Navigating the Rising Costs of Liability Claims: Key Trends for 2024

In this video, Brandon Newlands, Esq., Senior Vice President, Senior Director of Coverage & Claims, discusses emerging trends in liability and auto claims for 2024, focusing on the increasing costs and higher jury verdicts in these areas. He explains how social factors, such as perceptions of corporate greed and the influence of social media, are contributing to larger settlements. Brandon also delves into the growing impact of attorney advertising and litigation financing on claims, as well as the erosion of tort reform. He highlights the importance of reporting claims promptly to mitigate potential legal complications and underscores the rising premiums in the insurance industry as a result of these shifts.

Video Transcript

Introduction: What trends have you seen in claims this year?

The greatest impact I've seen over the past year, year and a half in the area that I really operate in is general liability claims, as well as auto claims, are getting more and more expensive.They're settling for more amounts, higher amounts. And if those cases are going to trial, juries are awarding much higher verdicts. And as a consequence of that, most general liability policies on the commercial end are a million per claim, as that's the limit for which one claim can be paid out up to that amount, or an aggregate of 2 million. So for years, the 1 million per claim, 2 million aggregate, worked wonderfully. Now, fewer claims can erode through a 2 million aggregate and a 1 million settlement. A $1 million settlement, or jury verdict, is not uncommon these days. In fact, that phenomenon of erosion through GL policies has had a major impact on the umbrella and excess market, which we could get into a little bit later. But those are two areas that I've seen policies really increase. The rates have gone up due to claim activity.

6 factors contributing to the rise in nuclear verdicts:

1. Social factors

We start out with their social factors. There's a belief among most people that corporations are looking out for profit. They're cutting corners, and most notably, safety corners. So when you have an injury, a severe injury, there's a social response to want to compensate that victim for the corporation's greed. And that is in the forefront of a lot of jurors' minds these days. There's also, there's great inequalities out there. There's inflation, there's stagnation. And the average person who makes up our jury pool, when they're sitting and listening on a trial to make a determination on liability, then award damages, this is their opportunity to kind of "stick it" to a corporation. Kind of, hey, I'm struggling. Inflation's impacting me. Yet I see in the paper that you're recording record profits. And now here's the opportunity for me to set it right and probably take a little, you know, piece of a little pop at the corporation while they're at it.

2. Widespread knowledge

There's also lately with social media, the knowledge of these large verdicts is very widespread. Years ago, you would learn about it. Maybe there'd be a newspaper article or a pop-up on the news about a large verdict. But now with social media, the verdicts go viral very quickly. They get passed around. It's not just a few attorneys and people in the industry that know about these large verdicts. Literally, it's picked up immediately, spread throughout the community, and everybody knows about these large verdicts. You'll hear a $100 million verdict come out. And years ago, that was just unheard of. I also have heard there's some research into this, that there is a less understanding of the value of money today. And it's a consequence of really like the federal budget. When you hear trillions of dollars and billions of dollars being thrown around so easily, a jury can award a billion dollars these days without fully comprehending how much $1 billion is just because it's ubiquitous. The terms are used so often that years ago, a million dollars, I think, was that prior benchmark of really taking care of somebody vis a vis a settlement through a jury award.

3. Attorney advertising

Advertising, attorney advertising has really increased over the past decade. Last report I saw was about $1.2 billion was spent in attorney advertising. So how attorney advertising has evolved, it's not just billboards anymore. It's not yellow pages. It's not in the back of a park bench. It's TV ads. And if you've sat at home generally after 7 or 8 o'clock, it's like a running loop of different attorney ads asking you while you're sitting there if you're potentially a victim of some sort of negligence and a 1-800 number to follow. So attorney advertising is hitting people at a much more, obvious direction and rate, and more people are getting attorneys.

