Ballooning jury awards pose threat to both insurers and insured
Wednesday, December 18th, 2019
The insurance industry is about managing risk – about realistically facing the possibility that bad things can happen, and being prepared to deal financially with the consequences when such things do happen.
That gets harder to do when there is a growing attitude in society that when bad things happen, blame must be assigned to a particular party or parties, and that somebody’s gotta pay – preferably somebody with deep pockets, because the sky is the limit as to how much.
It’s called social inflation. It covers a number of phenomena with a variety of causes. One succinct way to define it is to say that it refers to the rising costs of insurance claims that are a result of changes in society’s attitude toward business and toward what plaintiffs are entitled to when they sue business defendants.
How big is the problem?
The Financial Times reports that at a conference convened by Insurance Insider last month, Stephen Catlin, an industry veteran, predicted the trend could ultimately blow a $200 billion hole in global reserves.
Rob Francis, who runs healthcare underwriting at ProAssurance, told the same newspaper that insurers have seen “a tripling of verdicts over $10m over the past three years” in professional liability cases.
Here are examples of some of the verdicts that are causing alarm among businesses and the companies that insure them:
- In 2007, a $10 dry cleaning bill for a pair of trousers led to a $67 million civil lawsuit.
- This past July, a Baltimore hospital was to ordered to pay $230 million in the largest US malpractice award to date.
- Also this year, Greyhound was told by an appeals court that it had to pay $30 million to a person injured in a 2013 crash.
- What The Washington Post called “an astonishing $8 billion jury verdict” against Johnson & Johnson in October reflected what some analysts called “a symptom of a growing anger at the broader pharmaceutical industry.”
- The same company has been besieged by a host of lawsuits relating to its powder products. Last year, a St. Louis jury awarded $4.7 billion to 22 women who claimed their ovarian cancer was caused by Johnson’s Baby Powder and Shower to Shower.
- A utility this year settled claims from wildfires in 2017 and 2018 wildfire claims for $11 billion.
- The mass shooting in Las Vegas resulted in a settlement of $735-800 million this year.
Where is this all leading?
It’s very hard to say what will happen next. Some informed observers see it as getting worse before it gets better. Also, there is a lag time between causes and effects when talking about such a sweeping social phenomenon. For instance, some analysts say the problem arises in part from the attitudes of judges appointed during the Obama administration. And it’s still far too early to see whether more conservative judges appointed since then will move things in the opposite direction.
One thing is sure. The professional brokers at South Risk Management are keeping an eye on this and other trends that affect our clients. Give us a call whatever your risk management concerns.