Fw: MCS and Tort Exposures

[Guest guest]

>http://www.zrc.com/horizon.htm

> Insights

>On The Horizon

>by Canelo and Myra Lobel

>Anticipating the New Tort Exposures

>In the 1990's, new tort claims have appeared that threaten to duplicate the

>liabilities for asbestos and hazardous wastes claims that have overwhelmed

>the courts, bankrupted major corporations, and weakened the insurance

>industry. A potent combination of factors are present for the development

of

>the next mass tort: availability of significant dollar awards, the

>proliferation of chemicals in society, a diminishing sense of personal

>responsibility and a rapacious plaintiffs' bar. ZRC understands that the

>only way to effectively prepare for any future onslaught is to analyze the

>potential for mass lawsuits, and then formulate a strategy for addressing

>these exposures. As a first step, here is a survey of where the most

>troubling issues are brewing.

>Chemical Phobias The proliferation of chemicals in our society today has

>been a factor in new torts involving chemical injury, such as medical

>monitoring, property stigma damages, increased risk of illness, and fear of

>future illness. To establish a cause of action for recovery of medical

>monitoring costs, a plaintiff has to prove: (i) significant exposure to a

>toxic substance; (ii) resulting in a significantly increased risk of

serious

>disease; (iii) where testing or early detection will give a better clinical

>outcome; and (iv) which testing has been prescribed according to

>contemporary scientific principles. Where a plaintiff prevails on such a

>theory, insureds may look to their CGL policy to recover amounts awarded

for

>a third party’s medical monitoring costs. Scant case law currently exists

on

>the liability of an insurer for medical monitoring costs. The key issue is

>whether or not such costs constitute a form of equitable relief, and,

>therefore, are not recoverable under the “as damages” limitation in the

>related CGL policy.

>Multiple chemical sensitivity (MCS). These claims are brought by people who

>believe that they are affected by chemicals at levels not toxic to most

>people. Dry cleaning fumes, carpet fibers, pesticides, paints and printed

>materials are some typical causes of complained-of symptoms which include

>general malaise, neurological, dermatological, gastrointestinal and /or

>pulmonary problems.

>Other embryonic toxic torts can arise out of: (i) metal and mineral fiber

>claims (mercury and fiberglass are some examples); (ii) Solvent and gas

>claims (benzene, formaldehyde); (iii) cumulative pesticide exposure

>(chlordane); (iv) biological claims relating to molds and fungus.

>In a related development, a new cause of action for property stigma damages

>has appeared which may involve chemical phobias. Usually required: (i) some

>physical damage to the plaintiff’s property; (ii) where repair will not

>restore the property to its prior value; and (iii) there is an ongoing risk

>to the plaintiff’s property. In addition such torts have also been asserted

>in cases involving Electro Magnetic Fields (EMF). From an insurance

>perspective, the issue of coverage for this type of tort raises the

question

>of whether diminution in value or economic loss constitutes “loss of use”

>which would be considered covered “property damage” under the CGL policy.

>Emotional Rescue Many of these new exposures will involve emotional

distress

>claims within the rubric of bodily injury, for example, fear of cancer,

>quality of life concerns, phobias, long-term exposure to EMF, etc., all

>without any manifest physical injury. The majority of courts hold that such

>claims are not covered unless there is some physical manifestation.

>Naturally, the policyholders argue that " bodily injury " need not be equated

>with " physical injury " and point to cases, particularly in New York, that

>include mental illness in the CGL definition of bodily injury. However, in

>cases alleging new tort theories such as " increased risk of disease " or

> " medical monitoring, " courts are split as to whether such claims without a

>diagnosable injury are bodily injury.

>As with toxic torts, emotional injury claims are the new frontier for

>employment-related discrimination lawsuits. Emotional distress claims

>(intentional or negligent infliction) are being used as a hook for the CGL

>coverage under the aegis of the bodily injury and personal injury coverages

>of the CGL umbrella policy, which may contain language broad enough to

>trigger the duty to defend. Although CGL policies typically exclude

wrongful

>employment practices, personal injury endorsements found in umbrella

>policies often define personal injury to include mental injury, anguish,

>shock, discrimination, humiliation, etc. Finding the potential for coverage

>of a claim of emotional or mental distress under the bodily injury coverage

>(especially where there is difficulty in distinguishing physical and mental

>injuries) will typically activate the umbrella policy's broad duty to

>defend, even if such an allegation does not represent the truly significant

>portion of the claim, or is frivolous.

