T&N: An Insurance Fiasco
T&N Ltd.’s (T&N) insurance history is a complex, multi-layered story involving insurance companies, re-insurers, co-insurers, excess layer insurers, numerous syndicates at Lloyd’s of London, Employers' Liability policies, workmens’ compensation policies, umbrella policies, product liability policies, the Asbestosis Fund etc. In the mid-1980’s, American attorneys acting for London underwriters recommended that reserves of £37 million be made for T&N’s share of the known universe of US asbestos claims for the period 1934 to 1979. By 1992 the same law firm calculated that T&N’s share of the total claims universe had surpassed £100 million. In 2001, the American multinational which had acquired the T&N Group in 1998 estimated that "the bulk" of their £1.6 billion aggregated asbestos-related liability stemmed from the actions of T&N and its subsidiaries. Because of today’s time constraints, I will focus on the insurance policies relevant to asbestos claims by UK employees.
In 1920, four family-owned asbestos firms merged to form Turner and Newall Ltd. The objective of the union was "to create an organisation for the Mining, Manufacture, and Distribution of Asbestos and allied products, wherein overlapping and wasted effort would be minimised, and research and development work could be carried out on a scale commensurate with the magnitude of its operations." At the beginning, a staff of two ran T&N’s Rochdale head office. By 1933, the group’s rapid expansion required a larger staff and T&N purchased additional office space in Rochdale. In October, 1949 T&N’s head office was re-located to Fountain Street, Manchester.
The interests of the founding companies were complementary:
Turner Brothers Asbestos Co. Ltd (TBA) manufactured textile and related products from chrysotile [white asbestos] for use in transportation, construction and heavy industry;
J.W.Roberts Ltd. (JWR) manufactured textile and related products mainly from crocidolite [blue asbestos];
Newalls Insulation Co. Ltd. (NIC) specialised in the installation of insulation systems for industrial applications;
The Washington Chemical Co. Ltd. (WCC) manufactured a range of magnesia products, some incorporating asbestos fibre, including one known as 85% Magnesia which was used by NIC.
3. T&N: A World Player and UK "Asbestos Giant"
Turner & Newall became the largest asbestos company in the UK; it owned mines in Canada, Rhodesia, South Africa and Swaziland and had subsidiaries throughout the world. According to a government report: "from the time of its formation in 1920 T&N had steadily strengthened its position as the leading, indeed the dominant, producer of both fibres and asbestos products. Smaller manufacturers... certainly existed, but after 1928 none was comparable in size or range of interests to T&N." By the late 1930’s, ten thousand people worked in all stages of asbestos processing at T&N’s asbestos mines, factories and subsidiaries at home and overseas. In 1939 T&N controlled 20 per cent of the world’s asbestos market. By the late 1950’s, its sales had overtaken those of the US asbestos giant: Johns Manville: "while Johns-Manville had sales of $304.1 million in 1959, T&N had sales of $450 million the previous year."
The commercial exploitation of asbestos in building materials, automotive parts and insulation products was at the heart of the company’s success unfortunately, it was also the root of the company’s problems as workers, customers and individuals living or working in close proximity to its factories were placed at risk of contracting asbestos-related diseases by exposure to high concentrations of airborne fibre. The asbestos spectre worried UK investors. To reassure the City, T&N took out an extra £500 million layer of insurance cover for asbestos liabilities in 1996. In early 1998, an unconditional takeover bid of £1.5 billion was accepted by the T&N Board. According to the new owners, the American multinational Federal-Mogul Corporation (FM), T&N would be maintained "as a separate legal entity within the Federal-Mogul family." T&N’s asbestos liabilities didn’t seem to concern FM; their General Counsel said "We are pleased with T&N’s innovative efforts to manage this serious problem and intend to build on those efforts in the future."
