Document bxNx03BnNjBREb1b1mj5dN4Z

*' ASBESTOS EXPOSURE SUiHIMMt ^MULTI-BILLION DOLLAR MARKET? "Y question who's going to psy tot it? 1 think thit for a while there's going to be insurance that's not yet been upped... that would be insurance that's In a different category than the insurance that would cover the personal injury suit. 'The other thing is i 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 al 50 states fled suits similar to Maryland's, it would be difficult for them to pay the amount... It's go total surplus of al property-casualty car* riers is estimated at around 160 MUon, property claims against Manvile Cor poration alone are expected to reach $69 billion. The "long line" already forming behind Maryland could expect -- assum ing al were treated equally -- the award of some 625 trflboa. Small wonder the in surance industry recoil at the mere mention of the word "asbestos." An informal polling of iniunnoe 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 contractor* in the process of forming its own in surance company. "In this country there's going to be 126 biEon of asbestos removal required over the next three years. The insurance available now can't even scratch the surface of what'a needed." Some insurance analysts say the prob lem isn't so much with the nature of^P asbestos abatement work as with the* tremendously cyclical nature of the in-CD surance business itself. "At the top oJCb the cycle they cut prices...,'' J. Robertc Hunter, head of the National Insurances * Consumer Organization told Congress iq- > testimony recently. "At the bottom thev . cancel everyone, even businesses thaT* ing to be a long ine.'' --Evelyn Cannon, Assistant Attorney General, State ofMaryland, comment ing on that state's 1500 million not against 47 asbestos producers for toe cost of cleaning asbestos out of 3,000 state-owned holdings. Sometime this year, asbestos abatement--much Bee hazardous waste cleanup -- ceased to be an approachable market for contractors because of the virtual disappearance of liability coverage. This shortage of coverage is tied to the bet that property claims nave become, for the insurance industry, un conscionable. For instance, while the and bivaribly on a claims made basis -- indude lability Imits ranging from <500,000 to $1 million, with premiums of IS to 20 percent of gross revenues, As recently is the last quarter of 19847 however, several companies were writ ing occurence-bssed coverage for leas than two percent of revenues with limits ranging from $2 to $5 million -- avaiable to pretty much anyone! REMIT MVIMWIlf "The situation will virtually shut down die asbestos abatement industry if it isn't never once had a claim, just because or the fear they feel of any possible risk. '' And according to Notko, 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 liability claim nade 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 lability Imits up tool million - if you're a contractor with five or more years of experience. The bet is, asbestos related claims are CONSTRUCTOR/September 1985 11 DOW 06365 ASMROS undeniibly costing the insinnce industry a lot of money, and this plainly has them spooked. "Most of the major carriers in the U.S. have had claims submitted to them at 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* party still 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 limply laying, `we've had it with asbestos.' It's a kneejeric thing, but you're not going to talk them back into it easOy." Albert Amend, spokesman for Aetna Life and Casualty, u&ea an even harder line: "Asbestos work is uransurable." Citing the feet that any health complica tions linked to current asbestos work would "probably take yean to show up," insurance companies, he sayt, are unable to assess the risk the're being asked to insure. MUUUT! Determining where the ultimate risks 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 biddings contain friable (crumbling) asbestos, and owners are increasingly concerned that occu pants may sue over future asbestos related diseases. That previously died tSt?""The needs wiB be multiples of predicts one insurance industry observer. Says Nei R. Wilson, president of National Environmental Engineering, Inc., an Indiana-bated abatement firm: "Look, we're the good guys. Contractora are wffing to remove the lability that a building and property carrier has right now but may not be aware of." In the meantime, abatement contrac tors with blemished daims records or fittie experience are unable to find insur ance. In Iowa, for example, contractor ranks have been reduced from 17 to 2 since January, while nationwide fewer than 100 are said to be seriously work ing in abatement. Totally inexperienced contractors, those who lave yet to make f the requisite $100,000 startup invest| ment in equipment, have only raw* mar ket projections - and possibly 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 be can describe to us what we think is t credible and properly organised outfit to take this stuff out safely." lays Walah, "then we'D consider him -- but obvi ously. we accept very few." Outaide 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 ing held out by at least one other source. The Association of Wall and Ceding In dustries is considering a limited, tightly controlled plan for their members and other experienced abatement contrac tors. The plan will extend services pro vided by AWCI'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 in activity, but nobody said there wasn't anything happening. I think if the tone of your piece could be more positive ... that yes, there it insurance ..." --Dave Moyer, chiefofEPA't Techni calAssistance Asbestos Action Program M0YIMIUMI The greatest difficulty in assessing cur rent insurance availability for asbestos abatement items from the feet 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 mentioned poO are up for renewal by the end of the year. And according to Jim Seaman, in surance operations manager at Master Builders of Iowa (AGC), a number of! these are occurence-based policies, unfikely to be renewed ki the existing underwriting climate. There are also many companies who have their abate ment work covered -- temporarily--by general liability policies meant to cover other company activities. Says one Midwest insulation contractor whose policy is up for removal in September: "Our abatement work is covered for now because it was never specifically ex cluded in our ovenfi policy. We've already been told H won't be renewed." Furthermore, policy cancellations often have fittie to do with a company's claims record. Acmat, which does roughly $25 million in abatement work annually, waa dropped Aprl 1 by CIGNA Corp., its carrier of four years, even though CIGNA had cited the contractor's operations as state-of-the-art. Acmat has since brought suit against CIGNA for, among other things, lost revenues dur- ' mg the period they were uninsured. ; Awaiting the debut of their own in- I SI Svcambe' iWS'CONSTkyCTOS DOW 06366 ST004407I surance company, Acmat has obtained coverage from Great American Surplus. nuiim pom The prospect of a shrinking pool of abatement contractors, most insured by one or two major carriers, with virtually no new contractors breaking into the field is understandably one the EPA wants to avoid. Their asbestos-in-schools pro gram. which requires school districts to inspect their buildings for crumbling asbestos, drew national headlines re 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 ing beams and in air circulation systems at 14 out of 17 Detroit school buildings h inspected. But according to Acmat's Nosco. the shortage of contractors is already caus ing problems for the propam: "1 can name_you 15jpuniripal hid lettings in re cent months where Acmat sasjhe only Udder. In 10 of those the job. wasn't awarded because statutes required more than one bidder, and the schools -- becauseThey 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 ing asbestos from 2 of its fi schools. Recently, they were the center of pubicity when, along with several other area school districts, they fired an asbestos consultant who had allegedly falsified his credentials. "I don't think there is such a thing as a certified asbestos expert," complained one Haverford school aupervisor. With school abatement work, the prob lem of high insurance rates hat thus for remained with the contractor. "Our big gest challenge," says Nosco, "h getting our price down within a school's budget, most of which were made one or two years ago. but don't include the cost of today's insurance." However, in private sector abatement work, these increstes coupled with diminishing competition among contrac tors could make removal work prohibit ively expensive. As one contractor put it: "I think the private sector is just go ing to live with it for awhile." MNWUIKI 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 carriers an in centive to continue writing policies in "tight" markets. Consequently, condi tions in the reinsurance marketplace -- currently very constricted -- significantly afreet the price, amount, and type of primary insurance available. "Most primary insurers--big or small -- couldn't return to the asbestos market even if they wanted to," says one insur CLAIMS MADE COVERAGE Claims nude 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 policy period, regardless of when the claim is actually filed. Thus, if a daim is filed in 2000 for an event which occurred in 1084, the occur rence baaed insurance policy in force in 1984 would respond to the loss. Claims made coverage, on the other hand, attaches when the daim it made against the insured, regard less of when the event took place. In the tame scenario as above, if the event occurred in 1984, and the daim was filed in 2000 under claims made, the policy issued in 2000 would re spond. The problem with dans made coverage is that if the coverage is ever cancelled by the insurance com pany, the entire period of time which had been covered by cUmt 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, 2000.1/the coverage is then canceled in 2000 and no "tafl coverage" can be obtained or af forded, then the contractor wiD be uninsured for all claims arising from incidents which occurred between 1985 and 2000. ance executive, "there just isn't rein surance available.'' Indeed, six months ago Great American Surplus was writing liability limits of $1 mSbon with its abate ment policies. "Half a million dollars of the reinsurance collapsed." sighs Walsh. "We had to drop our Kmit back to $500,000." Essentially, the insurance industry points to three things that have resulted in the collapse of asbestos insurance, as weD as most other haaardous waste coverage: The lack of actuarial data to establish realistic premiums that adequately reflect i risk; The lack of univertally accepted methods for assessing what risks exist: Society's perception that such risks haven't -- or can't -- be adequately managed. This third point, the industry contends. wiB ultimately lead to several costly ef fects: third party claims for virtually aD policies that they underwrite; a subse quent duty to defend against these daima: resultant high litigation costs: and policy losses due to court rulings in favor of the insured for coverage that the in surer did not intend to provide. Because asbestos abatement and haz ardous watte cleanup are urgent national issues, AGC is working with Congress to seek solution to the insurance pro blems in these areas. For example, AGC supports provisions in current Superfund reauthorustion legislation that would in demnify hazardous waste contractors or exempt them from liability under federal, state, or common law. And while new legislation might also extend such measures to asbestos abatement, any comprehensive solution should include provisions that would: differentiate the liability of cleanup contractors from that of responsible psrties; establish a single standard for third party contractor liability throughout the 50 states; hold contractors responsible only for their own negligence; develop guidelines specifying what constitutes negligence. Without such an approach. R is virtually certain that asbestos abatement and haz ardous waste cleanup markets will re main off-limits for contractors for the foreseeable future. --By Horry Blevins Jr. CONSTRUCT OR'Seotembe- 1985 33 zxim crffTs DOW 06367