1. Megatort Update Casualty Actuarial Society Annual Meeting – Concurrent Session November 13, 2000 Jennifer L. Biggs, FCAS, MAAA Alison Drill, FIAA, MAAA

2. 2 Current and Potential “Megatorts” Excluding asbestos, pollution and tobacco What factors cause or contribute to a “megatort”? How have these factors changed in recent years? What impact will these changes have on future costs? Current status and the outlook for: Silicone Breast Implants (SBI) Lead Electromagnetic Fields (EMF) Drugs and medical devices Other emerging megatorts

3. 3 Most costly megatorts include some or all of these factors... Large exposed population Substantial bodily injury (BI) or property damage (PD), often with long latency periods Causation of BI or PD relies on expert testimony Signature diseases (e.g., asbestosis) Injured parties’ propensity to sue Contingency legal fees & class action lawsuits Many exposed policies Favorable judicial and legislative climate Large indemnity and/or defense expenses to insurers

4. 4 Changes for plaintiffs and corporations? Potential plaintiffs Technology and the internet have improved identification & information sharing Propensity to sue stable (or increasing?) Corporations Better risk management may speed identification of potential injuries and mitigation Higher levels of risk retention & self-insurance Wider product distribution, but better safety standards

5. 5 Changes for legal system? Tort reform Stricter standards for technical evidence and use of expert witnesses (e.g., Daubert rules in 1995) Limitations on damage awards Shift towards continuous triggers for coverage (e.g., Montrose decision) Class actions more common Large contingent fees for attorneys Faster & more economical resolution Greater motivation for defendants to settle May increase size of plaintiff pool Alternative dispute resolution

6. 6 Changes for insurers? Underwriting standards Policy exclusions introduced quickly (e.g., “loss in progress” exclusion) Aggregate coverage limits Requiring insureds to retain portion of risk via SIRs or experience rating Occurrence definitions tightened (e.g., “claim first reported” wording) Higher defense expenses Shift to expense within policy limits Improved claims management with toxic tort specialists Declaratory judgement actions on coverage issues

7. 7 What is the impact of these changes? Plaintiffs and legal system increasingly looks to class action litigation to tort damage Corporations and insurers attempt to respond more quickly with better risk management Most other megatorts in litigation involve limited number of plaintiffs and insurers Lower likelihood of another “asbestos” sized megatort Examples of current and emerging megatorts on following pages, none of which are likely to be as costly as asbestos

8. 8 Silicone Breast Implants (SBI) Manufactured 1962 to 1991 Alleged bodily injuries: fatigue, cancer, auto-immune disorders Defendants: limited number of manufacturers Scientific studies now in place, but many insurance settlements already done Settlements by Dow Corning ($3.2 billion) and other major manufacturers Some SBI manufacturers in backruptcy (Dow Corning) Litigation has slowed but is ongoing in some cases; 9/2000 decision overturned $10 million judgement for “lack of evidence”

9. 9 Lead Lead paint and other lead products (e.g., water pipes, lead- containing gasoline, ceramics) Defendents are landlords, housing authorities & municipalities and pigment/paint manufacturers Mitigation costs and bodily injury to exposed children, building occupants, construction workers Legislation & courts driving lead abatement New EPA “pre-renovation” rule in place One market-share case in NY appellate court Market-share law introduced in Maryland Lead exclusions included sporadically by insurers

10. 10 Electromagnetic Fields (EMF) Low frequency = power lines, home applicances High frequency = radar guns, cell phones Large and increasingly exposed population Radiation is measurable but: For low frequencies, current science indicates a slightly increased risk of some leukemias but causation remains unclear For high frequencies, no results yet, but studies are underway Few claims paid to property owners near power lines for diminution of property values

11. 11 Drugs & Medical Devices DES litigation trickles on with 2nd & 3rd generation claims Norplant settlement proposed Fen-Phen & Redux diet drugs manufactured by American Home Products: class action settlement of $3.75 billion for 6 million users plus ongoing litigation from 45,000 opt-out plaintiffs Contaminated blood products (HIV and Hepatitis C): US hemophiliac exposures now generally settled Recent and pending litigation Anti-diabetes drug Rezulin Heartburn medication Propulsid Anti-depressant Prozac

12. 12 Other megatorts already in litigation.. Chemical exposure claims continue but are generally limited to few insureds, (e.g., benzene, Agent Orange) Latex gloves: plaintiffs mostly medical profession; exposure concentrated with glove manufacturers Gun manufacturers: increasingly sued by individuals and cities/counties; federal judge ruled in 11/2000 case that insurers have no duty to defend or indemnify Y2K is mostly a non-issue other than “sue and labor” clause litigation still in courts Sick Building Syndrome: injuries often vague but some suits successful

13. 13 Potential megatorts with litigation looming... Genetically modified food: political issues versus scientific evidence MTBE: widespread contamination of groundwater Toxic mold: mixture of Sick Building Syndrome and construction defect issues Napster litigation over copyrights could be precursor of intellectual capital litigation Gulf War Syndrome: new studies validate veterans’ concerns