4. T&N: A Poisoned Chalice
FM was soon to regret this ill-considered purchase. In October, 2000, FM’s expansionist Chairman and Chief Executive, Richard Snell resigned abruptly amidst warnings of poor third-quarter performance. The company’s stock plunged to $3.25 from a high of $72 in July, 1998. It was predicted that loan agreements would not be honoured and that "bankruptcy is no longer a remote risk." With asbestos-related payments of $335 million in 2000, the poisonous asbestos legacy, so blithely acquired, had started to undermine FM’s very existence.
As of 30 June, 2001, there were 300,000 asbestos claims pending against the FM Group. FM alleged that the acquisition of T&N plc "brought with it a greatly increased exposure to existing and potential asbestos related claims, adding to the small number of similar claims that certain FM Group members were already facing." On October 1, 2001, largely due to the explosion in asbestos claims against T&N and its former subsidiaries, FM was forced to seek financial protection from its creditors by filing for voluntary Chapter 11 reorganization in the US and administration in the UK.
5. The Administration Process
One result of the Chapter 11 and administration orders is that all legal actions against members of the FM Group are frozen. As the T&N purse remains closed by court order, the injured are looking to T&N’s insurers for compensation. Establishing which insurers issued policies when, for which subsidiaries and with which exclusions over a period of seventy-eight years is a daunting task. Some information was already available and more is becoming known as Kroll Buchler Phillips, T&N’s administrators, and Denton Wilde Sapte, their solicitors, ferret through T&N’s files.
At the meeting of T&N Ltd.’s creditors in London on 11 February, 2002, Simon Freakley, head of the court-appointed team of administrators, explained that the rights of all non-secured creditors are equal; thus, an asbestos claimant has the same right as a trade creditor. Among the asbestos claimants, someone whose exposure was environmental (i.e. someone from Armley, Leeds) has the same rights as someone who had been employed by one of the T&N subsidiaries. It was too early to predict the detail of the global reorganisation. Laurie Kazan-Allen asked the question: "If this is truly a global reorganisation of the FM/T&N Group, does this mean that a 51 year old American mesothelioma claimant will receive the same level of compensation as a similar claimant in the UK?" Mark Andrews said it depends on the structure of the reorganisation. There are two possibilities:
all claims treated equally: equal payouts for equal diseases;
claimants treated by jurisdiction: so an English claimant gets the appropriate figure in the UK, while an American claimant gets what is appropriate for the US.
The second part of Laurie Kazan-Allen’s question stressed the timescale of the reorganisation process pointing out that in the US various asbestos defendants had taken anywhere from 3 to 13 years to reorganise. Mesothelioma claimants do not have the luxury of time to wait out this process. Simon Freakley admitted that because of the sheer magnitude of the work required, the reorganisation is bound to take a "number of years." This is why, he said, his team are trying to see what the position is with the insurance policies. In addition, the administrators have been speaking to representatives in various departments of the government, including the Treasury, to see what government compensation schemes might be available.
The administrators can set aside the administration order for specific activities. It is possible that as the insurance position becomes clearer, applications by solicitors for this order to be set aside so that asbestos claims might be brought against insurers could be viewed sympathetically.
6. Insurance History: Asbestosis Becomes a Scheduled Disease
Research conducted by Dr. Merewether in the 1930’s, resulted in the designation of asbestosis as a scheduled disease under the terms of the Workmen’s Compensation Acts (WCA). This meant that workmen suffering from asbestosis could make a claim against their employers for periodical and lump sum payments as provided in the Acts. When rumours of this development reached T&N at Rochdale, enquiries about coverage for asbestosis claims were made with the Midland Employers’ Mutual Assurance Ltd., the insurance company which had written T&N’s Employers’ Liability policies since the 1920 merger. One of T&N’s directors informed the other group companies: "We are at present negotiating with the group WCA insurers, the Midland Employers’ Mutual Assurance Ltd., with a view to the protection of unit companies affected, by an endorsement of their policies to cover this disease."
