Will a New Wave of New Environmental/toxic Tort Litigation and Claims Upend Insurance Industry Environmental Reserves?

• Publication year: 2023

[Page 141]

Charlie Kingdollar ^*

Abstract: To remain profitable and viable, the insurance and reinsurance industry must rely on estimated forecasts of potential claims many years out to establish an appropriate level of reserves. They rely on data from rating agencies and, based on these estimates, ratchet their reserves up or down accordingly. In past years, major and once unforeseen developments like massive asbestos and environmental litigation provided urgent reasons to cast an especially critical eye on the adequacy of industry reserves. In this article, the author explains why it is that time again. In light of several potentially calamitous emerging global liabilities he reviews here, particularly if they land with the impact he fears they might, the author believes the insurance industry and its policyholders may be in for a jolt a few short years from now.

For years, many insurers and reinsurers steadily reduced their environmental reserves, underestimating the ultimate impact of environmental claims. Rating agencies may have also underestimated the ultimate cost of environmental claims facing the property/casualty insurance industry.

Take, for example, A.M. Best, which in 1995 estimated the ultimate total of pre-1985 environmental claims to be $26 billion ¹ (which at the time, I thought was way too low). By 2018, the rating agency had increased their estimate to $46 billion ² —where it still sits today (again, which I still think is way too low). At the time

[Page 142]

of raising their estimate from $42 billion to $46 billion, A.M. Best explained that the increase was necessary because some older contaminated sites were more toxic and would thus cost more to remediate than originally believed. No doubt true, but are there other contaminants/toxins being missed or perhaps their potential impact is being underestimated? Much has come to light since 2018 when their estimate was last increased.

It is not just A.M. Best but other rating agencies as well. Rating agency Milliman's 2020 estimate for the ultimate losses from environmental claims ranges from $45 billion to $55 billion. ³ A little higher than A.M. Best's estimate but does it accurately reflect the ultimate costs of environmental claims facing the insurance industry?

Well, it may be time to begin increasing environmental reserves—dramatically—as new wave of environmental litigation, coverage actions, and claims have already begun. Let's just look at a few of the environmental pollutants driving this new wave of activity: glyphosate, paraquat, PFAS (per- and polyfluoroalkyl substances) chemicals, plastics, and ethylene oxide gas.

Glyphosate: Lymphoma Claims and Thousands of Roundup™ Suits

Glyphosate, the active ingredient in the weed killer Roundup™ has been in use in the United States since 1974. Roundup was made by Monsanto Company, which was purchased by Bayer A.G. in 2018. Toxic tort litigation alleging exposure to glyphosate causes lymphoma or chronic lymphocytic leukemia, among other illnesses, is ongoing. Thousands of people have filed lawsuits alleging exposure to glyphosate has caused their illnesses.

Litigation has already begun and some of the verdicts and/or settlements already handed down in glyphosate litigation include:

An initial $2.055 billion to a couple alleging glyphosate exposure caused them both to develop non-Hodgkin's lymphoma. The verdict included $55 million in compensatory damages and $2 billion in punitive damages, later reduced to $70 million (Pilliod v. Monsanto, 67 Cal. App. 5th 591 [2021]; 282 Cal. Rptr. 3d 679).

[Page 143]

■ An initial $289 million to another plaintiff who also alleged exposure to the herbicide caused his non-Hodgkin's lymphoma. The jury awarded the plaintiff $39.3 million in compensatory damages, later reduced to $10 million, and $250 million in punitive damages, later reduced to $10 million on appeal (Johnson v. Monsanto Co., 52 Cal. App. 5th 434—Cal. Court of Appeal, 1st Appellate Dist., 1st Div. 2020).
■ An initial $80 million verdict was handed down to another plaintiff with non-Hodgkin's lymphoma. The jury awarded $5.3 million in compensatory damages and $75 million in punitive damages, reduced by the district court to $20 million and affirmed by the Ninth Circuit (Hardeman v. Monsanto Co., 997 F. 3d 941—Court of Appeals, 9th Circuit 2021).

Much of the litigation has been consolidated into multidistrict litigation (MDL). Bayer has proposed a $10.9 billion settlement to settle with approximately 100,000 plaintiffs. The company would still face some 30,000 pending lawsuits, with more being filed. ⁴

With verdicts like the ones shown above, the costs of 30,000 additional suits could be significant. In addition, while glyphosate litigation has, to date, targeted Roundup's maker Monsanto/Bayer, one has to wonder whether the glyphosate litigation will follow the pattern seen in earlier toxic tort litigation and expand the list of targeted defendants to include others in the liability chain. If so, this could not only drive up the ultimate costs of glyphosate litigation but also result in more insurers and reinsurers seeing demands for defense and indemnity payments.

Paraquat: Allegations of Parkinson's Disease

Glyphosate isn't the only herbicide at the center of mass litigation. Another is paraquat, also known as methyl viologen, first commercially produced in 1961. Farmers are alleging their Parkinson's disease was caused by exposure to the herbicide. Syngenta A.G., the manufacturer, paid $187.5 million to settle some...