How COVID-19 Court Lockdowns May Turn the Social Inflation Tide

By Susanne Sclafane | June 15, 2020

Defense attorney Ellen Greiper reported receiving more than the usual number of phone calls from plaintiffs attorneys earlier this month, suggesting that the call dynamics could be signaling a COVID-driven change in social inflation trends.

“I have had a flurry of phone calls, I would say in the last two weeks, from plaintiffs who are now willing to take that [settlement] amount I had offered before,” said Greiper, a partner with Lewis Brisbois, Brisgaard & Smith, during a webinar presented by insurance analytics and research firm Advisen in mid-May.

The attorney, who is a member of the law firm’s construction practice, was responding to a question from Jim Blinn, executive vice president of client solutions at Advisen and the event moderator, about the impact of COVID-19 on inflationary litigation trends that impacted commercial insurance carrier results in recent years.

“I am seeing a change due to COVID,” she said, speculating that court closures necessitated by COVID-19 shutdown—and uncertainty about when they would reopen—were factors behind the shifting legal environment. “In the last couple of weeks, we have started to see courts open. Federal courts and certain state courts are allowing filings. But we still are, for the most part, closed and working remotely,” said Greiper, who works in New York. “I have been told off the record by persons in the high seats in the courts that we will not be seeing jury trials until 2021 at best,” she said.

She said that the plaintiffs who were not calling her back before the lockdowns are now calling. “Those plaintiffs are realizing that they are not going to get a trial for at least two years, no matter what status their case may be and whether it’s discovery or past that. So now they are coming out of the woodwork,” she said.

“They are starting to realize that when we all come back and the jurors don’t have jobs or they’ve been furloughed, they’re not getting $10 million on a cervical fusion. They may realize that’s a ridiculous amount of money,” she said, alluding to earlier observations that she and other webinar participants had made suggesting that jurors who had been contributing to rising judgments amounts pre-COVID were doing so, in part, because they were “desensitized” to the value of money.

Greiper spoke as courts in some states starting reopening “on an extremely, extremely limited basis,” and a few days before reported that New York would allow new lawsuits to be electronically filed statewide, and the physical return of judges and staff to upstate courts, while downstate courts continued to conduct business remotely.

“Even depositions are now being held remotely….It’s a very interesting process to try to mark exhibits and speak to your client who’s not sitting next to you. It’s actually on another video. So it’s all new, it’s all interesting, and it’s just starting to happen. Because it’s taking so long, I expect cases will take longer to come to fruition,” she said.

Physical Restrictions

Co-panelist James Dorion, head of liability claims consulting and carrier relations for Willis Towers Watson, thought aloud about the physical restrictions that would delay trials in many locations. “When you think about what it takes for an actual trial to happen, the jury crammed into fairly tight spaces, you have exhibits being passed around—it just doesn’t lend itself to a COVID-safe environment at all,” he said.

Offering a broad national view of COVID impacts, he said “law firm economics are a tricky thing”—and potentially having an impact on plaintiffs lawyers activity across the U.S. “Sometimes even a very successful plaintiff’s firm can have cash flow issues,” he said, speculating that a bigger factor is “the actual clients”—the plaintiffs themselves being “much more open to accepting offers.”

“I’ve heard almost across the board from claim leaders at major insurance markets saying that they’re seeing opportunities and looking to capitalize on them where they can to settle things more advantageously than they would’ve been able to a couple quarters ago,” Dorion reported.

“I’ve heard almost across the board from claim leaders at major insurance markets saying that they’re seeing opportunities and looking to capitalize on them where they can to settle things more advantageously than they would’ve been able to a couple quarters ago.”

Michael Gorlin, technical director and head of liability underwriting at Zurich North America, agreed with the assessment. “We’re arguably in a recession, and I’m not sure there’s a lot of indicators that there’s going to be a speedy recovery. So when your options are to settle or to go to trial, and you know that the trial may be extended by quite a bit and then the other end, you may have cash flow problems, [then] settlement becomes more appealing, I think, to some of those dynamics.”

“It’s too early to tell, but it seems like some of those dynamics would play out,” Gorlin said.

“It’s the plaintiffs themselves who may be out of a job now, or may be losing money that want to settle,” Greiper said in concurrence.

Truth or Myth?

The Advisen webinar was titled “Social Inflation: Truth or Fiction?”—so Blinn put the question directly to the panelists to get their take on the pre-COVID environment.

“I’m in the truth camp. Living it,” said Dorion, reporting that in the past six months, he was involved in a $195 million settlement for an explosion, a $170 million settlement for a trucking accident and an $88 million settlement for an electrocution. “These are just settlements,” he said. “It’s the verdicts that always get reported, but what that does is it drives a fear through the market and it really drives much much higher settlements than you would ever think,” he said.

Truth or Fiction? “It’s absolute truth. I see it in the trenches. I see it happening. I’d be curious to see what happens post COVID-19. Living it too,” said Greiper.

“I would highly encourage anybody who thinks it’s fiction to send me a note and let me know their rationale because I would love to listen to it. Based on any single data point and trends that we see, it’s certainly moving in the upward direction,” said Zurich NA’s Gorlin.

Blinn presented one such set of data points from Advisen’s large loss data base near the start of the session, after first asking Gorlin to define social inflation.

“Social inflation is the name given to recent increases [in] severity that we’re witnessing across several lines of business. There are various factors driving this changing environment. They’re legal, regulatory, as well as really wider social changes in…moral standards and values,” Gorlin said. “While the high-profile well-publicized verdicts are certainly problematic, what’s just as important is the cumulative impact of significant six- and seven-figure settlements that we’re seeing in cases with little demonstrable damage or minimal liability,” he said.