7. The Asbestosis Fund
The Midland’s premium for asbestosis cover proved to be unacceptable to the T&N Board; at its meeting of 25 June, 1931 a decision was taken that the group would carry the risk itself. The Asbestosis Fund, a private insurance scheme, was set up to handle all T&N’s Employers’ Liability asbestosis claims. The standard practice in those cases which negotiated the system successfully was to pay workers half their previous wage as a form of weekly pension, and to pay a gratuity of a few hundred pounds on death. It appears that in traditional mill towns, textile workers and their families were prepared to accept this amount of compensation. By 1943, there had been 102 claims against the Fund, of which 49 had succeeded.
Initially, each unit company contributed a sum to the Asbestosis Fund equal to 7.5% of its employees wages. It soon became clear that the number of claims brought against JWR far exceeded those against the other companies; adjustments to premiums were made. By 1947 JWR was paying 5% while other companies were paying 1.25%. Between 1949-1959, the fund compensated 122 cases of which JWR’s employees accounted for 36 and NIC employees for 30. The rest of the cases were: 4 from TAC, 31 from TBA, 2 from Ferodo, and 19 from WCC. Commercial Union (CU) was paid to handle the claims against the fund; CU ceased its involvement with the fund in the late 1960’s/early 1970’s.
From 1948, when the National Insurance Acts came into force, the State picked up the compensation tab for post-1948 asbestosis claims. T&N was still responsible however for pre-1948 claims and the Asbestosis Fund continued to oversee the compensation process for this group of injured workers. Table 4 from Geoffrey Tweedale’s paper: Management Strategies for Health: J.W.Roberts and the Armley Asbestos Tragedy, 1920-1958 is informative on the generosity of T&N’s payments. Tweedale points out that between 1931-1957, the total of compensation payments from the Asbestosis Fund was £97,279; the company’s profits for that period were £55 million. In 1948, The Midland indicated that they would be prepared to cover the excluded asbestosis claims for an annual premium of £1,000. Once again, the T&N Group decided to carry on self-insuring. Soon afterwards, the unit companies themselves agreed to bear the cost of common law asbestosis claims so as to enable the central Asbestosis Fund to be wound up.
The question remains what practical steps did the unit companies take to enable the central Asbestosis Fund to be wound up? Did they continue to reserve a per cent of their employees’ wages? Did they invest this sum; if so, where is it? Did they plan to pay these claims out of current cash flow? Did they sit back and hope claims would evaporate? A memo dated 25th April, 1967 written by K. Neve at Turner & Newall Limited, Manchester to G. R. Pushman at Newalls Insulation & Chemical Co. Ltd. is particularly relevant. It is marked "Confidential" and titled: Asbestosis Cases. It points out that "N. I. & C . Co’s (Newalls Insulation) experience is frightening, and I think when you read this letter you will agree that we must do something - and quickly."
The memo notes:
Number of asbestosis cases from 1962-1966
|N.I. & C. Co||70|
|J. W. R.& C. Co||1|
With more hope than wisdom, Neve concludes the two-page memo: "I know that the use of asbestos-based material is dwindling but the legacy of the past will be with us for many years yet."
8.Employers’ Liability Cover: The Royal Insurance Company Ltd.
According to minutes from the Turner and Newall Board Meeting of 10 February 1977:
"When the Employers’ Liability (Compulsory Insurance) Act came into force we found ourselves in some difficulty. The present situation is that our insurers (The Royal Insurance Company Ltd.) provide the certificates required by the Act, but the clause in the policy excluding asbestosis liability still remains. Insurers have now indicated that they are not prepared to continue, and we are now, through Hogg Robinson, seeking another insurer. The Royal were concerned because since 1972 they have been carrying a risk, by reason of having issued the certificates, which is specifically excluded from the policy, and furthermore that it is a continuing risk for claims which may take up to twenty years to arise."
