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Chapter 11 Casualty reinsurance 11/13

Several cases such as Splunge v. Shoney’s (1996) ($60m) and Central District of Illinois Equal
Employment Opportunity Commission v. Mitsubishi (1998) ($34m), which have involved a number of
plaintiffs, have shown the tendency towards an increase in frequency and severity with a greater case
complexity resulting in higher defence costs.

Activity
Other landmark US cases include Patterson v. PHP Healthcare Corp. (1996) and Johnson v. Spencer Press of
Maine, Inc. (2004). Investigate the relevance of these cases.

The focus of internal practices and procedures is also concerning due to the increased possibility of the
use of cyberspace where harassing material via email and the internet could be sent.

D2A Accumulations
Until 1 January 1995, EL reinsurance was granted on an unlimited basis, in the same way that it still is for
motor liability. However, after the 1988 Piper Alpha disaster and the accumulation of losses that resulted
for excess of loss reinsurers to bear, reinsurers would only grant cover on a limited basis and as a result,
insurers accordingly reduced the cover they were willing to give.

The problem of unknown accumulations of risk to insurers and reinsurers was revealed by the Piper
Alpha disaster, however, these problems do not just relate to offshore locations but also in such
instances as multi-tenant office blocks involved in a large fire where insurers could find themselves as
the EL insurer for more than one of the employers on the site. Again, following 9/11, reinsurers had to
look at remodelling their potential unknown accumulations. These losses would be accumulated as one
event for the purpose of reinsurance recoveries under excess of loss contracts.

D2B Occupational disease
There have been considerable losses to the insurance industry as a result of occupational disease,
which typically results in a large number of claims from affected employees, even though the award to
each employee tends to be modest.

EL business is generally written on a losses occurring basis and a loss would be defined as occurring Reference copy for CII Face to Face Training
EL business is
during the period in which an employee was exposed to a particular disease-causing agent, such as generally written on a
asbestos. These diseases can take many years to develop and insurers can find themselves paying out losses occurring
basis
under policies issued decades earlier. This introduces a significant IBNR element to this account.
The long-tail nature of the account makes it very unpredictable and insurers have to try to predict levels
of claims in the future, taking inflation into account as well as possible future changes in legislation, if
retrospective, or in case law, which may affect insurers’ liability. Advances in medical techniques enable
doctors to identify work-related injuries and disease, which can lead to higher numbers of claims
being made.

Industrial diseases include asbestosis and mesothelioma, which are conditions caused by the
inhalation of asbestos fibres, whereas silicosis results from the inhalation of silica in mines and
quarries. Industrial deafness is associated with many years spent working in noisy environments, such
as those found in shipyards and foundries. In today’s environment, illness through stress can also be
considered an occupational disease, liability for which could fall on the employer.
Be aware
Tenosynovitis describes a condition more commonly known as tendonitis and is the inflammation or irritation of a
tendon. Tendons are the tough, white, stringy and rubbery fibrous cords that link muscles to bones. They help
release the power created by a muscle contraction, which helps move bones and joints. The tendons we can see on
the back of our hands move our fingers and are joined to the muscles in the forearm. Tendonitis is often found in
adults who do a lot of sporting activities and includes the occupational illness known as repetitive strain injury
caused by excessive use of machinery or keyboards.

The problem of industrial and occupational illnesses and diseases has been dealt with by the
reinsurance industry by the use of the ACOD/B clause, which defines each employee as an event and
thus each individual claim rarely exceeds the reinsurance deductible. Where a sudden and identifiable
accident occurs resulting in a number of employees sustaining death or injury, this is deemed to be a
single event for the purpose of reinsurance recovery. A copy of the ACOD/B clause can be found in
appendix 7.5 on RevisionMate. Chapter

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