UK & Europe
Insurance & Reinsurance
In a bold move that is hoped to bring some finality to mounting claim numbers, Bayer recently announced it will pay up to $10.9bn to settle the majority of the estimated 125,000 claims alleging Roundup caused their non-Hodgkin's lymphoma. However, this may not be the end of a story with plenty of lessons for risk managers.
Since litigation began a couple years ago, Roundup, a particular brand of glyphosate based pesticide, is now firmly established as a mass toxic tort in the US. Whilst this settlement will buy off much of that risk, Bayer and other glyphosate producers must still proceed with caution, given the potential for additional US and global claims, as well the looming threat of shareholder actions, ensuring it will stay on insurer's and corporates' risk radars for some time to come.
Up to $9.6bn has reportedly been pledged to settle current litigation on a non-admission of liability basis, including plaintiffs who have instructed lawyers but not yet filed claims. It is understood the deal includes all litigation brought by plaintiff law firms in the federal multidistrict litigation and California bellwether cases. Some 95% of the cases that are currently scheduled for trial are also included in the settlement.
The surprise settlement comes after juries found against Bayer in three cases and awarded eye-watering settlements, although each were substantially reduced post-trial. All three cases are excluded from the deal and will continue to be defended through the appeals process. The company anticipates it will end three quarters of the litigation, which prior to this announcement had already cost the company more than $190m in awards.
The move is hoped by Bayer to be the "right action at the right time" to end a long period of financial uncertainty. It is considered by the agrochemical giant to be financially reasonable when viewed against the significant continued litigation risks and association impact to the company's market share and reputation; a view that it hopes will be shared by the market.
Bayer, who acquired the Roundup brand from Monsanto just weeks before the first jury award, suffered a significant hit to its share price of more than a third following that verdict. Such a precipitous drop has not followed the settlement announcement. Although the prevailing economic climate is currently particularly novel, any further drop may not occur, given that Bayer hopes finality has been achieved. Indeed the settlement has arguably been achieved at a significant undervalue, with previous estimates by some commentators indicating likely cumulative pay-outs in the region of $30bn, which may prompt a positive response from the market, although Bayer's share price is yet to rally following the announcement.
However, this is unlikely to be the final chapter in the story for Bayer, who will still face future claims from those who are not currently symptomatic. To this end, Bayer pledged a separate $1.25bn for a class agreement for potential future cases that might be brought by those who have not yet developed any illnesses.
The anticipated class agreement hinged on the formation of a five member scientific panel to assess the dangers of Roundup, particularly whether it can cause non-Hodgkin's lymphoma, and permitted safe levels. However, the presiding federal judge has raised concerns the deal is fair, citing issues of constitutionality and lawfulness in delegating the decision on causation from judges and juries to a panel of scientists. The court noted it was inclined to oppose this part of the proposed settlement, leading to the plaintiffs withdrawing their approval in order to allow them to revise the settlement agreement and address the judge's concerns. The settlement agreement will be considered at a further hearing on 24 July.
Glyphosate typifies the problems associated with research and regulation of pesticides, particularly in relation to the current significant split opinion between regulators, manufacturers and scientists on glyphosate’s health effects. It was hoped the formation of the panel would bring some scientific rigour back to future legal proceedings in the US, however there remains the danger that the scientific picture will continue to evolve following the panel's findings.
Given the long latency period for the disease, coupled with an active and innovative plaintiff bar, if the settlement is permitted to proceed, questions are still likely to remain over whether the fund will be sufficient to cover future costs, with the continued danger that claims numbers will continue to spiral.
Bayer's predicament highlights the dangers of hidden legacy risks in mergers and acquisitions and insurance business transfers, emphasising the need for robust due diligence to be undertaken as part of transactions.
With the extensive global use of Roundup and other forms of glyphosate, should the science add up, there is the potential to spark a significant stream of claims against a variety of pesticide products from several manufacturers both within and outside the US. Irrespective of the cogency of the scientific evidence, allegations and evidence revealed during the US litigation of corporate cover-ups of the health impact of these products was probably the nail in the coffin as far as the juries were concerned.
Coupled with the extensive use of the environmentalist lobby, who gave evidence in the early court cases in California, this has resulted in societal mistrust of pesticides that will be difficult to counter internationally.
Whilst there is unlikely to be quite the same financial impact in other jurisdictions where a punitive award for claims would not be available, should claimant lawyers in the UK and other common law jurisdictions start to pursue such litigation, the disruptive impact of having to defend these claims would be costly, and the brand and reputational damage may be significant, even if the ultimate result is to successfully repudiate them. Shareholder actions arising from stock drops or reputational damage even in the absence of valid tort claims should not be discounted.