Over the last few months, Scottish Solicitor Advocate Frank Maguire has been seeking confirmation that the Royal would pay asbestos claims against T&N. At a public meeting held in Clydebank, on 18 January, 2002, Maguire exhibited the 1977 memo referred to above and demanded that the insurance company "honour its obligations" to former shipyard employees who are now suffering from asbestos-related diseases. Furthermore, Maguire explained that: "Insofar as asbestos victims are concerned, under the terms of the Employers’ Liability (Compulsory Insurance) Act 1969 and the 1971 regulations following thereon, asbestos liabilities could not be excluded in any such policy as a matter of law."
A response by the Royal and SunAlliance Insurance Group plc (RSA), the UK’s third largest insurer and the company which absorbed Royal Insurance, confirmed that an internal investigation was underway into these "complex and serious" allegations and that "an appropriate statement" would be made in due course. Within a few days, the insurers had changed their tune; the BBC reported: "the insurance company insisted the Royal had not broken the law. The company excluded asbestos-related injury because it was a risk it was not willing to underwrite and Turner and Newall was self-insured against asbestosis."
Magurie says that this statement shows a basic misunderstanding of the law; whatever agreement existed between Turner & Newall and the Royal, asbestos victims retain a right against insurers, in this case the Royal, under the 1971 regulations. On 5 February, the RSA massively strengthened their reserves for asbestos claims: "we have increased our asbestos provisions by £371m. Of that amount, £200m relates to policies written by our UK subsidiaries and £171m to policies written by our US subsidiaries… Business written in the UK comprises two main blocks. Firstly, US risks written in the London Market and, secondly, UK risks written in both the London Market and in the UK regions… In the UK, development of asbestosis and mesothelioma is expected to follow a different pattern from that in the US, being currently less developed, but due to the later withdrawal of asbestos and related products from the market, is likely to have a later peak of incidence of disease." On 27 February, the RSA announced that it had failed to meet a key efficiency target ratio in 2001; this failure and the collapse in operating profits from £462 million in 2000 to £16 million in 2001 could impact on the company’s credibility.
On 15 February, T&N’s administrators released information on the insurance cover provided by the Royal and other insurers in a document submitted to the High Court of Justice, Chancery Division in London in the case of Mr. "L" v Newalls Insulation Company Ltd. According to the report, T&N Limited and Subsidiaries - Insurance Policies Relevant to Asbestos Claims by UK Employees, a copy of the Royal policy, which covered the period 1 October 1969 - 31 March 1977, has not been found. A copy of the Record of Employers’ Liability Insurance, as provided by the Royal, states that the policy: "does not apply to or include liability in respect of pneumoconiosis or pneumoconiosis accompanied by tuberculosis. The Policy defines ‘pneumoconiosis’ as ‘fibrosis of the lungs due to asbestos dust and includes the conditions of the lungs known as dust reticulation’. It is believed that not all asbestos related diseases fall within this definition". If Maguire is correct, this exclusion is illegal; if, he is not, and the exclusion is enforceable, claims for asbestos diseases such as mesothelioma, asbestos-related lung cancer, pleural thickening and pleural plaques might still be brought.
9. Employers’ Liability Cover: The Midland Assurance Limited
The administrators’ report also mentioned Employers’ Liability policies issued by the Midland Assurance Limited from "at least 1931 until 1 October, 1969." As copies and information on these policies could not be located by the administrators, they were unable to confirm whether there had been asbestos exclusions. An unpublished manuscript by Barrie N Barker on T&N’s insurance history sheds some light on this subject. Barker quotes from the minutes of a T&N Board meeting in 1950: "our present policies with the Midland Employers’ (sic) covered Common Law claims brought against us by our employees, such claims being based on negligence and/or breach of statutory duty, but Common Law claims in respect of asbestosis are still excluded from these policies." Barker also writes: "It has been conceded that T&N are not entitled to an indemnity in respect of asbestosis claims (from the Midland) because claims in respect of asbestosis are specifically excluded by the endorsement to the Employers’ Liability policy… claims in respect of carcinoma are not excluded by the wording of the endorsement…" In light of the Barker report, it seems unlikely that the administrators are correct when they say: the "Midland Policy contained an exclusion for asbestos related liability." This interpretation would also appear to be undermined by the £11 million pounds (plus £1,250,000 legal costs) paid to T&N by the Eagle Star Insurance Co. Ltd. (which had absorbed the Midland) to settle "all past and future occupational disease claims" in 1990. Why would the insurers have paid T&N such a large sum to cap their liabilities if all asbestos claims had been excluded?
