Over the last decade, we have seen a litigation landscape with nuclear verdicts running in the tens and even hundreds of millions of dollars, fueled by an aggressive plaintiff bar and anti-corporate sentiment that continues to gain momentum today. Jurors are made to feel that someone needs to pay – and pay big – in injury or property damage cases, regardless of fault.
Impact of Social Inflation
“Social inflation,” as it is known in the insurance world, is characterized by the rising costs of insurance liability claims, broader definitions of liability, and larger compensatory jury awards. Add to this the increased presence of litigation financiers, third parties who contract with plaintiffs to cover part of the costs to pursue litigation or arbitration for a percentage of the payout, and you have lengthier litigation cycle times, higher defense costs, and potentially larger jury verdict awards.
Larger Settlements, Verdicts Exhaust Limits
Insurance product lines most impacted by social inflation have been Commercial Auto, Medical Malpractice, Directors & Officers (D&O) Liability, and Umbrella & Excess Liability. Large auto liability losses, for example, exhaust the limits within the primary coverage, with Umbrella & Excess coverage having to step in to respond to settlements and nuclear verdicts awarded by jurors. For example, a restaurant patron – after having way too many drinks – got in his car, and hit a pole which resulted in his passenger being unable to ever walk again. A jury found the restaurant partially liable (44%) for the accident, which awarded the passenger $131 million.
The D&O front has also experienced an increase in lawsuits and larger jury and settlements, with a rise in securities class action lawsuits, event-driven litigation, emerging exposures, and litigation financing, according to a report by AM Best. For example, insurers for Wynn Resorts settled D&O claims in 2019 about its oversight of chief executive Steve Wynn, who had been accused of years of sexual harassment, for $21 million. In addition, many in the industry are concerned about the impact of COVID-19, which could potentially lead to even more D&O claims and litigation stemming from company responses to the pandemic and any failure to protect against substantial financial losses. Bankruptcies and insolvencies post-COVID-19 could also result in a spike in litigation by creditors.
Review Excess & Umbrella Limits
It’s important to get clients on board to understand the need for high liability limits both in their primary policies (General Liability, Auto, D&O) and with Excess & Umbrella insurance. This is particularly more prevalent during times of economic turmoil where typically we see litigation increase. Individuals will sue businesses, businesses will sue other businesses and tenants will sue landlords and property owners.
Distinguished Programs offers several Umbrella insurance programs with high limits available, including for Museums & Cultural Institutions, Community Associations, Real Estate, Hotels & Resorts, and Restaurants. Take the time to discuss with clients why securing the proper limits will help to safeguard their financial standing.
