St. Paul Travelers Cos. Inc. Friday said it lost a court battle on the issue of placing limits on asbestos claims, in what analysts said could force it and other insurers to increase their reserves for asbestos exposure.
The ruling by the U.S. Third Circuit Court of Appeals voided a 2003 arbitration decision made in St. Paul's favor in a suit filed by ACandS Inc., a now bankrupt installer of products that contained asbestos, which is known to cause cancer.
It may force the insurer to reserve more than its current $1 billion for asbestos claims, according to some analysts.
St. Paul said in its release that the court ruled on "procedural grounds," not on the facts in the case, and that it would appeal.
Analysts warned, however, that any court decision challenging asbestos settlements could have wide implications for all companies with asbestos exposure, including American International Group Inc., Chubb Corp. and Hartford Financial Services.
"It's another example of how asbestos can bite you," said Rob Haines, an analyst with CreditSights. "This issue is far from done."
A bill to set up a $140 billion liability fund for people harmed by exposure to asbestos could come to the floor of the U.S. Senate for debate as soon as Feb. 6. The fund would be paid by asbestos defendant companies and their insurers.
St. Paul said the appeals court ruling also reinstates a lawsuit against it that was dismissed as moot in September 2004. That suit deals with whether each claim against the insurer company is a separate occurrence or subject to an aggregate claim limit.
"If each case gets its own limit, that could create more exposure," said Peter Streit, an insurance analyst with Williams Capital Group. He said, however, that he wouldn't expect St. Paul to announce any change in asbestos reserves.
St. Paul said in its release said the court's decision is being analyzed for its impact on the company's asbestos reserves. The insurer said it would provide more information after its fourth-quarter earnings are released on Feb. 2.
"This statement is a tip of the hand that this could be material," said insurance analyst Donald Light of Celent LLC. "This may force them to lower shareholders' equity."
Merrill Lynch analyst Jay Cohen said the amount under dispute in the ACandS case is $1.26 billion or about $1.15 a share. "Given the reserve addition in 2004 and the fact that trends in asbestos litigation have not deteriorated in 2005, we are not expecting a major charge from the company," he said in a note to clients.
David Killalea, attorney for ACandS, said the appeals court decision was very important for companies such as his client that had been stripped of their coverage by insurers during the many bankruptcies due to asbestos claims. He said that more than 70 companies were in the same position as ACandS, and many of them also had insurance coverage that may have been lost.
"This insurance policy is the most important asset in the ACandS estate," said Killalea.
In 2004 the combined St. Paul Travelers reserved nearly $1.2 billion for asbestos exposure claims, following large charges in previous years, according to A.M. Best Co., which rates insurers.
A.M. Best analyst W. Dolson Smith said there was no indication that St. Paul would have any deficit in reserves. "But we are monitoring the situation very closely. The industry as a whole appears to be reserving for asbestos claims on a pay-as-you-go basis," the analyst said.