The difficulty of locating insurance information has not been helped by confidentiality clauses inserted by T&N in settlement agreements reached with various insurers. It is known that: "the settlement with the Midland contains a confidentiality provision preventing disclosure of its terms except under compulsion of law." The lack of detailed information about the Midland policy, crucial because so many of the current claims relate to asbestos exposure which occurred between the mid 1940s-1970, sent Solicitor Ian McFall, representing Client "L," back to Court on 21 February to seek disclosure of the terms of the Midland release. The High Court judge ordered the administrators to disclose the document entitled: Deed of Acknowledgement, Discharge and Indemnity. Although the specific terms of this dense document cannot be divulged, it seems unlikely that the legal basis of this agreement can be undone.
Non-disclosure was central to another agreement reached in 1990. In return for a total of £1 million paid in respect of costs by Lloyd’s of London insurance syndicates, T&N waived £300 million of indemnity cover for all past, present and future US asbestos building claims. One participant in the negotiations remarked that the final settlement was a "complete surrender" by T&N; he speculated that the company was frightened by the possibility of the insurers mounting a material non-disclosure defence and the effect high-profile litigation could have on the company’s share value.
10. Employers’ Liability Cover: Other Insurers
Information on Employers’ Liability cover issued by Winterthur International Ltd. (1998-2002), New Hampshire Insurance Company (1995-1997) and the Lloyd’s of London Bryan Smith Syndicate (1977-1995) was also included in the administrators’ report. If Maguire is right and asbestos exclusions are unenforceable, then claims made for occupational exposure to asbestos during the life of these policies can be made. While this is little help to those currently suffering, it could provide compensation for people who develop asbestos-related diseases in the future.
11. Asbestos Liability Cover: The Curzon Policy
The mysterious off-shore Curzon asbestos policy has generated much interest since T&N went into administration. At that time, it was known that a £500 million asbestos liability insurance policy had been taken out by T&N in 1996 with Curzon, T&N’s captive insurance vehicle. Under the terms of the policy, the insurance would be triggered only when the aggregate cost of claims made or brought after 30 June 1996, where the exposure occurred prior to that date, exceeded £690 million. According to the documents released in February by the administrators: "this insurance applies to Asbestos Claims made or brought anywhere in the world at any time after the Inception Date of this Policy." The term of policy CZ7/96 ASB/096 is from "1 July 1996 without time limitation". Claims under US workers’ compensation statutes are specifically excluded, however US and UK product and public liability claims and Employer’s Liability claims by UK employees are not.
According to information provided by the administrators: "the FM Group recorded an insurance recoverable asset under the T&N (Curzon) policy of US$577 million in the fourth quarter of 2000." This seems to confirm other statements by the administrators in which they said that the money from the Curzon policy could not be ring-fenced and used exclusively for UK claimants.
12. Product and Public Liability Insurance
A second insurance report by the administrators is expected in the beginning of March; it will document T&N’s Public and Product Liability policies.
The information presented today draws on years of research, discussions with numerous solicitors and hours spent pouring over Employers’ Liability Insurance Policies, Certificates of Employers’ Liability Insurance, Records of Employers’ Liability Insurance, Reinsurance Agreements, unpublished manuscripts, internal T&N memos, newspaper reports and other relevant information. It is my understanding that any solicitor representing an asbestos client with a claim against T&N has the right to view the mass of documents being released by the administrators. A request should be forwarded to the law firm which is working for the administrators: Neil Griffiths, Denton Wilde Sapte, Five Chancery Lane, Clifford’s Inn, London EC4A 1BU, fax: 020 7320 6899/ email: email@example.com
March 6, 2002