In recent years considerable attention has been paid to the large settlements and awards that have been made against governmental agencies. Historically, claims in excess of $1 million dollars were quite rare. Today, they are occurring with greater frequency.
These large liability claims have a significant impact to the cost of risk to most governmental entities, who at one time enjoyed relatively inexpensive insurance program costs. In recent years, these premiums have grown in relationship to the higher risk of large liability losses.
Recent data from the American Property Casualty Insurance Association highlights that large liability claims are occurring more frequently with an increasing average cost. In their report they state, “Median jury awards for personal injury lawsuits increased over 300 percent between 2010 to 2017. Mega or nuclear verdicts amounting to greater than $5 million have increased by 60%.”
These findings are consistent with other publications, which express an exponential growth curve from the 1980’s where few claims were settled in excess of $1 million, to today where they are more frequent and severe.
This has impacted the availability and the cost of excess liability insurance, and many carriers have either withdrawn, limited or repriced their coverage offerings. In a recent Risk Conference webcast, David Lund from the Utah Attorney General’s office shared the State of Utah’s experience involving large liability claims, and the availability and cost of their excess liability insurance program. The claims at the state level have increased significantly over the past few years, as is the cost of the State’s excess liability insurance program.
There are many reasons for the increased cost of excess liability insurance. Chief among them is Social Inflation, which is a term coined to reflect many different social trends that impact the number of claims and the severity of claims that arise against local government entities. Social Inflation has many causes, which are drivers in this profound societal change.
Juror Paradigm Shift
Historically, juries were inclined to rely upon community values, firmly grounded in the legal liability as defined in the law. The jury awards for many years were based on an outlook of what is best for the community and the individuals that may be aggrieved by the actions or failure of another. Recent jury verdicts are more motivated by social justice and may be inclined to send a message with a large award. This is particularly evident against large corporations, state and local governments, religious organizations, and other cultural institutions.
When large jury verdicts occur, the jurors are questioned on their motivations for the award that was made. At times, they want to send a message to the offending party. They have also stated that they would like to punish those that are responsible, where clear negligence is found. In a survey of the top jury verdicts of 2019, 42% of jurors said they would decide a case based on what they believe is fair, and not based on the law.
In many cases juries award based on the hardship or economic conditions that may be felt by those who suffered injuries. Even with little or no comparative negligence, awards may be made, simply because economic hardship is evident, and the defendant is able to satisfy the destitution that may result, such as a lifetime disability.
An example of a recent large award occurred in Texas, where a pickup truck driver lost control of his vehicle in icy conditions. The truck crossed the median and struck an oncoming commercial truck, which killed one child in the pickup, paralyzed another and severely injured two others in the pickup. The commercial hauler had been traveling in control and below the speed limit. The jury found against the commercial hauling company in the amount of $90 million, which is currently being reviewed on appeal.
Pursuing a major claim through litigation can be a very expense process, with attorney time, court costs, expert witnesses, depositions, and other forms of discovery. The pretrial costs can go well into the hundreds of thousands of dollars, and the cost of taking a claim through trial are several multiples greater. It is not unusual for several million dollars to be spent taking an action through trial.
Most law firms do not have the financial resources to take claims that are complex and sizable on contingency, where they front the cost and share the final award or settlement. Many firms would rather work toward a resolution of the claim in pretrial settlement. A claim may be pursued to the point of pretrial motions, to assure that the defense council with the defendants and their insurers are motivated to bring closure through settlement.
A new form of funding has arisen in recent years, where outside investors with deep pockets agree to fund the litigation for a promised sizeable share of the final awards that may be achieved. The investors assess the potential merits of the case, including the potential for sizeable jury verdicts.
Litigation funding has a powerful incentive to bring actions to a jury, where jury sympathy may weigh heavily on the financial outcome.
Elimination or Reduction in Statutory protections
In the interest of protecting the ability of local governments to deliver essential services, statutory protections have been in place to reduce the possibility of some types of claims, and to set caps on other types of claims.
Over time, the protection afforded from these statutes, has been eroded. Claims may arise in certain types of federal actions, which do not have any damage cap. Claims that are made in state courts may only have caps apply for the services and activities that are wholly unique and can only be provided by government.
Plaintiffs’ Bar and Advertising
Historically, attorneys relied upon their professional reputation to be referred by satisfied clients for future legal work.
In the present environment attorneys advertise their services, as well as engender a demand for those services through social media, targeted class advertising, and profiling of those in the action and potential jury demographics. They share strategy with their peers in conferences and seminars. The plaintiffs bar is well organized and uses technology and sophisticated resources to find and pursue actions to a successful conclusion.
Social inflation is an ever-present threat that needs to be addressed through effective risk management planning and progressive insurance program design. The impact of social inflation is a factor to be considered when setting liability limits, and in the way in which organizations understand and approach their major risks.