Drive To Rid Schools of Asbestos Jeopardized by Insurance Woes
Millions of dollars worth of asbestos-abatement work in schools across the country is in jeopardy because insurance companies are refusing to underwrite the activities of those involved in the work, according to government and industry officials.
Many predict that the situation will come to a head within the next few weeks when school officials are scheduled to receive federal or state aid for asbestos work and complete their bidding processes for scheduled summer projects.
"The problem is the word 'asbestos,"' said David Sharp, vice president of the Richard Harenbergh Insurance Agency in Westmont, N.J. "Once anyone in the insurance industry hears it, they close their files."
In Georgia, where $18 million is avail-able in state assistance, only one contractor recently bid on a removal job for the Atlanta public-school system. In Denver, school officials anticipate that they will have to put 13 of 15 planned projects on hold because of a lack of insurance.
And in California, where 100 districts have applied for $10 million available in state assistance, and 600 districts have applied for federal help, state law prohibits school districts from entering into an agreement with an uninsured contractor.
Among those concerned about the insurance problem are officials at the U.S. Environmental Protection Agency, which isduled to announce on June 6 the recipients of the $45 million in federal aid for asbestos-control work appropriated by the Congress last year. (See related story on page 14.)
"Any school district in California that wants to do asbestos-abatement work this summer has to change its plans unless this situation gets resolved," said Kim Tucker, an epa specialist in California.
According to Michael Stahl of the epa, 1,100 applications, representing about 8,400 schools, have been received by the agency, which has been authorized by the Congress to distribute the aid to those schools with the most serious asbestos problems and financial need.
Mr. Stahl said last week that the agency is assigning priority to the projects under six hazard rankings and has estimated that there is $100 million worth of work in the top-priority ranking alone.
The insurance situation, said Richard B. Mitchell, the epa regional asbestos coordinator in New England, is "one of those things that's always in the back of our minds as we do what we have to do to arrange all these grants."
"People won't lose the money if they have trouble getting a contractor," he said, "but it's not usable if they can't get anyone to do the work."
Absence of Standards
For school officials, the insurance situation is a further complexity in the asbestos dilemma they have faced since the epa ordered them to inspect for friable, or crumbling, asbestos in their buildings and to report the findings to the public by June 1983. (See Education Week, Sept. 26, 1984.)
As public pressure has mounted to remove the substance, a known carcinogen, the number of abatement projects in schools has increased dramatically.
But many involved in the work complain that there is too much disagreement in the scientific community over the actual health risks posed by the presence of asbestos-containing materials and over the safest and most successful methods for testing for, removing, and controlling the substance.
In addition, only four states--Maryland, New Jersey, Oklahoma, and Alabama--have contractor-certification and worker-licensing programs in effect, although at least 14 states are moving in that direction, according to Stephen Schanamann, an environmental specialist with the epa
Unable To Calculate Risk
But because there are no uniform governmental standards for asbestos removal, insurance-industry officials say they are unable to calculate its risk, so they have "washed their hands" of the asbestos-abatement industry.
"You can't sell insurance unless you know what it costs to cover the losses," said Wesley Caldwell, a regional vice president with the American Insurance Association, which represents 174 property and casualty companies.
"With scientists disagreeing over what should be done and what is safe for the future, underwriters are having a problem understanding what the losses will be down the road," Mr. Caldwell said.
Without insurance, many contractors say they cannot assume the risk of doing abatement work. And that is leaving school officials with the choice of stopping asbestos-con-trol activities or working with uninsured contractors.
"Nobody in their right mind is going to undertake to remove asbestos and the risks inherent with that removal without adequate insurance,'' said William Bigham, a lawyer in Trenton, N.J., who advises asbestos contractors.
"We would not go with an uninsured contractor," agreed Robert C. Olander, asbestos coordinator for the Atlanta public schools. "The risk is too great. We're putting ourselves in jeopardy. If we get a bad contractor, we could contaminate the whole school. We just don't want to take that risk."
Passing on the Cost
In addition, the contractors who are able to find insurance say its cost is rising astronomically--a factor they say will have to be reflected in their contracting fees.
Anthony Duall, president of the Duall Corporation in Mount Laurel, N.J., a firm specializing in asbestos removal, said about 3 percent of his company's gross income is spent on insurance premiums. The current policy, he said, will soon expire and he has been quoted premiums, for less coverage, that would cost 22 percent of his gross income.
Ray Goodlett, vice president of J&R Salvage Inc. of Brooks, Ky., which currently pays about 1.5 percent of its gross earnings for insurance, said his company will quit the asbestos business when its insurance policy expires on June 21.
"We found a company that will write us insurance, but the premium is 10 percent of the gross amount of our contract, which automatically places a 10-percent increase on the client," he said. "And I'm not sure how good the insurance would be. This may be a fly-by-night insurance company. All it takes is a piece of paper to be an insurance company."
Mr. Goodlett also noted that some contractors are forging insurance certificates and misleading their insurance carriers.
"Some of the contractors we still see bidding on jobs are not telling their agents they're doing asbestos work," he said. "They're changing their names or going to new agencies."
Schools 'Wasting Money'
Some insurance companies, however, are offering what is known as "claims-made" insurance to asbestos contractors, instead of "occurrence-based" insurance, which they previously supplied, according to industry officials.
