Legacy U.K. Employers Liability

 

Summary by Robert D. Goodman, Partner at Saul Ewing Arnstein & Lehr LLP
robert.goodman@saul.com

  

The first session of the Education Day was entitled “Legacy U.K. Employers Liability – Update and Outlook.”  The panel consisted of: Richard Lawson, Global Head of Client Engagement at Pro Insurance Solutions Ltd; Ian Harvey, Head of Claims Strategy at Pro Insurance; and Joe Froehlich, Partner at Locke Lord, LLP.  Richard Lawson provided an overview of the U.K. Employers Liability market, which he noted was similar to but not the same as workers compensation in the U.S.  This coverage has been compulsory since 1972.  It has never been very profitable and it has been marked by considerable volatility.  The strategic fit has been difficult for insurers, as the coverage has stood apart from core lines of business.  Capital management has also been difficult, with both short-term and long-term capital needs.  In recent years, books of legacy business have slowly been coming to market.  Initially, there was a sizeable gap in the valuation between sellers and buyers.  That gap has closed, but not all the way.  Rather, sellers have been willing to take less in order to achieve finality.  Currently, approximately $6 billion has been sold, out of a total market value of approximately $12 billion.

Ian Harvey noted that the difference between U.K. EL and U.S. workers compensation is that there is still a requirement to establish negligence.  Asbestos claims account for the vast majority (80-90%) of portfolio values.  This picture has been the same for 15 to 20 years.  The mesothelioma incidence in the U.K. is as high as anywhere in the world, with use of asbestos stretching into the late 1990s.  It does not appear that claims have yet reached the top of the “bell curve.”

Joe Froehlich observed that, in the United States, asbestos claims have grown up outside of workers compensation; here, most claims are against manufacturers and distributors, not employers, and most coverage is provided under CGL policies.  There may be a number of reasons why there has not been a decline in mesothelioma claims.  One is the longer base-line life expectancy in the population.  Due to the long latency period, asbestos-related mesothelioma typically develops in individuals in their 70’s or older.  In prior decades, when life expectancy was shorter, many mesothelioma cases did not develop because individuals died of other causes.  Another reason that there has not been a fall-off in claims is that plaintiffs’ lawyers have sought out new categories of claimants: wives allegedly exposed through household contact with asbestos dust, brake workers, welding-rod workers, etc.  Finally, with the advent of the internet, information about mesothelioma and plaintiff’s law firms that prosecute such claims is very easily obtained.

Ian Harvey noted that one silver lining is immunotherapy and the availability of drug trials for treatments that may “kickstart” the immune system.  Both Mr. Harvey and Mr. Froehlich noted that it was hard to know what the impact of such treatments would be on damages.  Another difference between the U.K. and the U.S. is that the U.K. does not employ a jury system.  Mr. Froehlich pointed out that, in the U.S., workers compensation cases go to a board, not a jury, but that asbestos cases are primarily not brought in the workers compensation system.  Mr. Harvey discussed the possibility that there would be a rise in asbestos-related lung cancer cases, observing that the epidemiology suggests that there are as many asbestos-related lung cancers as mesotheliomas, but that the numbers are suppressed by the much larger proportion of cases caused by smoking.  Mr. Froehlich noted that in the U.S., while the established plaintiff’s firms stick to mesothelioma cases, the new entrants are more likely to bring lung cancer cases. 

Mr. Harvey also discussed a number of types of EL cases that may be on the rise, including idiopathic pulmonary fibrosis and noise-induced hearing loss.  Mr. Froehlich mentioned a number of recent developments in the U.S. asbestos litigation, including the adoption of a new case management order in New York City, permitting punitive damages but restricting the ability of plaintiffs to consolidate cases.