>Coverage for employment related claims afforded under the relatively new

>form of employment practices liability insurance (EPLI) encompasses

>seemingly intentional torts such as employment discrimination, sexual

>harassment and wrongful discharge. Most liability policies exclude

>intentional acts. Apparently, EPLI insurers have partially resolved this

>conflict by expecting to afford a defense to allegedly intentional

>wrongdoers regardless of whether a duty to indemnify is found.

>The courts have danced around this subject by finding that " improbable "

>injuries, i.e., injuries that the insured neither intended nor expected to

>cause, will be covered. Surprisingly, in a strained effort to find

coverage,

>some courts have found that emotional distress is an improbable (!!)

outcome

>of allegedly wrongful employment termination. Policyholders have argued

that

>it is the injury itself, and not the conduct involved that must be

>intentional in order to preclude coverage.

>Occupational Toxic Torts Occupational injury claims are typically made

under

>workers' compensation for injury or workplace discrimination based on the

>Americans with Disabilities Act (ADA). A new trend: depression as a

>disability under the ADA. On the other hand, civil suits brought by injured

>workers alleging personal injury, property damage, emotional distress or

>economic losses based on theories of product liability, negligence, failure

>to warn or failure to comply with applicable federal standards under OSHA,

>can be brought against manufacturers, suppliers, advertisers, building

>owners, architects, engineers as well as contractors.

>Repetitive Stress Although workers have reported thousands of such injuries

>in recent years, the few suits (against keyboard manufacturers like IBM)

>that have come to trial have been defeated. However, many suits are

pending,

>and plaintiffs seek to consolidate RSI claims for economies of scale, since

>an individual claim is seldom worth a great deal, and the proof required is

>extensive. Insurers fear consolidation will lead to aggregation of RSI

>claims into a single occurrence, perhaps connected by a failure to warn.

>Air Wars In the sick building syndrome ( " SBS " ) area, sometimes categorized

>as indoor air quality (IAQ) claims, policyholders have begun to argue that

>ownership of air rights translates into a third party claim if, for

example,

>a contractor contaminates the air space. Policyholders also question

whether

>pollution exclusions apply in the context of indoor exposures to asbestos,

>carbon monoxide gas and second hand smoke — all of which may affect the

>indoor air system. Among the reasons we haven't seen enormous growth in SBS

>litigation are the limited possibility of aggregating claims and the

>difficulty of proof.

>IAQ claims are not limited to " bad " indoor or polluted air and can include

>claims for poor lighting, inadequate soundproofing and resulting noise and

>temperature. The EPA listed IAQ among the top 5 environmental risks to

>public health and recently IAQ claims/lawsuits have increased

significantly.

>These claims are caused primarily by construction of buildings with windows

>that do not open or which have inadequate ventilation. Approximately

>1,350,000 office and public buildings nation- wide have problems with

indoor

>air. IAQ claims have recently been brought by flight attendants. Insureds

>with employees at risk should hire industrial hygiene companies to test the

>workplace for indoor air and water quality. As with the property stigma

>claims, it is not clear whether there is coverage for such " property

>damage " , except where loss of use is involved.

>Could You Repeat That? Noise Induced Hearing Loss (NIHL) claims have been

>brought by railroad workers and those who work in manufacturing plants. One

>of the difficulties in proving these claims is establishing causation. NIHL

>claims are most commonly brought against employers under workers'

>compensation, and in the case of railway workers, FELA (Federal Employers'

>Liability Act) or the Act in case of workers at sea. NIHL claims in

>products liability suits are usually brought against manufacturers of

>machinery, power tools and pneumatic tools and appliances.

>Although CGL policies exclude occupational disease, policyholders have

>argued that hearing loss claims constitute bodily injury of a type that

>should be covered. In a recent case, all hearing loss claims were adjudged

>to arise out of the railroad's failure to implement a hearing protection

>program and were deemed to be one occurrence.

>Risky Business? Lawsuits against contractors alleging poor workmanship,

>while not " toxic " tort cases, have the potential to reach epidemic

>proportions, especially in earthquake-prone areas. These contractors have

>begun to request coverage from their CGL insurers. Although the CGL policy

>covers the risk that the defective or faulty workmanship will cause bodily

>injury to third parties or to the property of others, the CGL policy does

>not cover business risk, i.e., the risk of shoddy or negligent work.

