Technical Report

1 Nov 2006

Asbestos: the elephant in the living room

In case you thought everything was okay on the asbestos horizon, this particular 'elephant' is still very much there and isn't showing signs of going away any time soon, cautions Marc Jones

Asbestos. Remember that little word? It's the three-syllable utterance that used to make strong men cringe, underwriters turn pale and brokers reach for brown paper bags to control their breathing. It's the word that led to a thousand sinking feelings as (re)insurers watched their reserves drain away into a bottomless pit of claims.

"But that was in the old days," I hear you mutter. "Asbestos is no longer a problem. It was all taken care of." Wrong - dead (pardon the pun) wrong. Asbestos is still a weight around the neck of the (re)insurance industry. It's the elephant in the living room that just won't take the hint to go away and bother someone else. Presuming that it has gone away on its own is no way to deal with it.

In other words, the pachyderm is still blocking your view of the TV.

Asbestos(is) revisited

Let's take another look at asbestos, for those in the industry that have just joined and are still wet behind the ears. Put simply, it's the substance that almost destroyed Lloyd's of London and inflicted a vast amount of financial harm on the (re)insurance industry.

Initially, the discovery and development of asbestos promised substantial benefits. Asbestos can be used to produce a wide range of heat insulation and retardant substances, varying from lagging for pipes to roofing sheets. The building and shipping industries were just two of the industries that made widespread use of the mineral, with the latter finding it particularly useful in the shipping boom that went on during World War II.

Then the drawbacks turned up. Asbestos is not a very nice substance, to put it mildly. There are three main types of the mineral: blue asbestos (crocidolite); brown asbestos (amosite); and white asbestos (chrysotile). All are made up of tiny, microscopic fibres with widths of less than one micrometer. And there is where the main problem lies - these fibres can be inhaled quite easily when released into the atmosphere, and the effects of inhalation can be lethal.

As asbestos fibres enter the lungs, they settle on the interior surface and can then embed themselves. As time goes on, the lungs deal with these intruders by forming scar tissue over them. The more fibres the more scar tissue - and we all have asbestos in our lungs, as it's a modern-day fact of life. However, naturally people who work with asbestos or who come into very close contact with it can be exposed to large amounts of fibres - enough to have a serious effect on lung function.

Asbestos fibres can lead to three main conditions: pleural plaques, mesothelioma and asbestosis. The first is debilitating but not necessarily lethal; the other two are effective death sentences.

Pleural plaques are round areas of fibrous tissue that grow on the covering of the lungs (known as pleura) years after exposure to asbestos. They are not malignant, but they do have some effect on lung function if they are present in large numbers.

Asbestosis is very different, and is far more serious. Here asbestos fibres cause large amounts of scar tissue to form, which radically inhibit lung function. In other words, it becomes hard to breathe, and many sufferers are forced to rely on oxygen masks. The condition is irreversible and effectively untreatable; 75% of those affected die within one year.

And finally there's mesothelioma. This is a long-term disease, which tends to emerge anything between 20-40 years after exposure to asbestos, which means that it can affect people quite late in their lives.

Mesothelioma is a cancerous tumour of the pleura (lining of the lung and chest cavity) or peritoneum (lining of the abdomen). The tumour can spread rapidly to involve the pericardium (sac around the heart), mediastinum and the other pleura. Worsening pain and shortness of breath can occur. Unless it is caught in the very early stages, it too is irreversible and untreatable, with the sufferer having a life expectancy of up to 18 months.

The problem spreads

The long-term nature of the conditions listed above is the reason why insurers have been so hard hit by the asbestos time bomb. Even though blue asbestos was banned from importation in the UK in 1970 and brown asbestos was banned in 1980, the number of people suffering from asbestos-related conditions has been climbing for decades, with some estimates claiming that as many 5000 people die every year due to asbestos.

The situation in the US is more murky. The Environmental Protection Agency (EPA) announced that it was going to seek a total ban on the use and importation of asbestos in the 1970s. However, since then the EPA has been involved in a vicious battle with the asbestos industry that has taken it into various courts throughout the country. Despite this, asbestos was one of the first hazardous air pollutants regulated under Section 112 of the Clean Air Act of 1970, and many applications have been forbidden by the Toxic Substances Control Act of 1976.

The death toll in the US is also far worse, with an estimated 10,000 people dying from asbestos-related conditions every year. However, this is down from the peak that was reported in the US in the early 1990s, as asbestos was used on a wide scale in the US first. The death toll in the UK is not predicted to peak until around 2020, reflecting the later arrival of the widespread use of asbestos.

