Liability risks in the United States
Article by Joe Pino/Liberty Mutual Insurance and Kristian Orispää/If
According to Barclays Research analysis, during late 2018 to 2019, the rates for 2019 on general liability increased 2% in Q1 to 5% in Q3 in average. On individual basis rate increases were up to 25%. Further increases are expected for 2020, driven by “industry-wide unsustainable loss ratios”. All major broker houses as well as reinsurers are predicting higher rates on US Liability. So, what is behind these developments? And what are the consequences of this?
In the United States, the insurance market is reacting to changes in the casualty market by increasing rates as, in particular, complex risks with exposure to social inflation, health and personal injuries are facing large rate increases.
Reinsurers are exerting pressure following clear changes in the marketplace observed in 2020, effectively this is no longer a buyer’s market. Reinsurers focus on US exposures due to underlying challenges in the US.
For first time in ten years we have seen reinsurers actively demanding new exclusions during 2020 renewals. Today, large reinsurers are prepared to walk away from business unless exclusions are introduced. Some of these include, particularly pandemics or communicable diseases, as well as opioids and e-cigarettes.
A difficult year
Around the world, 2020 has been a disorienting year. The United States has experienced an unusual year as the COVID-19 pandemic continues to spread across the country. The nation has also faced racial tensions on an unprecedented level, including protests, riots and a rise in civil unrest.
From a business perspective, companies are still trying to maintain their operations and survive the pandemic. While sales are declining and some businesses are facing bankruptcy, others are fighting to adapt to the new circumstances.
For large international corporations, the aftermath of the COVID-19 pandemic is yet to be seen. However, the risks remain high for many companies. Risk factors include, but are not limited to, medical and social inflation, litigation funding and auto claims.
Insights & perspectives on US Liability
According to Joe Pino, Manager, Industry Property & Multinational, from Liberty Mutual Insurance:
“The litigious environment in the U.S. is much different than anywhere else in the world. Large jury verdicts are not uncommon, and the cost to defend such matters sometimes outweighs the actual damages themselves. Companies domiciled outside of the U.S. conducting business here should be aware of the unique legal landscape. “
Joe Pino also states that, “Some jurisdictions in the U.S. tend to be less favourable for large corporations in the event a case goes to trial. Jurors may assume large corporations and/or insurance carriers have ‘deep pockets.”
Public sentiment goes a long way in a jury trial, and generally people are more inclined to side with individuals rather than international corporations.
Not all cases go to trial
In the United States however, not all cases go to trial. Generally speaking, both parties may try to resolve their differences outside of the courtroom through mediation or agreeing to a settlement. These options may ultimately be more cost effective than going to trial.
In certain cases, companies may decide to pursue an appeal if they have lost a case. However, such appeals are not common. There are many reasons for this, but in the end, this is about costs.
“If a company feels their case has true merit, they may pursue an appeal, however, it is important to weigh in the costs of taking further action,” Joe Pino explains.
In recent years, both the number of legal cases against international companies, as well as the number of ‘nuclear verdicts’ have been rising dramatically.
There are ways to mitigate against litigation, such as jurisdictional defences, thorough product safety documentation, warnings and instructions, as well as arbitration clauses. It is also important to maintain and uphold up-to-date contracts with regards to indemnities and warranties, insurance requirements and review additional insured wordings.
The number of legal cases against international companies, as well as the number of ‘nuclear verdicts’ have been rising dramatically.
COVID-19 and US claims
Joe Pino believes that, “we believe the insurance industry will continue to see an increase in the number of claims relating to coronavirus.” He notes key considerations on the pandemic impacts as:
- From a frequency standpoint, while shelter-in-place orders and court closings have reduced the number of litigation claims in the short term, an increase of pandemic-related claims are expected when economies reopen.
- What is currently unknown is how the events over the last few months — COVID-19 exposure, the economic downturn, the political climate, and recent unrest highlighting systemic inequality and abuse — will impact jury decisions.
- Additionally, as COVID-19 continues to impact business operations, juries may have different views on what is ’reasonable; the duty of corporations to protect employees, customers, and the general public; and how to determine liability.”