Claims-made insurance covers only those claims that arise during the time the contractor pays his premiums. Occurrence-based insurance, on the other hand, covers claims that arise from a particular job, regardless of when the contractor stops paying his premiums.
Experts familiar with asbestos work warn that school officials who accept "claims-made" coverage are wasting their money, mainly because claims are most likely to be made long after the insurance has expired.
Medical experts agree that asbestos-related diseases--including mesothelioma, a fatal cancer; lung cancer; and asbestosis, the permanent scarring of lung tissue--might not manifest themselves for up to 20 years or more after exposure to asbestos fibers, which could occur if a removal or abatement job is not properly conducted.
"Companies are charging a fortune for claims-made coverage," Mr. Sharp said. "All the school-board members and architects see is an insurance policy and they think they're covered. It's crazy. The company selling it is just sitting back and making a fortune."
Said Marshall Marcus, an asbestos consultant for the Philadelphia school district: "School officials are facing the real possibility that the coverage offered by the contractor will mean nothing for long-term liability."
Despite the shortcomings, Mr. Sharp noted that claims-made insurance may be all that is available in the future. "I don't think you'll find occurrence-based insurance after this fall," he said.
To encourage insurance companies to re-enter the asbestos-abatement market voluntarily, asbestos experts say some governmental agency needs to set uniform standards governing the asbestos-abatement industry.
"There have to be standards first and foremost," said Patricia Casey, an aia counsel. "I think it is irresponsible to have a great public furor created over the element of danger without having any real understanding of how great that element of danger is. There may be no cause for alarm and no need to disturb asbestos and it would be better, according to some people, to let it stay where it is. These situations have to be analyzed very, very carefully."
The most ideal situation, saidt Huey, executive director of the National Asbestos Council, "is to bring the insurance companies voluntarily back into the business. And to do that, you have to look at why they got out. It appears that they got out because major claims were being filed against them because there is not a uniform standard of good practice."
"Some way or another," he added, "we've got to develop criteria that say this is acceptable, good work and if you do this you haven't harmed anybody. I don't know how we get there. But I know that certification of contractors is one step in the right direction. A uniform set of minimal job specifications is another step in the right direction. I think mandated training programs for supervisors and asbestos workers is another step in the right direction. Hopefully, if we take enough steps in the right direction, we'll get there."
Others, however, believe there is no way to encourage insurance companies to return to the asbestos-abatement market on their own.
"I don't perceive at the moment that the insurance companies are voluntarily going to change from their current position to not provide general-liability insurance for claims generating from the general public," said Dennis Rupp of Alexander and Alexander, a nationwide insurance brokerage firm.
"Right now, the whole industry is very chaotic and they're not looking to solve new problems," he added. "They're looking to solve the problems that they have."
The alternative, he and others note, is for the government to pass legislation that would limit the liability of contractors, establish an emergency "superfund" for insurance, or require insurance companies to participate in an assigned-risk pool for coverage, as is now the case for uninsured motorists and workmen's compensation.
At least one company, the acmat Corporation of Hartford, Conn., is attempting to solve the crisis in the private sector.
According to Henry W. Nozko Jr., the contracting firm's executive vice president, an insurance company, a diversified financial institution, and acmat are planning to set up within the next 90 days their own insurance company specializing in asbestos coverage. Mr. Nozko would not divulge the names of the participating companies.
He said he was encouraged to set up a new insurance company because he was unable to get reasonable insurance coverage for his company, which has annual sales of $50 million. About 50 percent of those sales, he said, are in asbestos-abatement work.
Last year, Mr. Nozko said, his company paid a total of $3.5 million for insurance coverage. That included occurrence-based general-liability insurance for up to $10 million in claims. Today, he said, his company would be charged about $70 million in premiums for a claims-made policy that would only cover claims of up to $1 million during the time he was paying premiums.
Mr. Nozko said the insurance company he is planning to establish in Delaware will write about $45 million worth of premiums during its first year. The company, he added, will most likely offer occurrence-based insurance for between $1 million and $3 million in claims.
In addition, he said, "the insurance company is going to have very stringent criteria and risk-management policies that the insured will have to comply with. There are too many companies operating in the business who don't know anything about the removal process."
Inspectors, he added, will visit each job site and cancel the insurance of contractors who do not follow the policies.
'Rule of Reason'
Some say the insurance situation is for the best because it has, as one Denver school official noted, highlighted the need for a "rule of reason" on the asbestos issue.
In Philadelphia, "the current board position is that all asbestos is to be removed from the local schools," Mr. Marshall, the asbestos consultant, said. "The administration is going to present a different approach to the board, noting that it's financially impossible to remove all asbestos whether it's a hazard or not. They'll be asking [the board] to take a critical look at whether there is a real health risk."
According to Hoag Levins, co-author of Asbestos Removal and Control, a comprehensive manual for asbestos-abatement work, the unavailability of insurance will force unqualified contractors out of business.
"For the first time, we have the potential for a nationwide de facto policing system," he said. "Where the epa has failed, where the government has failed, where the architects have failed, where the school districts have failed, we finally have private industry going to step in and force contractors to meet minimum standards."
"If that is the way to get rid of the bad apples, I have no problem with that," Mr. Huey said. "But that has to assume that the good apples will get insurance, and right now even the good apples don't get insurance."