RSA and Lloyds face millions in asbestos payments

High court rejects insurer's case that policy relieved it of liability

Royal & Sun Alliance, Britain's second largest general insurer, could be liable for tens of millions of pounds in compensation to victims of asbestos-related diseases following a High Court ruling [yesterday.

The court rejected RSA's claim that it was relieved of liability because of certain policy exclusion clauses in the employer's liability (EL) cover it wrote for Turner & Newall, the engineering group, between 1969 and 1977.

Mr Justice Lawrence Collins made similar findings in respect of a Lloyd's of London syndicate policy, which then supplied the EL insurance at T & N until 1995.

T & N, bought by Federal Mogul of the US five years ago and now in administration, was Britain's biggest manufacturer of asbestos.

The wording in RSA's EL policy is believed to have been standard among corporate insurers, which suggests that [yesterday]'s decision could have broader implications for asbestos-related claims liability against insurers.

"I suspect this will be a defining point for other companies," said Simon Freakley, the Kroll Buchler Phillips restructuring specialist who is handling the Federal-Mogul administration in the UK and brought the claim on behalf of ex-employees at T & N.

Mr Freakley described yesterday's decision as a "major step" towards enabling hundreds of former T & N workers who have developed asbestos-related diseases to obtain compensation from the insurers.

Even so, they still face legal hurdles. The insurer is likely to seek leave to appeal and also argues that it is entitled to "avoid" the workers' claims on the grounds that T & N did not fully disclose the extent of its asbestos operations.

This issue - strenuously refuted by T & N - will be the subject of a separate court hearing, [not yet scheduled].

About 900 UK asbestos-related claimants are seeking compensation from T & N/Federal Mogul, including about 600 former T & N employees. It is estimated that about half that number could benefit from [yesterday]'s judgment, because at least part of their employment was after 1969.

If compensation is eventually secured, sums paid out could range widely. At the upper end of the scale, compensation in a case involving mesothelioma, an asbestos-related disease, averages about £100,000.

RSA said the ruling involved a "unique situation", and insisted that its reserves were adequate. Analysts also expressed doubts that RSA would require additional reserves, and dismissed suggestions that the UK's asbestos claims experience was likely to replicate that in the US.

Chris Hitchings at Commerzbank said: "The reappearance of asbestos claims [in the USA] over the last two years largely reflects lawyers targeting people who are not affected by asbestos but who might be."

Nevertheless, the judgment comes at an unfortunate time for RSA as it seeks to raise up to A$1.85bn (£740m) by floating its Promina division in Australia. RSA shares closed 3 per cent lower at 114½p in a rising market.

The situation at Equitas, the vehicle created to assume Lloyd's pre-1993 liabilities, is more complicated because of its large exposure to the US market. Rob Jones, credit analyst at Standard & Poor's, said: "Asbestos is the single biggest problem facing Equitas, though the overwhelming issues are still in the US."

Equitas confirmed [yesterday] that it would seek to appeal against [yesterday]'s decision.

Families of several T & N asbestos victims welcomed the ruling and urged insurers to live up to their responsibilities.

"Financial Times" 10/11 May 2003