>Moreover, for coverage to exist there must be an " occurrence " or an

> " accident. " Poor design of a building is not an " accident " and should not

be

>covered under a CGL policy. Similarly, knowledge of defects before the sale

>of the constructed property tends towards a finding that there has not been

>an accident.

>Policyholders have tried to evade these restrictions by arguing that if a

>contractor works on a portion of a building, that contractor's shoddy work

>adversely affects the property of third parties. The counter argument is

>that a defective component that is " withdrawn from the market " due to

shoddy

>workmanship (so to speak), is not damage, nor is diminution in value

>considered physical damage. Insurers argue that these claims have little to

>do with construction defects and that the CGL policy is not intended to be

a

>surety or performance bond. A CGL insurer has no effective control over the

>contractor and no recourse for negligently performed work. In fact, it can

>be said that insurance creates a disincentive for doing a workman-like job.

>The CGL coverage does not apply to the contractors " own work " , i.e.,

>property damage arising out of the products-completed operations hazard.

>However, where the policy language permits, general contractors have argued

>that completed work done on the general contractor's behalf by

>subcontractors is work of others and not subject to this exclusion.

>Medical Matters The furor over breast implants may be the harbinger of

other

>medical-related torts e.g., orthopedic bone screws, latex gloves, and

>infectious blood supply.

>Trigger-Happy Because in many toxic tort claims there is delayed

>manifestation of the injury, once coverage is established, the question

>becomes what policy or policies are " triggered. " Manifestation, exposure,

>injury-in-fact, double and continuous triggers and installation are the

>various theories that courts have applied in progressive environmental and

>toxic tort claims. Many in the industry believe that the " injury-in-fact "

>theory is the most likely trigger choice for emerging tort cases, where

>causation is not well established. Policyholders seeking coverage over

>several policy years must demonstrate an incremental expansion of the

>original injury by a continuous process, often by scientific analysis. The

>most difficult situation will be the ticking time bomb injury, e.g.

>DES/cervical cancer, EMF, and breast implants. Significantly, the

California

>Supreme Court in Montrose Chemical Corp. v. Admiral Ins. Co., 897 P.2d 1

>(1995) adopted a continuous trigger of coverage in cases involving

>continuous and progressive third party property damage. In response to this

>insurers have begun developing new policy wordings.

>Inside/Out Another hot topic to consider is the applicability of the

>pollution exclusion to the emerging toxic torts, with a focus on the

>distinction between indoor or workplace pollution, and " environmental "

>pollution. A distinction has been made by some courts that coverage is more

>likely where the injurious products are in use in the stream of commerce as

>opposed to products that are now waste, i.e., no longer doing what they

were

>intended to do. However, policy wordings differ; although several courts

>have said that raw sewage is not a pollutant, there are CGL policies that

>define pollutant as a waste product, recyclable or not. From the insurers'

>perspective, the CGL policy language does not make any " indoor/outdoor "

>distinction, nor is there typically any requirement that the pollution

>relate to the environment or to land. One area where such distinctions may

>be made is the issue of whether or not an absolute pollution exclusion is

>applicable to lead claims. In varying contexts, New York and land have

>found an absolute exclusion to be inapplicable, whereas, by contrast,

>Pennsylvania and Massachusetts have found that lead chips present on

>property are considered to be pollutants.

>Beyond The Horizon ZRC is committed to a thoughtful examination of the

>leading trends in tort litigation and the implications for policyholders

and

>their insurers. Anticipating the future, however, is only the first step in

>preparing for it. In future publications we will provide responses from

each

>industry discipline: underwriting, contracts, actuarial, legal, claims and

>marketing, in our efforts to meet the challenge of the new world of tort

>liability. For additional information on these and other issues please call

>ZRC's Contracts department:

> Canelo 212-898-5038

>Myra Lobel 212-898-5239

> Canelo is senior vice president, underwriting/contracts at Zurich

>Reinsurance Centre Inc., New York. Myra Lobel, assistant vice president,

>underwriting/contracts, also contributed to this article.

>

>one call service

>1-888-900-ZRNA (9762) email