Posted: 04.17.2007
By Phillip M. Lyon
General liability premiums are costly but do you know why? Have you considered your annual “litigation tax” lately?
The American civil justice system is the most expensive in the world, with annual litigation costs per capita at $886. Tort costs have exceeded gross domestic product an average of two to three percentage points per year since 1951.
While product liability capacity issues from two decades ago have faded largely due to an excess of capital looking for a home in a world economy, newly emerging theories of liability pose substantial exposure risks. These may have a catastrophic impact and jeopardize the on-going viability of companies who become involved. Am I speaking to you?
Ominously on the horizon are advancing theories involving low level or trace chemical level exposure to American workers that allege immune or central nervous systems disorders, leukemia and fertility issues. Current litigation is focused on benzene and manufacturing processes because of the millions of people employed in these industries and their potential exposure over time.
Another theory, “market share liability (MSL), spreads liability to manufacturers in proportion to their market share when harmful chemicals cannot be traced to a single company. For example, paint companies are now being sued for billions of dollars by public entities to abate lead exposure.
For you, the policy holder, the challenge is not just about awards to plaintiffs but also defense costs. For example, think about welding rods. In use, the rods emit manganese fumes and a litigation theory lists manganese as a cause of neurological damage. Successful litigation is mixed for both the plaintiff and defense, but recently a federal judge overseeing multi-district litigation issued a written order that sufficient evidence exists to let a jury decide if manganese can inflict neurological damage. For manufacturers of welding rods, the stakes are high and defense costs likely will become astronomical. One industry group has estimated a budget of $100 million will be needed, not including defendants acting outside the group.
Managing the catastrophic exposure of product liability begins with sufficient excess insurance limits from financially secure insurers. Consider how much coverage you need, what your budget can sustain and also weigh the likelihood of exposure. Also implement a sound strategy when granting additional insured status to third parties. An act that may have seemed to be a business facilitator could one day turn into a serious erosion of your product liability limits, causing you to pay for the conduct of others. As your trusted advisors, ALCOS can help you balance your risk and manage your potential exposure.
Contact Phillip M. Lyon at 586.977.6300 or email him at plyon@alcos.com.