So far, 60 countries around the world have banned the use of asbestos, with the European Union (EU) having banned it almost en masse. France's ban in 1997 was challenged by the Canadian government (see box overleaf), but was upheld by the World Trade Organisation (WTO) in 2000.

An estimated one in three properties in Australia possibly contain some form of asbestos, making it one of the most affected areas. In the years after World War II, when Australia was undergoing a surge in population, asbestos seemed to be the perfect building material to use due to its heat-resistant properties. Sadly, the downside is only now becoming apparent. Asbestos was finally banned in Australia, but not until 31 December 2003.

The US situation: "The most expensive tort in history"

However, the biggest headlines regarding asbestos are still coming from the US, mostly because of the size of the potential financial problem there. Asbestos litigation has been described as being the longest and most expensive mass tort in US history.

Nowadays asbestos seems to be permanently linked to the word litigation, and there is little sign of it losing that tie in the near future. Listing the full history of asbestos litigation would take far more space than this technical report can provide, and would probably depress readers enormously. However, a quick skim should suffice.

According to the American Bar Association (ABA), "Each year, 50,000 to 75,000 new asbestos-related lawsuits are filed. A large and growing proportion of these cases involve claimants who do not now, and may never, suffer from an asbestos-related illness. This has created a backlog of more than 200,000 claims against more than 6000 companies that is crowding dockets across the country.

"As a result, seriously ill people who file claims are facing longer and longer delays in having their cases heard." The ABA claims that the total number of claimants has now risen to 600,000.

Asbestos-related cases increased significantly in the Supreme Court after 1980, and the court has dealt with several asbestos-related cases since 1986. Two large class-action settlements, designed to limit liability, came before the court in 1997 and 1999. Both settlements were ultimately rejected by the court because they would exclude future claimants, or those who later developed asbestos-related illnesses. (See Amchem Products v Windsor et al (http://www.law.cornell.edu/supct/html/96-270.ZO.html) and Ortiz v Fireboard Corporation (http://www.law.cornell.edu/supct/html/97-1704.ZS.html).These rulings addressed the 20-50 year latency period of serious asbestos-related illnesses.)

The situation is now so bad that Congress has been considering asbestos-related legislation for some time. Unfortunately, it's not going to be appearing on any statute books any time soon. When the Fairness in Asbestos Injury Resolution Act of 2003 (FAIR), which would create a trust fund to pay for all future asbestos claims, was shot down in the House of Representatives, Senator Orrin Hatch re-adopted it in 2004.

Faced with complaints that the trust fund was inadequate (latest estimates are for it to be around $140bn), and with the asbestos industry querying how much money the US government would put up and how much they themselves would provide, the act was in trouble from the start. Being introduced in the same year as a hotly contested presidential election meant that it never really stood much of a chance to be seriously debated, let alone passed in both houses, and it died largely unmourned.

Now sponsored by Senator Bill Frist, the bill again resurfaced in 2005, but once more failed to get much in the way of momentum behind it. It has reappeared as S. 3274: The FAIR Act of 2006, but has - to no-one's surprise - disappeared under a rising tide of bad news about Iraq, followed by congressional elections that have focused everyone's attentions on whether the Republican party can maintain its grip on power.

As Reinsurance went to press, those elections are still up in the air. If the Republicans manage to hang on to their majorities in both houses, then we can expect to see FAIR return in yet another incarnation, probably in 2007 as the 2006 bill is now somewhat dead.

However, if the Democrats win control of one or both houses (the latest opinion polls showed the Democrats surging in the House of Representatives, and in a dead heat in the Senate), it is highly unlikely that FAIR will be passed (in its present form at least) in the near future, as the Democrats will be busy investigating the Bush administration.

The WTC and DC 'cough'

One of the biggest recent mass asbestos exposures in the US came on 11 September 2001, when the World Trade Centre (WTC) fell. Construction work on the WTC was started in 1968, so that by the time the local city council announced that it was banning asbestos, hundreds of tonnes of the substance had been sprayed onto the building. Although some was later removed, the vast majority of it remained. As a result, when the towers fell, large quantities of asbestos dust came down with them.

It's difficult to assess total exposure from this event. Readers will remember pictures of the vast dust cloud that swept through Manhattan and other parts of New York after the collapse of the north and south towers. To make matters more complicated, the dust also contained a large number of other potentially toxic contaminants, such as cadmium, lead, mercury, dioxin and powdered concrete, the latter being highly alkaline and therefore dangerous to the lungs.