4. New trial tactics

A lot of attorneys have adopted new tactics over the years. In particular, one of those is known as the "reptilian brain theory", or "reptile theory", where attorneys at trial don't necessarily focus as much on the facts as they do on trying to appeal to a jury's emotions. And if you could connect with a jury's emotions and feeling sympathy and empathy for the plaintiff and some disdain for the corporation or the defendant, that has an impact on how much a jury will award. There's also other techniques that have become in vogue, such as anchoring a jury to a particular number during a trial where an attorney is presenting evidence, they also have an opportunity in opening and closing, and throughout those opportunities, they're suggesting numbers, and a number that could fairly compensate the plaintiff. And usually the number is a nice large figure, say 30 million, 40 million, 50 million. And they repeat this number throughout the trial. And at the end, when they're given their closing statements, the plaintiff's attorney refocuses on that number, recenters the jury on that number and offers that as the amount that would make the person whole, would compensate them for their loss. And it's a technique that, you know, quite honestly, it's very, it's effective, and it's also a little unfair to a defendant in response. You know, defendants, they're trying to defend the claim and what number can they put up, right? Are they going to say zero and look like the Neanderthal, or are they going to put numbers out there and it looks as though they're conceding a number?

5. Litigation financing

This has become an increasing component of litigation is litigation financing, where a third party, usually a hedge fund, private equity hedge fund money, provides the financing for a plaintiff, effectively latches on to a plaintiff's firm, pays for the cost, the expert fee, so on and so forth. And it allows a plaintiff who may not necessarily have had the financial sources to advance a claim to the quality or as technically as they could have. And I don't think on the front side of that, I don't think there's anything wrong with allowing a plaintiff to put on their best case. But where it can get, I think, a little dangerous is that a litigation finance company has a piece of the pie. So they're going to recover a percentage, typically, of the amount the plaintiff can recover. So if they have a percentage, and the more the case either settles for or the jury verdict is for, the more they receive as profit. So they could drive litigation, not necessarily with the best interest of the client or the plaintiff at heart, but for their economic benefits.

6. Lack of regulation

With litigation financing, there's no regulation, there's no state board of review committees that allow certain litigation finance groups to be part of that world. It's, if the money is there and the right relationships are there, they can exist, which could lead to abuses. There's also been an erosion of tort reform, years, a few decades ago, that was a big push. And some of the successes of tort reform were that they kept punitive damages down, they kept caps on pain and suffering damages. Over the years, there's been a pushback against those caps. But many of those caps have served a good purpose in the sense that they limit that runaway jury scenario, one that's untethered with reality. And there is a flip side with caps, too, which I understand why it was looked upon negatively as limiting someone's recovery. It may not fully compensate. And in addition, I think there's been a great variety of disparity in how certain jurisdictions have, what jurisdictions allow as far as trial tactics. For example, a judge in one jurisdiction may say, look, I don't allow you to appeal to the emotions beyond, through the plaintiff's own words. We're going to have this trial presented on the facts. The heartstrings, you could touch upon that in closing and opening, but we're here to go over the facts. A judge could kind of guide the trial and control and play the gatekeeper of what goes on during the trial effectively in that manner. And some judges let that go on. And it would make a difference, obviously, in what the jury is able to hear in jurisdiction to jurisdiction. There's differences with respect to what is permissible and not permissible.

Conclusion: What have all these factors lead to?

But all of these factors, and obviously, that's a lot there, that has led to what many, many believe fuel the nuclear verdict, the very large jury verdict award scenarios that we're seeing. And consequently, with very large jury verdicts, the general liability policies are eroded very quickly into the umbrella policy levels, and umbrella and excess policy insurance is when they were insurance, when they were first introduced and utilized over decades, they were a backstop to these underlying policies. But when you have these very large verdicts on a consistent, much more consistent basis, they're playing a role they weren't designed for, almost as though they're just a larger general liability pool. And as a result, premiums have gone up, capacity has gone down, and they've just become more challenging to place for a lot of those policies to place with a lot of our commercial clients.

What advice do you have for clients in light of these trends?

From my perspective, with claims, it's always important to report your claims early, as quick as possible, with as much detail as possible. The quicker you get claim information to the carrier, the more effective they can be on the back end to address the claim issues, address potential liability issues, and really to try and see if they can resolve the matter as quickly as possible. Because once attorneys are involved, and over time, the longer from the date of the incident to when the insurance company can address the claim, the more time that goes by, the greater the chance that the claimant or the insured or the third party has to hire an attorney. And that's where things really do get more complicated once other counsel is involved. So I always advise our insureds, our clients, to report claims early, often, detailed, and be there to help the insurance company with the claims process; cooperate with them. It's in your best interest, and they're trying to help you.