Unlocking Solutions: How Loss Portfolio Transfers Could Revolutionize Mass Tort Cases

NEW YORK (AP) — Loss portfolio transfers have emerged as a creative tool for organizations and insurers to manage large risk pools and resolve liabilities in a fair and efficient manner. These reinsurance contracts involve ceding legacy liabilities to a reinsurer, who assumes and accepts the current and future claim liabilities. In exchange, the ceding entity agrees to pay the reinsurer for the reserves. While loss portfolio transfers are not yet common in mass tort litigation, a growing number of insurers and self-insured defendants are exploring this option to address their liabilities.

One example of loss portfolio transfers in the market is the transfer of asbestos liabilities by organizations such as ITT, Borg Warner, Dana Corp., and Crane Corp. Reinsurers are also looking at solutions for cases involving “black lung” and construction defects, as well as talc and “forever chemicals” cases. While many of these transactions remain confidential, they demonstrate the interest in this creative approach to managing liabilities.

In a mass tort case, a defendant or their insurer may find themselves facing a significant liability gap. Through a loss portfolio transfer, they can cede the claims and reserves to a reinsurer, who agrees to pay a predetermined amount to satisfy the claims over a specified period. The reinsurer believes that by investing the original reserves, they can earn a significant return above the amount they pay out. This provides plaintiffs with additional coverage and funding for settlements.

The exact terms of a loss portfolio transfer depend on negotiations between the insurer, reinsurer, and other parties involved. Actuarial analyses play a crucial role in determining the present and future value of the claims against the liability policy. While the transaction is between the defendant/insurer and the reinsurer, plaintiffs’ counsel must also approve the deal for it to proceed successfully.

When considering whether to agree to a loss portfolio transfer, plaintiffs’ counsel must evaluate several key factors. Economic uncertainty is a significant consideration, as investments and future claims are subject to various factors like inflation and interest rates. If economic factors cast doubt on the defendant’s ability to fund future claims, a loss portfolio transfer may be the most reasonable option.

The status of claim evaluation and payment is another critical factor. Plaintiffs’ counsel may be concerned about the risk of reinsurers increasing damages thresholds or delaying payments. However, if standards for evaluating and paying claims have been agreed upon, the risk is mitigated. Third-party reinsurers can provide unbiased views of claims valuations to support plaintiffs’ counsel’s assessments.

Loss portfolio transfers can provide additional funds to secure a settlement, which may sway plaintiffs’ counsel’s decision to support the transaction. However, if the defendant or insurer shows no willingness to meet other demands or alternative sources of funding are available, plaintiffs’ counsel may have reservations.

Lastly, the costs of ongoing litigation and the potential benefits of a settlement must be considered. Plaintiffs’ counsel must assess whether they can continue funding the litigation if a loss portfolio transfer or settlement does not occur. Unforeseen developments, such as a key court win for the defendant or a bankruptcy solution, can impact the value of the claims and delay compensation.

In summary, loss portfolio transfers have the potential to facilitate settlements in mass tort litigation. While plaintiffs’ counsel must carefully evaluate the specific circumstances, these transactions can provide much-needed funding and coverage for the claims. The decision to support a loss portfolio transfer depends on factors such as economic uncertainty, claim evaluation and payment standards, the potential for a settlement, and the costs of ongoing litigation.