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Allegheny, insurer in legal battle

July 20, 2003|by GREGORY T. SIMMONS and LAURA ERNDE

gregs@herald-mail.com
laurae@herald-mail.com

Hagerstown-based Allegheny Energy Inc. and one of the world's largest commercial insurers are locked in a legal battle over who should pay for thousands of asbestos-related claims, according to documents filed in Washington County Circuit Court.

In one suit, Allegheny, which is facing balance-sheet difficulties, says it is entitled to at least $355.9 million from Lloyd's of London. The claims relate to more than 18,000 outstanding asbestos-related claims that originated in West Virginia.

In its suit against Allegheny, Lloyd's says it should not have to pay any asbestos-related claims or other future environmental claims to which it could be exposed.

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Lawyers representing Lloyd's did not return repeated phone calls seeking comment on this story, and a Lloyd's spokeswoman in London declined to comment.

Lawyers and a spokesman for Allegheny Energy declined to comment on the pending litigation.

Because these cases can take years to litigate, the Lloyd's lawsuit probably won't send the Hagerstown-based utility into bankruptcy in the next few months, said Craig Shere, an equity analyst with Standard & Poor's. But it's a big factor in the company's long-term viability, he said.

"It might impact somebody's willingness to put money into the company," he said.

The court record reflects a breakdown between the sides after more than a decade of asbestos suits and negotiations over who should pay the claims.

In court documents, Lloyd's says Allegheny told its insurers there are current or possible future insurance claims to be made for pollution cleanup at as many as 28 sites in West Virginia, Pennsylvania, Maryland - including Hagerstown - and Virginia.

Allegheny said it is seeking insurance payment for one pollution-related lawsuit originating in Connellsville, Pa.

Workers' claims


James T. Boggs, a claims manager and senior attorney for Allegheny, said in an affidavit that he was part of the insurance discussions regarding the asbestos claims.

In the affidavit, Boggs said asbestos lawsuits were filed against Allegheny subsidiaries first in the early 1990s by workers, generally contractors who claimed they were exposed to asbestos.

He said in the affidavit that while lawsuits continue to be filed, Monongahela Power has been sued by about 10,000 individuals, Greensburg, Pa.-based West Penn Power by about 4,500 and Fairmont, W.Va.-based Potomac Edison by more than 3,800.

In late 2001 or early 2002, Boggs said Lloyd's and Allegheny began confidential talks to come to terms over the asbestos suits. On April 30, Lloyd's and Allegheny had planned to finalize their agreement.

That meeting never came. Boggs' said in the affidavit he tried reaching Lloyd's representatives on April 30 and May 1, but none of his phone calls was returned.

On May 2, Allegheny and Lloyd's filed lawsuits against each other.

Lloyd's filed its claim in Washington County, asking the court to declare Lloyd's should not have to pay for any of Allegheny's current asbestos claims, future asbestos claims or future environmental cleanups.

The same day, Allegheny subsidiaries filed a joint lawsuit in West Virginia against Lloyd's and 19 other insurance companies. Monongahela Power, West Penn Power and Potomac Edison asked the court to force Lloyd's to pay for asbestos damages and environmental damages.

In previous filings with the U.S. Securities and Exchange Commission, Allegheny said all of the asbestos cases are without merit.

According to the quarterly financial report filed last year, however, Allegheny officials said since they cannot predict the outcome of the lawsuits, the company set aside $3.8 million last year to cover settlement costs. Allegheny received $1.8 million through insurance recoveries last year, the report says.

Potential impact


The outcome of the suits will be important to Allegheny's future and the future of communities to which Allegheny is connected, experts said.

The payouts on asbestos suits are unpredictable, depending on the validity and severity of the claims, said RAND senior economist Stephen Carroll, but he said he believed the fact that Lloyd's is involved means there is a large amount of money at stake.

In a study Carroll conducted for RAND, he estimated $70 billion had been paid out historically through 2002 for all asbestos cases, and about 700,000 individuals have filed claims.

With 18,000 claims outstanding against Allegheny, "Allegheny's claim might be small in comparison to the whole ... but the whole involves a very substantial amount of dollars," Carroll said.

"What happens in the courtroom in Hagerstown is connected to a significant national crisis," said P.J. Crowley, vice president of Public Affairs for the Insurance Information Institute in New York.

"The real heart of it comes to play in local communities where the number of bankruptcies continues to grow. And that has a real impact on workers and communities that depend on those businesses for the livelihood," Crowley said.

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