Insurance Coverage Implications of the J&J Talc Verdicts
This year the targeting of cosmetic talc defendants began in earnest. The recent verdict against Johnson & Johnson — $72 million, including $62 million of punitive damages — wasn’t a surprise given the jurisdiction, but its sheer size clearly raises the stakes. That outcome and Monday’s $55 million verdict against J&J in Missouri suggest there will be more cosmetic talc lawsuits and they will cost more to resolve, raising the issue of how insurers will respond.
Annual mesothelioma case filings are relatively flat, but the number of diagnoses is believed to be falling as the plaintiffs bar’s advertising captures an ever-increasing percentage of potential plaintiffs. In the wake of the J&J verdict, specific “talc exposure” television advertisements are now appearing.
Two developments are driving the increased attention on companies that mined or incorporated cosmetic talc into their products. First, there’s been confusion as to why so many women — frequently young — are being diagnosed with mesothelioma, despite having no obvious asbestos exposures. The defense bar has long speculated there is idiopathic mesothelioma. The plaintiffs bar alleges some cosmetic talc contains asbestos. Last year a California jury awarded $13 million to a woman who contracted mesothelioma from exposure to allegedly asbestos containing talcum powder. Second, many recent cosmetic talc claims, like the J&J case, allege talc causes ovarian cancer. There is no reference to asbestos contamination in these cases, which opens up an entire new class of potential plaintiffs. The National Institute of Health estimates there are 22,280 new cases of ovarian cancer diagnosed annually in the U.S. and 14,240 women die of the disease every year. By comparison, the American Cancer Society estimates that there are only 3,000 new mesothelioma diagnoses a year. If the plaintiffs bar is successful in tying cosmetic talc to ovarian cancer, as they were in the J&J case, they have increased their potential plaintiff pool by over 700 percent.
How Will Insurance Respond?
Cosmetic talc lawsuits allege harm over time, which raises many issues common to asbestos insurance coverage cases. Like most asbestos claims, talc claims are predominantly product liability and implicate a defendant’s historical liability coverage. In the insurance coverage context, however, the differences between talc and asbestos should be considered.
Asbestos Exclusions: Lawsuits against industrial talc defendants typically allege the talc was contaminated with asbestos. Thus, the asbestos exclusion found in most general liability policies issued since the mid-to-late 1980s typically is asserted by the insurers in such cases. Cases like the California verdict that allege asbestos contamination also potentially implicate the asbestos exclusion. Claims like the J&J case, however, do not allege an asbestos connection, so they are presumptively not subject to the exclusion. Consequently, asbestos claims typically implicate policies issued before the mid-1980s, while a claim like the suit against J&J may also implicate policies issued more recently.
Interestingly, in certain jurisdictions that forcibly spread the risk “pro rata” to all potentially triggered policies, a policyholder may actually prefer the application of the asbestos exclusion if their later coverage had high deductibles, SIR’s, fronting features, onerous claims-made provisions or insolvencies. This quirk is because in asbestos coverage cases many pro rata jurisdictions do not spread the risk to periods in which coverage was effectively “unavailable” to policyholders due to widespread exclusions used by insurers. Thus, a policyholder might actually prefer a hard cutoff that insulates it from these less desirable policy years even though it reduces the overall limits available.
Fortuity: The complaint in the J&J case alleges J&J knew about an association with ovarian cancer as early as 1971. It asserts “nearly all” of 23 epidemiologic studies on cosmetic talc reported an associated risk with ovarian cancer. It describes, at length, alleged instances in which J&J “knowingly released false information” about the safety of talc in coordination with the Cosmetic Toiletry and Fragrance Association and otherwise concealed and failed to warn of cosmetic talc’s dangers. It has been reported post-trial interviews with jurors revealed these allegations were the motivation for the large punitive damages award.
Such allegations will cause insurers to raise various “fortuity,” “known loss” and “expected and intended” defenses to coverage. They rest on the concept a loss that is caused intentionally, or which the policyholder had sufficient foreknowledge to prevent, is not insurable. While fortuity defenses are daunting, they have had virtually no impact in asbestos coverage cases. Also, fact intensive fortuity defenses can place carriers in a conflict of interest with the policyholder. Thus, a policyholder may be able to demand the insurers permit it to hire defense counsel of its choice, and the carriers would still be responsible to pay for the defense.
