The product liability insurance premium at Phillips Machine Service Inc. in Beckley has jumped over the last five years from $30,000 to about $200,000 annually. Jack Phillips, one of the firm's partners, said only one insurance company, Chubb, offered to write product liability insurance on the firm last year.
"I am very concerned that this year, when we have to renew, that one of two things is going to happen: They are going to increase our premiums a lot more or they will simply say, ‘We've had enough,' " Phillips said. "They told us last year they would prefer if we didn't renew with them. They only did it out of loyalty."
Phillips rebuilds underground mining equipment and sells it worldwide. The company has 140 employees. Product liability insurance covers product defects and "is something we must have," Phillips said. Without it the company would be forced to move outside the state, he said.
Phillips figures the company's insurance difficulties are due to a tightening insurance market -- known in the business as a "hard market." Also, because the company is in the mining industry, "I guess we're viewed a little bit as a high risk," he said. The company has had two claims against it in 25 years -- one that was settled out of court several years ago and one that is currently active, he said.
In the case that was settled, there were three defendants -- Phillips, another company and a coal mine. Each paid the plaintiff $200,000, Phillips said. The lawyers settled without his consent or knowledge, "simply because they didn't want to deal with it any longer," he said.
The problem is "a liberal court system that allows plaintiffs' attorneys to try to harass you into settling out of court," Phillips said. "These cases typically last three years or so and they are very time consuming and very expensive." Phillips said, "In my opinion, anyone who is injured by a defective product should be taken care of. But their families shouldn't win the lottery. It's a mindset. That's why insurance companies don't want to insure us here."
Gary Cain, a partner in Swanson Industries, Morgantown, said that last year Swanson received several bids for product liability insurance although the premiums were high. Swanson repairs hydraulic equipment and provides an industrial hard chrome plating service. The company has a total of about 500 employees, including 270 near Morgantown.
Insurance companies want to write insurance but "they want you to have an ideal situation so they have no risk at all," Cain said.
"I don't know the reason why insurance companies don't want to come into the state," he said. "I don't know if it's the court system or what. You would think, paying somebody $1 million a year, you would have all kinds of people wanting to write insurance. Instead you're almost begging for someone to insure you at a ridiculous amount. I think it comes back to a court system that is not favorable to business."
J.H. Fletcher & Co. of Huntington manufactures underground roof control equipment for the coal industry and a variety of equipment for the industrial minerals and hard rock mining industries. The company has 180 employees. Doug Hardman, chief executive officer, said there needs to be tort reform on a national level so everyone is operating on the same playing field, no matter where a product is manufactured.
"You have to have some limits to liability," Hardman said. "Most manufacturers, us included, feel an obligation to the user of our equipment to try to be as safe as we can. But sometimes we lose control of equipment and if the people using it don't adequately maintain it, we are still liable."
Fletcher's insurance costs have increased significantly during the past decade, Hardman said. "We aren't of the opinion that people should not be allowed to sue if they are injured," he said. "But we are of the opinion that we shouldn't have nuisance lawsuits and that there should be limits on liability, if there is liability.
"Lots of times, a suit is blackmail -- they figure you'll settle," he said.
Karen Price, president of the West Virginia Manufacturers Association, said the cost and availability of product liability insurance "is just another problem that's cropping up to face manufacturers in West Virginia. "We historically hear about Workers' Compensation but the whole idea of product liability insurance availability and affordability is fairly new for us," she said.
"It is an issue on which the leadership of the state can make a difference if they're willing to tackle it," she said. "Certainly, you're not going to manufacture products in West Virginia if you can't get insurance. We don't want to give companies another reason to leave this state."
West Virginia Trial Lawyers Association President Marvin Masters said everyone agrees that if a defective product injures someone, they should be compensated. "So what is it they're complaining about? The idea that lawyers bring cases just to bring them and that it's a lottery is just not true," he said.
"What's driving all of this? Frankly, I put a lot of the blame for our reputation in West Virginia on the Chamber of Commerce, which calls West Virginia names," Masters said. "They say we're a ‘tort hell.' " The high cost of insurance is a national phenomenon, Masters said. Last year the trial lawyers hired an actuary to study auto rates and found that none of the increases examined were caused by West Virginia's tort system, he said.
Masters said interest rates and insurance companies' investments have gone down and the insurers are trying to cover their losses by increasing premiums and decreasing their risks.
The idea that West Virginia has a tremendous number of cases and it's a court gone wild is not true, he said. "Since 1995, the filing of civil cases like they are talking about has declined by 12 percent," he said. "Tort cases in our court system amount to 10 percent of the cases."
Masters said it's difficult for the average person to understand what's going on. He said he empathizes with businessmen who are concerned about rising insurance costs. "I have the same problem myself," he said. "What I think needs to be done is, the Chamber of Commerce needs to start saying positive things about West Virginia and needs to start telling the truth instead of intentionally misleading out-of-state and in-state businesses about the true climate here," Masters said.
West Virginia needs to reform the industry by appointing an insurance advocate for consumers and by requiring rate rollbacks when insurance companies take rights away from policyholders, Masters said.