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Long-Running Asbestos Case Has New Twist

The New York Supreme Court has ruled that a trial court will have to determine whether an asbestos defendant purposely structured a $1 billion settlement in order to force its reinsurers to cover a disproportionate share. tightened100dollarroll.jpg

Our Boston mesothelioma plaintiff lawyers know that the case, United States Fidelity & Guaranty Company vs. American Re-Insurance Co., is noteworthy and closely watched by virtue of the fact that it is one of the longest-running, most complex litigation actions in asbestos claim history – and also because of the high sums involved.

It’s a question of the degree to which an insurance company contracted with a firm later found negligent in asbestos exposure litigation can recoup losses from its reinsurers, or the firms that buy policies from original insurers as a risk management strategy.

In most cases, asbestos plaintiffs file suit directly against the company itself. If the plaintiff wins and damages are awarded, the firm must pay. But the firm can then turn and file suit against the insurance company to help mitigate the cost. The insurance company, in turn, goes after its reinsurers.

Ultimately, spreading out the cost doesn’t really impact the original plaintiff, and it may even prevent the company from filing bankruptcy, thereby extending its ability to continue to pay out future claims.

Of course, reinsurance companies are fighting back vigorously, as most did not anticipate the sheer volume of asbestos litigation that these firms would be facing when they first wrote the policies decades ago.

On that front, at least, the insurance companies may not have a strong argument. In this case, an appellate court last year affirmed the reinsurance companies’ responsibility to cover nearly half of the $1 billion settlement, about $420 million, upholding a 2010 ruling by a lower court. The justices found that reinsurance companies were bound by a doctrine called, “follow the fortunes,” which essentially means that reinsurance firms legally take on some of the burdens of insurance companies with which they are contracted.

In this situation, the insurance company first wrote a policy in 1948 for a company that was then known as Western Asbestos Co., later renamed Western MacArthur and purchased by Travelers Co. Then in the 1970s, people began to sue for damages for negligent asbestos exposure. Ultimately, Travelers paid out $1 billion to cover those claims. But then in 1993, the company filed suit against three of its insurance companies. A settlement was reached in 2002 and Western MacArthur filed for bankruptcy as a result. But now, the firm’s insurance companies are after the reinsurers to recoup a big portion of their losses.

Reinsurance companies are responsible, the court found, but the question now is whether the initial insurance firms wrote the original $1 billion settlement in such a way that it unfairly placed a heavy burden on the resinsurers. The allegation from the reinsurers is that the firm intentionally lowered the value of certain claims and inflated the value of others in order to increase the amount that the resinsurance firms would have to pay.

The state supreme court, finding there was no matter of law to be decided, ruled that the question of whether those allegations are true will have to be answered in a trial, if the firms don’t independently reach a settlement.

If you or a loved one is diagnosed with mesothelioma in New England, call for a free and confidential appointment at 1-888-367-2900.

Additional Resources:
Court Says Trial Must Decide Travelers, Reinsurers Asbestos Case, Feb. 8, 2013, By Joseph Ax, Insurance Journal
More Blog Entries:
Asbestos Bill Would Undercut Worker Safety, Feb. 7, 2013, Boston Mesothelioma Lawyers Blog