The EPA proclaimed that working in the rubble was safe at the time; that assessment now seems dangerously premature, as thousands of people - including many rescue workers - have since filed a class action against the EPA claiming they are suffering serious health concerns, thanks to what has become known as 'World Trade Centre cough'.

So far, 20 deaths have been attributed to working in the ruins of the WTC. One of these is highly relevant to this report: a New York paramedic called Deborah Reeve died of mesothelioma on 15 March 2006. She was just 41 years old. It is alleged that her death was directly caused by asbestos from the WTC.

Asbestos is still being found near the former site of the WTC. In May this year, workers were searching the roof of the Deutsche Bank building, which was very close to the WTC, for minute fragments of bones from the bodies of those who died in the towers when they came down. Their search was called off when substantial quantities of asbestos dust were discovered on the roof.

And in September 2006, contractors started to remove an estimated 1000 bags worth of asbestos from tunnels under the US Capitol building complex in Washington, DC where the Congress convenes. More than a few senators screamed blue murder when the asbestos was discovered, and the cleanup bill is now estimated to be around $200m.

UK legislation

In the UK, the situation is rather different. The tale of how Lloyd's of London became entangled in its own intestines over asbestos has been often told and is still a subject of some rancour, especially among those relying on Equitas, the run-off company that was split off from Lloyd's to handle its pre-1992 liabilities.

Two recent developments have been particularly noteworthy. Firstly, the current state of asbestos litigation has had a lot of people updating their records, then throwing them away again, only to have to update them yet again.

In 2002, the now-infamous Fairchild case in the UK rewrote various lawsuits when the defendant sued three firms he claimed had exposed him to asbestos, from which he had subsequently contracted mesothelioma. However, as he was unable to say where the fatal fibre had come from, his case failed. The case was sent to appeal and finally ended up at the House of Lords, where Mr Fairchild won the right to sue one of his employers, leaving them to try and recover contributions from other implicated employers.

However, in May of 2006, the situation returned to the pre-Fairchild situation with the Barker vs Corus decision from the House of Lords, which said that an employer was now only liable to pay such a proportion of mesothelioma damages under his 'share' of the claim. This was the law of the land for just two months, as the UK government then amended the Compensation Act 2006 to return the legal situation to the post-Fairchild situation. (Our colleagues at Post Magazine have been carrying out the herculean task of staying sane while reporting all of these changes in the law.)

In October this year, the National Union of Teachers got the hairs on the back of people's necks standing on end by claiming that 90% of the UK's schools contain asbestos, especially those with old buildings. The news is an unwelcome reminder of the fact that the asbestos toll in the UK is yet to peak.

Potential exposures

There is another facet of the asbestos crisis that might have been overlooked in recent years. The (re)insurance industry has been making great strides in opening up new markets in the Indian subcontinent and countries like China. These regions have seen their economies expand aggressively, especially in China, where the national gross domestic product has increased by 9.9% for the past 12 years.

With the West now effectively closed to it, the asbestos industry has shifted its focus to this area and is bringing its exports up. China is now one of the largest producers and consumers of asbestos; according to the US Geological Survey, it produces an estimated 350,000 metric tons of asbestos a year. Unfortunately, the status of health-and-safety legislation in these areas when it comes to asbestos is at best patchy, and at worst non-existent.

One example should chill anyone: several ship-breaking firms in India simply stick the ships on the shore and get people to break them up manually, not caring if they contain toxic chemicals or even asbestos. Granted, most of these workers are unlikely ever to be able to afford insurance, but it is indicative of the potential for future asbestos exposure.

Are (re)insurers making sure that they are writing in asbestos exclusions into all this exciting new business? And have they considered the potential for asbestos exposures?

The elephant in the living room is still there, and it's not going away any time soon.

ASBESTOS RULINGS: WHO'S FOOLING WHO?

In 1997 the French government banned the use of asbestos. However, two years later, the Canadian government went before the WTO in an attempt to challenge the embargo. Canada is the world's second-largest producer of asbestos after Russia, and is the world's largest exporter of the mineral. Most of this is the white asbestos (chrysotile) that is mined in the province of Quebec, and Canadian politicians have frequently gone on the record in an attempt to stress that white asbestos is safe.

Canada's complaint stated that the French decision was illegal as it hurt Canadian economic interests and was an impediment to free trade. Canada argued that chrysotile is not harmful if used in a controlled manner. However, the EU, which represents France in WTO legal disputes, claimed that all types of asbestos possess a health risk and it is not possible to ensure that it can be used 'safely', as claimed by the Asbestos Institute. This was a major setback for Canada as it had hoped to use a favourable ruling to put pressure on the whole EU, which had approved an EU-wide asbestos ban by 2005.