be- ikin' yc* o. Zcoorw ing held out by at least one other source. The Association of Wall and Ceiling In dustries is considering a hunted, tightly controlled plan for their members and other experienced abatement contrac tors. The plan will extend services pro vided by AWCl's one year old Bermudabased company, Hereford Insurance and Surety, Ltd , which has been writing workers' compensation for non-asbestos abatement firms. To raise the additional needed surplus, contractors will pay a one time deposit equal to the cost of their premium (as yet unspecified). "We polled our regional EPA offices to find out how much work is being shut down. Some said there was a reduction ui activity, but nobody said there wasn't | anything happening. I thmk if the tone of : your piece could be more positive . . . that yes. there is insurance ..." --Dave Mayer, chiefofEPA`s Techni cal Assistance Asbestos Actum Program moms nutter The greatest difficulty in assessing cur rent insurance availability lor asbestos abatement stems from the fact that it's truly, in the words of one insurance ex ecutive. "a moving target." Many con tractor policies that were in place when the EPA conducted its above menponed poll are up for renewal by the end of the j year. And according to Jim Seaman, insurance operations manager at Master Builders of Iowa (AGC). a number of! these are occurence-based policies, j unlikely to be renewed in the existing underwriting climate. There are also many companies who have their abate ment work covered -- temporarily -- by genera] liability policies meant to cover j other company activities. Says one Midwest insulation contractor whose policy is up for removal m September: "Our abatement work is covered for now because it was never specifically ex cluded in our overall policy. We've already been told it won't be renewed '' Furthermore, policy cancellations often have little to do with a company's claims record. Acmat, which does roughly $25 million in abatement work annually, was dropped April 1 by CIGNA j Corp., its carrier of four years, even : though CIGNA had ated the contractor's I operations as state-of-the-art. Acmat has I since brought suit against CIGNA for, among other things, lost revenues dur ing tne period they were uninsured j Awaiting the debut of their own in- i 32 Seo'eTioe- i965'CO^'STRiJCTOR ST004407I surance company. Acmat has obtained coverage from Great American Surplus. j SMtMKlRC NOl The prospect of a shrinking pool of | abatement contractors, most insured by I one or two major earners, with virtually i no new contractors breaking into the held | is understandably one the EPA wants to | avoid. Their asbestos-m-schools proI gram, which requires school districts to | inspect their buildings for crumbling ! asbestos, drew national headlines re- 1 cently when EPA threatened Detroit schools with $454,300 in fines for failing ! to meet those inspection requirements. ; The agency's regional inspectors said ! they found crumbling material that could ! contain asbestos on pipes, boilers, ceil! mg beams and in air circulation systems | at 14 out of 17 Detroit school buildings it inspected But according to Acmat's Nozco, the shortage of contractors is already caus ing problems for the program: "I can name you 15 munigpaLhidJettmgs in re cent months where Acmat was. the only bidder. In 10 of those the job, wasn't awarded because statutes required more than one bidder, and the schools -- because tEey can only remove it in the summer -- were forced to wait another year.'' In fact, schools are faced with an ar ray of problems -- administrative, tech nical, and financial -- in carrying out the mandates of the EPA. For instance, tiny ! Haverford school district near Philadel phia spent $2 million last summer remov| mg asbestos from 2 of its 8 schools. j Recently, they were the center of publicity when, along with several other area ! school districts, they fired an asbestos I consultant who had allegedly falsified his | credentials. ``I don't think there is such | a thing as a certified asbestos expert," i complained one Haverford school j supervisor. I With school abatement work, the prob1 lem of high insurance rates has thus far re mained with the contractor.'' Our bigI gest challenge," says Nozco, "is getting | our pnee down within a school's budget, ' most of which were made one or two i years ago, but don't include the cost of today's insurance." However, in private sector abatement work, these tncreases coupled with diminishing competition among contrac tors could make removal work prohibit ive!) expensive. As one contractor put it "1 think the private sector is just go ing to five with it for awhile." KIHSUIURCI Reinsurance is a mechanism which spreads losses and risks by broad parti cipation. Reinsurers provide coverage to insurance companies for excess losses sustained in a certain line or lines of coverage, and thus give earners an in centive to continue wnting policies in "tight" markets Consequently, condi tions in the reinsurance marketplace -- currently very constricted -- significantly affect the pnee. amount, and type of primary insurance available ``Most primary insurers -- big or small -- couldn't return to the asbestos market even if thev wanted to," says one msur- CLAIMS MADE COVERAGE Claims made coverage is different than traditional occurrence coverage. Occurrence coverage provides per manent coverage for any claims aris ing out of accidents which occurred during the pobey period, regardless of when the claim is actually filed. Thus, if a daim is filed m 2000 for an event which occurred in 1984, the occur rence based insurance policy in force in 1984 would respond to the loss. Claims made coverage, on the other hand, attaches when the claim is made against the insured, regard less of when the event took place. In the same scenario as above, if the event occurred in 1984, and the claim was filed in 2000 under claims made, the policy issued in 2000 would re spond. The problem with claims made coverage is that if the coverage is ever cancelled by the insurance com pany, the entire penod of time which had been covered by claims made in surance now becomes uninsured. From the asbestos abatement con tractors' standpoint, therefore, abate ment operations could have been undertaken from the year 1985, to, for example, 2000. If the coverage is then canceled in 2000 and no "tail coverage" can be obtained or af forded. then the contractor will be I uninsured for all claims arising from ! incidents which occurred between 1985 and 2000. ance executive, "there ;ust isn't rein surance available." Indeed, six months ago Great American Surplus was wnting liability limits of $1 million with its abate ment policies "Half a million dollars of j the reinsurance collapsed." sighs Walsh, i "We had to drop our hmit back to S500.000 " ! Essentially, the insurance industry points to three things that have resulted m the collapse of asbestos insurance, as | wel) as most other hazardous waste i coverage: j 0 The lack of actuarial data to establish | realistic premiums that adequately reflect i nsk; I The lack of universally accepted ] methods for assessing what nsks exist. ] 0 Society's perception that such nsks i haven't -- or can't -- be adequately managed. j This third point, the industry contends. | will ultimately lead to several costly ef- | fects: third party claims for virtually all policies that they underwrite: a subse quent duty to defend against these claims; resultant high litigation costs; and policy losses due to court rulings m favor of the insured for coverage that the in surer did not intend to provide. Because asbestos abatement and haz ardous waste cleanup are urgent national issues, AGC is working with Congress to seek a solution to the insurance pro blems m these areas. For example, AGC i supports provisions in current Superfund j reauthonzanon legislation that would in- j demmfy hazardous waste contractors or ; exempt them from liability under federal, j state, or common law. And while new j legislation might also extend such | Jmeasures to asbestos abatement, any i comprehensive solution should include provisions that would- differentiate the habihty of cleanup j contractors from that of responsible parties; establish a single standard for third party contractor liability throughout the 50 states; hold contractors responsible onlv for their own negligence, develop guidelines specifying what constitutes negligence. Without such an approach, it is virtually certain that asbestos abatement and haz ardous waste cleanup markets will re- j main off-limits for contractors for the i foreseeable future t i --By Horry Blevins Jr. iU Q O kktLl-Z CONSTRUCTOR'SeD'embe' 1*55 33