Insurers, brokers, businesses and trade and justice associations form a coalition to take on the rising cost of litigation.
Representatives from insurance companies, brokerages, businesses and trade and justice associations gathered recently to address the rising cost of litigation and start to create a level playing field for defendants in civil trials.
About 50 people met November 3 at the Zurich North America headquarters in Schaumburg, Illinois, for the inaugural “Lawsuit Abuse Summit,” which included a full day of speakers, panel discussions and networking.
The stated goal of the summit was “to build a coalition of insurance industry leaders in claims and government affairs to address key issues in tort reform and lawsuit abuse.”
In opening remarks, Keith Daly, Chief Claims Officer for Zurich North America, said it is important that the industry present a united front for justice reform. “No one company, no one industry is going to be able to enact change,” he said. “We need to collectively come together.”
Among the topics most often discussed during the summit was “social inflation,” defined as the driving cause of these exceptionally high jury awards that go beyond what should be a reasonable or rational amount. Five major factors contribute to social inflation: litigation funding; the erosion of tort reform; negative public sentiment toward larger businesses; evolving plaintiff attorney tactics; and desensitization to large jury awards.
Social inflation drives higher insurer claim payouts and loss ratios. Ultimately, policyholders pay more for coverage. A simple way to think about social inflation is to compare its impact on claims losses over time with growth in an inflation measure like the Consumer Price Index (CPI). For example, the CPI rose 10.5% from 2017 through 2021, while property and casualty industry general liability incurred losses have skyrocketed more than 57% during this same period.
The insurance lines that tend to bear the brunt are commercial auto, professional liability, product liability and directors and officers liability. However, evidence indicates that pressure is mounting on private passenger automobile insurance, too.
“Social inflation remains the number one issue in the liability insurance world,” said Allen Kirsh, Head of Claims, Judicial and Legislative Affairs for Zurich. “Looking at those drivers that are causing social inflation and addressing those head on is the key to our strategy.”
Kirsh said the cost of liability claims is “going through the roof,” fueled by the rise in nuclear verdicts, which are those with damages in excess of $10 million. “It’s not just the insurance company that bears the brunt of this, but at the end of the day, it’s the businesses and consumers that pay the price.”
State by state
The laws that impact the cases that lead to nuclear verdicts occur at the state level, so insurers and justice reform advocates are targeting the legislators and governors in key states to effect change and bring about tort reform.
“There’s no silver bullet at the federal level,” explained Deirdre Manna, Head of Government and Regulatory Affairs at Zurich. “There are a few things we can do at the federal level that will be helpful. But, really, it’s a state-by-state effort. It’s a long-term effort. Every state is different in terms of their state laws, in terms of the tort laws and in terms of their court decisions.”
William Large, President of Florida Justice Reform Institute, which works with the business community to restore fairness and predictability to the state’s civil justice system, led a panel discussion about states’ efforts to promote civil justice reform. He spoke about the enormous challenge he faces when trying to convince elected officials about the need for tort reform.
“It’s like I’m trying a case to 161 jurors—120 state representatives, 40 state senators and one governor,” Large said. “Some of them are teachers, some are road builders, some are funeral directors. They don’t understand how lawsuits work.”
During a panel discussion about the advertising tactics of personal injury attorneys, the speakers explained how law firms can attract new clients by citing large jury awards they have won while also conditioning future jurors about the value of civil lawsuits. For example, if a lawyer places an ad on a highway billboard claiming they won a multi-million-dollar jury award, passing motorists—and potential jurors—may believe that millions of dollars is a reasonable amount for most civil lawsuits. The result is ever-rising civil lawsuit awards and a jury pool desensitized to big-dollar verdicts.
The long game
Manna said that the summit was just the start of a long-term effort that will include virtual meetings throughout the coming year and another in-person meeting next fall.
Kirsh concurred that building this coalition is just the start. “Success for us really involves tort reform and leveling the playing field,” he said. “I don’t think anybody here is looking for an advantage in any of these personal injury cases, be we just want a fair shake. The civil justice system in this country is meant to make victims of somebody’s negligence whole again. We’ve gotten away from that.”
Key to the effort to enact tort reform will be getting customers engaged and involved, he said.
“Right now, the narrative belongs to the plaintiff’s attorneys. What we need to do is change the narrative, so people understand that insurance is the oil in the engine that makes capitalism work,” Kirsh said. “Understand the benefits of insurance, what we do provide as opposed to making insurance companies the villain in this whole process.”