Punitive Damages: From an insurance recovery standpoint, the biggest insurance issue raised by the J&J verdict is the $62 million punitive damage award. A majority of states do not allow punitive damages to be insured. However, even those states often have exceptions for vicarious liability and other distinctions that might offer a policyholder the possibility of coverage. Which state’s law will apply to the punitive damages issue is therefore of critical importance. Factors such as where the plaintiff lives, where the underlying case was brought and where the defendant was headquartered are all relevant factors that could be determinative.
Who Pays What Share?
The questions of what policies are triggered and how to allocate responsibility among them have been the focus of asbestos coverage cases for the last three decades. While these precedents provide guidance for talc cases — especially those cases involving allegations of asbestos contamination — subtle differences between cosmetic talc and asbestos will require fresh consideration. Insurers will generally look to forcibly spread the risk to as many other insurers as it can, or to the policyholder itself.
Trigger of Coverage: “Trigger of coverage” determines which policies are potentially responsive. Under an “occurrence” based policy, any policy on the risk when a bodily injury takes place is potentially triggered. For asbestos, most states apply a form of “continuous trigger” that implicates any policy on the risk from the date of first exposure until manifestation.
The rationale for the “continuous trigger” approach is grounded in asbestos being a progressive disease. Insurers have recently been arguing this view has been undermined by changes in medical science. They are attempting to move the trigger date closer to the manifestation of the plaintiff’s disease so coverage is barred by the asbestos exclusions typically found in later policies. Most of these efforts have failed, but it is still being aggressively litigated by some insurers.
What these battles portend for cosmetic talc defendants is unclear. The science of cosmetic talc and asbestos is likely different. After losing many asbestos coverage battles, insurers understand the critical importance “trigger” methodology has on their potential liability. They will aggressively seek to limit the available coverage to more recent years, where coverage is likely less robust.
Loss Allocation: Most talc claims involve multiple triggered policies. The allocation issue is whether a policyholder can select one of the triggered policies to fully defend and indemnify it in a given claim based on the language found in many historical liability policies that makes an insurer liable for “all sums” a policyholder may have to pay. Under this approach a policyholder may target those policies with the most favorable terms, avoiding policy documentation gaps, insurer insolvencies and policies with large deductibles or SIR’s.
There is a split in how states approach loss allocation, with some utilizing a “pro rata” approach which spreads costs across all triggered policies. Policy periods in which the policyholder is uninsured due to the unavailability of insurance for the risk are generally not included in the allocation. In a pro rata jurisdiction, a policyholder may be forced to satisfy all deductibles and loss retentions found in each respective policy period and may be required to step into the shoes of the insurer for any coverage gaps. If “claims-made” coverage is implicated, the policyholder could be held responsible for a period after the extended reporting period expires.
Lost Policies: Cosmetic talc plaintiffs frequently allege exposure to talc over many decades, sometimes starting as far back as the 1940s. This creates a burden of proof problem for defendants because many corporations did not preserve, or cannot readily locate old policies, and it is their burden of proof to establish the existence of responsive policies. A policyholder may need to employ an insurance archeologist to assist in locating missing policies or reconstructing them through secondary evidence.
What State’s Law Applies?
In extreme instances, differences in applicable law can mean the difference between survival and bankruptcy for a defendant. If you assume courts prefer to apply their own substantive law, this puts a premium on being the first to file a coverage action in a favorable jurisdiction because “first-filing” can be given great weight in determining which state’s law applies. The likelihood of a jurisdictional choice of law battle increases with the amount of money at stake, when a company had its headquarters in more than one state or when a company has many different locations.
Conclusion: While asbestos decisions will heavily influence the outcome of future talc insurance coverage disputes, talc claims present novel issues. To evaluate insurance assets properly, a talc defendant needs to consider the following questions:
- Can the existence, terms and conditions of the relevant insurance policies be established?
- Is there a plausible basis for more than one state’s law to apply to the interpretation of its policies?
- Is one of the possible venues a “pro rata” rather than an “all sums” jurisdiction?
- Is there a material difference in how the possible competing venues treat the insurability of punitive damages?
- Has any insurer issued a reservation of rights letter? Does it raise a potential conflict of interest?
- Does the historical coverage have large deductibles or retentions? Is it “retrospectively” rated or “fronted” coverage? Written on a “claims-made” basis?
The more “yes” answers to the above questions, the more likely there will be a coverage dispute. Insurers have extensive experience litigating asbestos coverage disputes. Cosmetic talc defendants need to understand their rights and duties to maximize their insurance recovery.
—By Stephen Hoke, Hoke LLC
Stephen Hoke is a partner in Hoke LLC’s Chicago office.
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