Insurance Companies Shirk Public Duty
“What is the duty of an insurer to the public when it has knowledge of serious product defects which are likely to cause injury’?” This was the question that Aetna claims attorney, William D. McGehee, asked in a letter to an associate sent in December 1981.
Mr. McGehee was not speculating. The context for his question was the burgeoning litigation by women who were injured due to the hazards of the Dalkon Shield, an intrauterine contraceptive device, produced by Aetna’s insurance customer, the A.H. Robins Co. of Richmond, Virginia. The letter surfaced last week in a summary of Aetna’s internal documents prepared by lawyers for nearly 200,000 women who have injury claims pending against the Connecticut-based insurance company.
The Dalkon Shield litigation is nearing a disputed settlement against A.H. Robins, which declared voluntary bankruptcy to minimize its liability, and Aetna. One group of claimants is challenging the settlement as giving too much future immunity to Aetna.
Aetna’s McGehee was asking this question because the company, together with A.H. Robins, did halt a research project which showed a result contrary to Robins’ position. What the lawyer was worried about was the “dilemma of insurance company which knows that the insured has dangerous product.” Aetna solved the dilemma by keeping silent. In late 1984, A.H. Robins ordered a recall of all Dalkon Shields.
Over the decades, insurance companies have amassed valuable information about specific product defects and hazards, from automobiles to drugs. They have information on hazardous toxic chemicals and bad workplace and disposal practices. They know a lot about who is being harmed by hundreds of unsafe industrial conditions, from automotive paint shops to underground mines. They have compiled test data on safety equipment that works and those that are shoddy or fraudulent from helmets to filters. And they keep most of this life-saving information from the public.
This secretive behavior is in direct contradiction of the insurance industry’s loss prevention obligation. Even today it pays out billions of dollars yearly due to the ravages of tobacco smoking, yet, apart from some recent premium discounts, its great muscle has not been directed against this other industry which profits by addicting its customers. In the Fifties and Sixties, the Reader’s Digest had done more than the entire insurance industry.
All this is not to say that insurance companies ignore evidence of risks in their underwriting practices. It is to say that they will generally charge their customers more rather than do something about the dangers. And most often, they do not alert regulatory agencies nor legislators to protect the general public.
Nor do they use their own rating function precisely enough, through proper hazard analysis, to induce prevention of such risks. They operate, instead, on general categories of risks which often penalize unfairly innocent customers, much like safe drivers are penalized by having to pay much higher auto insurance premiums because of where they happen to live.
One looks in vain to locate insurance company petitions before the Consumer Product Safety Commission for safer product standards or before the Nuclear Regulatory Commission or the Environmental Protection Agency.
A shining exception occurred when State Farm Mutual petitioned the federal courts to reverse the revocation of the automatic restraint standard for automobiles by the Department of Transportation under Reagan and won a unanimous decision in 1983 from the U.S. Supreme Court.
David V. MacCollum, former president of the American Society of Safety Engineers, has developed a detailed loss prevention program for insurers. He wants them to maintain a central data bank on equipment and product hazards with narratives of occurrences and available safeguards. He wants public access to this information down to the make or model and the named chemical.
In early 1987 we launched a survey of eleven major U.S. property-casualty company foundations to determine what priorities in their grants are accorded to hazard prevention or system safety programs. We found that the vast majority of the grants go to after the injury or sickness has occurred. Prevention of casualties, being potentially more controversial, receive short shrift.
Over the past century and a half, the engineering focus of casualty insurance companies has receded before the financial emphasis, particularly in the way investment income goals have reshaped the companies’ orientation. This trend fortifies the extreme reluctance that the insurers have to upsetting the hazardous ways their corporate insureds are doing business.