At the beginning of August, the Covid-19 pandemic appeared to be winding down, and the economy seemed to be rebounding. At the same time, claims were down in some areas, but there was an uptick in claims in other areas, with social inflation and third party funding of lawsuits among the trends driving industry results.
In the days before the Delta variant and Hurricane Ida both hit the U.S. with a vengeance, AM Best hosted a webinar on Aug. 3 dealing with emerging trends and how the wholesale market is adapting to those trends.
Panelists were Ben Johnson, senior vice president, wholesale executive, Liberty Mutual Insurance; Toby Smith, president U.S. casualty and environmental, Ironshore Insurance, and Kristin McMahon, senior vice president, specialty claims and Canada, Liberty Mutual Insurance. The webinar was moderated by John Weber, AM Best, who pointed out at the outset that the opinions expressed by the panelists were theirs.
In early August, according to McMahon, claims were surpassing pre-Covid numbers. Employers’ professional liability is increasing, she said, as employers grapple with how to stay afloat and are faced with the decision of whether or not they should require the vaccine.
In early September, subsequent to the webinar, that decision, to some extent, was taken away from employers when President Joe Biden mandated that businesses with more than 100 employees require their employees to be vaccinated or submit to regular Covid-19 tests.
In the arena of higher education, “we see people seeking reimbursement of tuition,” McMahon said. There are 146 actions filed today, largely in federal court, alleging that learning was not facilitated during the pandemic, and courts have had varying responses to motions to dismiss.
Relative to medical professional liability there have been very few litigated claims, she said, but there has been an increase in notices.
McMahon pointed out that 26 states have some kind of immunity in place for entities adhering to pandemic guidelines and that there has been a significant increase in the volume of multidistrict claims.
One of the largest multidistrict cases she has seen is veterans and service members suing for not being supplied with ear plugs and experiencing hearing loss.
Veterans and current military service members may be entitled to receive financial compensation in the 3M earplug lawsuit for hearing loss and tinnitus caused by defective earplugs, according to the class action attorneys’ webpage. The attorneys say there are over 250,000 earplug cases still pending as of Sept. 10.
Smith commented that a multidistrict class action case alleging that firefighting foam may cause various types of cancer “came out of left field.” Firefighters are now suing airports.
The firefighting foam has been sold for decades because of its effectiveness in extinguishing jet fuel and petroleum fires, according to the plaintiffs’ attorneys’ webpage. At particular risk are U.S. military firefighters, as the military used the foam for approximately 60 years. Firefighters assigned to airports are also at risk, the attorneys say, because airports used the foam until 2018.
Another trend taking place, according to McMahon, has to do with ransom demands which have become more sophisticated and more targeted. She referred to the Colonial Pipeline case in which 55 miles of pipeline was closed down until the pipeline paid roughly $5 million in ransom to hackers.
In 2020-2021, she said she has seen as much as $50 million demanded; whereas, in prior years $3 million would be high.
Returning to the subject of lawsuits, McMahon explained that the Reptile Theory and jury nullification play a part in swaying juries in many lawsuits. There is an attitude, she said, that someone will pay. That is borne out with three-quarters of respondents to a recent survey indicating that they would follow personal morality over the law in deciding cases.
The Reptile Theory, developed by an attorney and a jury consultant, is being used by the plaintiffs bar to convince jurors that if a defendant’s conduct is allowed to continue, then the community and even the jurors themselves may be in danger, according to LexisNexis. The pair of attorneys who came up with the Reptile Theory have said that plaintiffs’ attorneys who successfully use the tactic have garnered over $7.7 billion in verdicts and settlements. LexisNexis wrote that defense attorneys quickly came up with rebuttals.
According to Smith, jury nullification occurs when a jury finds negligence where there is none. “It is driving a decline in capacity,” he said. In burn cases and industrial accidents, claims are going for 10 times more in some states than in others. He mentioned several states, including California, Florida, Georgia, Illinois, Louisiana, New York and Texas, where verdicts outpace those in other states.
Jury awards seem to be going up, and among the culprits are social inflation and third-party financing of court cases, Smith explained.
He pointed to Texas as a state that is changing more than others, particularly in the energy segment. “Energy can have a visceral effect on a jury.” According to Smith, truck accidents involving 18-wheelers also are having an impact on the insurance business.
“We see trends in every state,” Smith said, but more in some states.
He explained that Louisiana is one of the states that has “really skilled plaintiffs’ lawyers who take advantage of the system.”
Relative to molestation cases, Smith said it is “important for insureds to tell their story … what they are doing to mitigate” claims.
“The good news is that most of our clients are doing a lot,” he said. Most molestation claims are related to something that happened a decade ago. “Hopefully, we will see better behavior start to trend that off.”
We “play a long game for the customer,” McMahon said. That is, “settling may embolden attorneys to pursue other matters with that defendant.”
She described some single-claimant verdicts as “astounding,” and supported her comment by talking about the headlines created by the largest ever ($229 million) verdict, which was rendered in 2019 in favor of a child who suffered brain injury during birth in Baltimore. The plaintiff alleged that Johns Hopkins Bayview Medical Center was negligent.
According to news sources, the trial judge reduced the $25 million jury award for pain and suffering to $740,000, in line with the state’s cap on noneconomic damages. The judge left the remainder of the verdict, $205.38 million, intact. In February, the Maryland Court of Special Appeals overturned the verdict, saying the mother disregarded medical advice about the birth of her child.
Several states have caps on noneconomic damages, McMahon said, but now juries in these states are making big awards. Future economic damage plays a part in driving up the value of claims.
In the Johnson and Johnson talc class action, McMahon said, the award was $4.7 billion in 2018. The award was reduced to $2.1 billion. The Missouri Supreme Court had a chance to revisit the case in November, but didn’t do so, and the U.S. Supreme Court announced in June that it would not hear the case with Justices Samuel Alito and Brett Kavanagh recusing themselves, according to CNBC.
“We do not see nuclear awards going down,” McMahon said. A Texas jury hit a piping repair company with a $222 million verdict for failure to repair a faulty relief valve, and a man burned to death.
The Southeast Texas Record reported in a June 1, 2021, article that the verdict was against Team Industrial Services for the death of a man at the Jeffrey Energy Center power plant in Kansas. Team had inspected and modified the valve. Team blamed the man for his own death, but the jury found the man had zero responsibility for the tragic events.
“We can’t rely on past awards as predictors of the future,” McMahon said.
The effect of nuclear awards is that rates are going up, Johnson said. “Carriers are taking a second look at how much they want to put up for certain risks and attachment points.”
With underwriting discipline, Johnson said, results are slowly improving. “We are somewhere between the third and sixth inning of a firm market. Weather patterns have something to do with it in the first-party arena. We will continue to see upward rates and pessimism toward the use of capital.”
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