Risk Adviser
Clearing the Air
Opioid litigation is setting a precedent for future diesel fuel lawsuits.
The other day an underwriter asked us why we continue to list diesel exhaust as the top risk for a particular engine manufacturer. Back in 2012, a major insurer told us that diesel was their top emerging risk. The International Agency for Research on Cancer had just designated diesel as a Class 1 carcinogen, and there were concerns that litigation was imminent.
In the intervening years, with no real litigation emerging, diesel was becoming one of the dreaded false positives. In fact, over the past eight years, the risk has only grown for two reasons. The first reason is the science. Research over the past 30 years has identified particulate matter smaller than 2.5 microns (PM2.5) remaining after combustion of diesel fuel as the key culprit in cancer from diesel.
However, cancer is only the beginning. According to the World Health Organization's Global Burden of Disease study, air pollution (with PM2.5 from diesel perhaps the most critical component) is responsible for 21% of stroke deaths and 24% of ischemic heart disease deaths. Since 2012, new literature concerning diesel's effect on neurodevelopmental disorders in children has been accelerating.
A 2014 epidemiological study found that diesel exposure during pregnancy increased the risk of autism in offspring, and subsequent animal studies have illuminated the mechanism. The sweep of the science is increasingly revealing a broad public health catastrophe.
The hardest part of establishing liability is often not the science, but rather the need to prove a specific company caused a specific individual's harm. This leads to the second reason for diesel's growing risk: the precedents being set by opioid litigation.
Opioids manufacturers, distributors and retailers are being sued by state, local and tribal governments for collectively having caused the opioid crisis, leading to tens of thousands of annual deaths and billions of health care expenditures.
Recently, school districts became a new set of plaintiffs seeking reimbursement for special education and other expenses resulting from the opioid crisis. No specific causation for a specific individual's harm is needed.
Are there other commercially driven public health issues which could be argued have resulted in tens of thousands of deaths, and billions of public health and special education expenses for multiple years?
We simulated an opioids-like mass litigation scenario where state and local governments seek reimbursement for diesel's estimated share of their Medicaid and special education expenses. The defendants range from oil and gas, trucking and railroad industries to ports and warehouses. The total estimated litigation size in this scenario was $114 billion.
How much of this would be covered by insurance? While the commercial general liability pollution exclusion could significantly limit the industry's exposure, some losses could be covered as “product pollution.” In addition, the exclusion has not been tested in some settings, such as liability for harm to children from occupationally-exposed parents.
Environmental liability insurance would likely provide coverage, but market penetration for this insurance remains limited. Therefore, the potential coverage gap is as much of a concern as the aggregation risk itself.
Someday we may conclude that diesel risk was a “false positive.” In the meantime, insurers would do better to address diesel coverage directly with named exclusions, and then provide affirmative named peril coverage with appropriate aggregation controls.
