The ‘overwhelming majority’ of the cases are from the US and derive from the Foster Wheeler business
One of Britain’s biggest engineering groups is facing a bill of more than £300m to settle thousands of asbestos-related claims in the coming years, it has emerged.
The legacy of asbestos exposure – with people dying from related cancers many years later – is resulting in several thousand personal injury claims being made against Amec Foster Wheeler every year.
Asbestos liability is cited as one of the main risks facing the company, in its latest financials.
The firm’s half-yearly results, released last week, stated: “The legacy Foster Wheeler business is exposed to significant numbers of claims relating to alleged exposure to asbestos. The quantum of these claims is actuarially forecast each year and provisions are held against these loss projections. However there is a risk that these loss projections will be exceeded and the provisions could be inadequate to meet the liabilities.”
The claims relate to various subsidiaries in the UK and US, where people were allegedly exposed to asbestos primarily in connection with equipment allegedly manufactured during the 1970s or earlier, according to the company.
Amec Foster Wheeler has asbestos-related liabilities of £420m. These include estimates of indemnity amounts and defence costs for current and future claims expected up until 2050, according to the report. Insurance recoveries relating to asbestos claims are estimated at £110m – leaving the firm with a bill of at least £310m.
Its latest annual report, released just a few weeks ago, warned: “We expect to have net cash outflows of $30.4m as a result of asbestos liability indemnity and defence payments in excess of insurance proceeds during 2017. This estimate assumes no additional settlements with insurance companies and no elections by us to fund additional payments.”
The company admitted that predicting the costs of future asbestos claims “is subject to a number of uncertainties that may result in significant changes in the current estimates.” These include things such as the number and type of claims filed as well as “uncertainties surrounding the litigation process” in different jurisdictions and cases.
In the US, which accounts for the “overwhelming majority” of cases, many of which are for mesothelioma or lung cancer, there were 3,800 claims made in 2016 – up from 3,420 in 2015.
The annual report said: “Increases in the number of claims filed or costs to resolve those claims could cause us to increase further the estimates of the costs associated with asbestos claims and could have a material adverse effect on our financial condition, results of operations and cash flows.”
Some of the company’s subsidiaries are defendants in “numerous asbestos-related lawsuits and out of court administrative claims in which the plaintiffs claim damages for bodily injury or death alleged to have arisen from exposure to asbestos,” it added.
Although the company has insurance cover in place, some of its arrangements are for “fixed monetary amounts and/or provide cover only for claims made before a specified future date.”
This means that a future increase in Amec Foster Wheeler’s asbestos-related liabilities “would not result in an equivalent increase in the amount recoverable from those insurers.”
Tony Williams, founder at Building Value, said: “Asbestos liability is a significant and unfortunate legacy for Amec Foster Wheeler to deal with.
“Whatever estimates you start with usually end up being bigger, and for an unfortunate corporate whose share price has halved in recent years the future burden of settling asbestos-related claims is yet another unfortunate issue for them to deal with.”