Annual Report 2005 - Chubb Group of Insurance Companies

of properties where asbestos was present. Generally,
these insureds are named defendants on a regional rather
than a nationwide basis. As the Ñnancial resources of
traditional asbestos defendants have been depleted, plaintiÅs
are targeting these viable peripheral parties with
greater frequency and, in many cases, for larger awards.
Asbestos claims against the major manufacturers, dis-
tributors or installers of asbestos products were
presented under the products liability section of primary
general liability policies as well as under excess liability
policies, both of which typically had aggregate limits that
capped an insurer's exposure. In recent years, a number
of asbestos claims by insureds are being presented as
""non-products'' claims, such as those by installers of
asbestos products and by property owners or operators
who allegedly had asbestos on their property, under the
premises or operations section of primary general liability
policies. Unlike products exposures, these non-products
exposures typically had no aggregate limits on coverage,
creating potentially greater exposure. Further, in an effort
to seek additional insurance coverage, some insureds
with installation activities who have substantially eroded
their products coverage are presenting new asbestos
claims as non-products operations claims or attempting
to reclassify previously settled products claims as non-
products claims to restore a portion of previously exhausted
products aggregate limits. It is diÇcult to predict
whether insureds will be successful in asserting claims
under non-products coverage or whether insurers will be
successful in asserting additional defenses. Therefore, the
future impact of such eÅorts on insurers is uncertain.
In establishing asbestos reserves, the exposure
presented by each insured is evaluated. As part of this
evaluation, consideration is given to a variety of factors
including the available insurance coverage; limits and
deductibles; the jurisdictions involved; past settlement
values of similar claims; the potential role of other
insurance, particularly underlying coverage below excess
liability policies; potential bankruptcy impact; and applicable
coverage defenses, including asbestos exclusions.
SigniÑcant uncertainty remains as to the ultimate liabil-
ity of the P&C Group relating to asbestos related claims.
This uncertainty is due to several factors including the
long latency period between asbestos exposure and dis-
ease manifestation and the resulting potential for involve-
ment of multiple policy periods for individual claims;
plaintiÅs' increased focus on peripheral defendants; the
increase in the volume of claims by unimpaired plaintiÅs
and the extent to which they can be precluded from
making claims; the eÅorts by insureds to obtain coverage
not subject to aggregate limits; the number of insureds
seeking bankruptcy protection as a result of asbestos
related liabilities and the impact of prepackaged bankruptcies;
the ability of claimants to bring a claim in a state
in which they have no residency or exposure; inconsistent
court decisions and diverging legal interpretations;
and the possibility, however remote, of federal legislation
that would address the asbestos problem. These signiÑcant
uncertainties are not likely to be resolved deÑnitively
in the near future.
Insurance losses and loss expenses of the P&C Group
included $35 million, $75 million and $250 million in
2005, 2004 and 2003, respectively, related to asbestos
claims.
Toxic waste claims relate primarily to pollution and
related cleanup costs. The P&C Group's insureds have
two potential areas of exposure: hazardous waste dump
sites and pollution at the insured site primarily from
underground storage tanks and manufacturing processes.
Under the federal ""Superfund'' law and similar state
statutes, when potentially responsible parties (PRPs) fail
to handle the clean-up at a hazardous waste site, regula-
tors have the work done and then attempt to establish
legal liability against the PRPs. Most sites have multiple
PRPs.
Most PRPs named to date are parties who have been
generators, transporters, past or present landowners or
past or present site operators. The PRPs disposed of
toxic materials at a waste dump site or transported the
materials to the site. Insurance policies issued to PRPs
were not intended to cover the clean-up costs of pollu-
tion and, in many cases, did not intend to cover the
pollution itself.
As the costs of environmental clean-up became substantial,
PRPs and others increasingly Ñled claims with
their insurance carriers. Litigation against insurers ex-
tends to issues of liability, coverage and other policy
provisions.
There is substantial uncertainty involved in estimating
the P&C Group's liabilities related to these claims. First,
the liabilities of the claimants are extremely diÇcult to
estimate. At any given waste site, the allocation of
remediation costs among governmental authorities and
the PRPs varies greatly depending on a variety of factors.
Second, diÅerent courts have addressed liability and
coverage issues regarding pollution claims and have
reached inconsistent conclusions in their interpretation
of several issues. These signiÑcant uncertainties are not
likely to be resolved deÑnitively in the near future.
Uncertainties also remain as to the Superfund law
itself. Superfund's taxing authority expired on December
31, 1995 and has not been re-enacted. Federal
legislation appears to be at a standstill. At this time, it is
not possible to predict the direction that any reforms
may take, when they may occur or the eÅect that any
changes may have on the insurance industry.
Without federal movement on Superfund reform, the
enforcement of Superfund liability is shifting to the
states. States are being forced to reconsider state-level
cleanup statutes and regulations. As individual states
move forward, the potential for conÖicting state regula-
tion becomes greater. In a few states, cases have been
brought against insureds or directly against insurance
companies for environmental pollution and natural re-
sources damages. To date, only a few natural resources
claims have been Ñled and they are being vigorously
defended. SigniÑcant uncertainty remains as to the cost
of remediating the state sites. Because of the large num-
ber of state sites, such sites could prove even more costly
in the aggregate than Superfund sites.
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