August 01, 2012 Articles

New Jersey Law on the Unavailability of Asbestos Insurance

A number of courts have rejected insurers' version of history and found that asbestos insurance was not reasonably available, beginning in the mid-1980s, to the insureds involved in ongoing litigation

by John T. Waldron III

By the mid-1980s, asbestos liabilities had grown dramatically in the tort system, setting off alarm bells in the insurance industry. The reaction of the insurance industry was simple and clear: An "asbestos curtain" descended across the insurance programs of corporate America, as insurers almost entirely ceased selling asbestos products insurance to insureds whose risk profile indicated that it could get swept into the emerging crisis. Around that time, a manufacturer, distributor, or installer of asbestos-containing products, particularly one with pending asbestos claims, could not have purchased meaningful risk-transfer insurance coverage for asbestos-related products claims, except perhaps in limited circumstances.

This development had, and continues to have, important consequences for policyholders seeking to access the asbestos insurance that they purchased prior to the mid-1980s. Specifically, under New Jersey law (and certain other states' laws), if asbestos insurance was not reasonably available for purchase for a given time period, the insured will not be responsible for such time periods in the calculation of who bears responsibility for the asbestos claims in question.[1]

As a result, the insurers have every economic incentive to argue that—notwithstanding their concerted abandonment of asbestos insurance—asbestos insurance was allegedly "available" to their asbestos-related policyholders after the mid-1980s. When pressed to provide support for this revisionist history, these insurers rarely can locate any relevant examples of such insurance. They were not foolish enough to sell it, but they are certain some other insurer (perhaps a now-insolvent one) did. But there are precious few examples of such insurance in the reported case law, and the handful that exist are easily explained as unique instances that do not demonstrate that asbestos insurance was reasonably available to other relevant policyholders.

Lacking actual evidence of available asbestos insurance from the mid-1980s forward, insurers recently have begun teaming up with law and economics professors who purport to provide a theoretical explanation of why asbestos insurance should have been reasonably available. Of course, these economists miss the point—whether a rational insurer should have sold asbestos insurance or not (and it is not clear that selling asbestos insurance in the face of a rising tide of asbestos claims would have been rational), they almost universally did not.

Undeterred by the facts of what actually happened, these insurers (and their selected expert witnesses) claim that, in essence, insurance is always available; it is simply a matter of adjusting the premium to reflect the correct pricing of the risk. In other words, every policy has its price, and insurance is never truly unavailable.

This vision—or, more accurately, mirage—is not innocuous. It is deliberately designed to shift a share of the substantial amount of asbestos costs from the insurers—insurers who were paid premiums to accept this very risk—to their policyholders. It is an open question whether insurers should have been permitted to abandon the marketplace in the mid-1980s and to refuse to continue selling asbestos insurance to the policyholders who needed it the most when they needed it the most. But there can be no question that the marketplace was closed for business to such policyholders. Fortunately, as discussed below, a number of courts, including the New Jersey court that has most recently addressed the issue, have rejected the insurers' revisionist history and found that asbestos insurance was not reasonably available to the insureds in question beginning in the mid-1980s.

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