“This is happening throughout the tort world,” impacting general liability and excess liability insurance, auto, medical malpractice, employment practices liability and other third-party insurance coverages, he said.

“We now have plaintiffs that ask me for my excess. They really don’t care about the primary policy anymore. They want to know what the tower is.”

Blinn displayed a list of 15 large losses for 2019-2020 coming in over $250 million each, extracting the list from Advisen’s multiyear database of 160,000 liability cases. A list of cases over $100 million would have been unmanageable to present, he said, noting that there are 3,600 of those in the database across all years.

Moving past the view of $250 million-plus case results that involved issues related to products liability, truck accidents, sexual assaults, opioids and wildfire, Blinn focused Advisen loss data on settlements and verdicts that involved just a single fatality (no other injury). Finding roughly 100 per year for the past two decades, he presented a visual summary of median case amounts by year on a bar graph. The vertical bars came in round $1.0-$1.5 million for each year from 2001-2014, increasing to $2.0-2.5 million for the next three years, and finally jumping up to around $4 million for 2018 and 2019.

Greiper said that Blinn’s data depicted the “exploding case values” she’s seen in recent years. “We now have plaintiffs that ask me for my excess. They really don’t care about the primary policy anymore. They want to know what the [liability insurance] tower is,” she said.

“We’ll get requests or demands from certain plaintiffs attorneys for $20, $30, $40 million, which used to make us blanche. [It] no longer does so,” she said. “In the major cases, we’re discussing $50, $60, $70 million on trucking cases. This is no longer unique. This is now commonplace.”

Reptiles and Kardashians

“Social inflation is being driven by corporate mistrust, the reptilian theories that plaintiffs are using, the erosion of tort reform, which seems to just gone out the window, and litigation funding,” Greiper said.

According to Dorion, the reptile strategy comes from a book (published in 2009), which describes tactics the plaintiffs lawyers have found to be successful. (See related article, “Nuclear Verdicts: What Property/Casualty Carriers Need to Know.”) The idea is to operate on jurors by wiring into the “most primitive, oldest part” of the brain—the part “that has your flight or fight mechanism and where they make you feel a personal sense of danger,” he said. So, if it’s a nursing home case, they’ll make [you] think about when you get old and your care is entirely in the hands of these people. Or if it’s a trucking case, when your child is driving on the road on their way back to college. Safety is always a top priority, danger is never appropriate. Reducing risk [takes precedence], no matter what it would cost to reduce that risk.

“That’s how they frame it: More is always better. There are no practical considerations for anything. And they’re trying to get you to respond on a personal level about the fear for the ones you love and your community, and translating that to the conduct of the defendants.”

“It’s based on emotion, not on fact, Greiper agreed. “That’s why we have to be particularly careful with our corporate representatives who are produced in the deposition, so that we can avoid that as best we can—so that we have not laid the groundwork for it at trial,” she said.

Sophisticated Bar

Dorion said that “a very well-funded, sophisticated plaintiffs bar” is another factor driving social inflation trends but noted that it’s not always clear that litigation funding is in the mix. “A lot of times, we suspect it when a plaintiff won’t take what by any measure seems to be a fairly reasonable offer. They won’t engage or they insist on getting to a certain watermark level of funding for to resolve the case.” But it’s difficult to know for sure that a litigation fund is involved. “It doesn’t always get surfaced soon enough.”

“When there isn’t necessarily an answer that points to one specific cause or industry, what it ultimately means is that liability insurance is more expensive across the board to help compensate for the results.”

Gorlin said the drivers that Dorion and Greiper described “are not specific to a particular industry. This makes underwriting and portfolio management difficult for insurers. “Ideally, when I see [claims] going up, my first question is, ‘Where is this happening? What can we do differently?’ When there isn’t necessarily an answer that points to one specific cause or industry, what it ultimately means is that liability insurance is more expensive across the board to help compensate for the results,” he said.

Managing Litigation

Blinn asked what carriers can do—and are doing—to counter the trends being discussed.

“The quicker we can identify a more severe case, the quicker we can mobilize the right experts on our claims team to address it,” said Gorlin.

“Going in with the expectation that we may not be liked as an insurance company,” he also said that insurers need to rebut some of that negative sentiment, as well as the perception that they’re “swimming in cash.” To do that, they need to “convey some of the wonderful things that we are actually doing for the community and for our clients.” Those things may “sound very trivial, but they are important, nevertheless,” he said.

Greiper recommends that defense attorneys become much more aggressive. “We can’t sit back and just wait for plaintiffs to do something and then respond. When we get these big cases, then we immediately set up a meeting with the insured—immediately, because it’s all about the risk management. You want to find out how good the insured’s company [in the] focus on safety. If they haven’t been doing so, make sure they start doing some sort of a risk management with their employees. Whether it’s a safety protocol, whether it’s an employment protocol, you need to make sure that the client has these documents and if not, suggest that they do so.

“Meet with the client early on. Find the documents that are going to be lost in six months. Let the insured know that this case is just as important to you as it is to them,” she said.

“This will actually help minimize your loss later on. You’ll be very surprised at—thinking out of the box and meeting with the client—how much that can help you later on when you’re looking to resolve the matter.”

“It also helps to keep being the intermediary between the primary and the excess towers. It’s very important that everybody be kept in the loop early on, so that you have a united defense as opposed to the primary pointing things to the excess, etc.”

Added Dorion: “It is critically important to communicate with the entire tower and to demand settlement when it’s achievable and it’s your best option.”

“Where they can, people should be pushing for tort reform and then just considering ways to mitigate exposure, too, he said, suggesting a “‘high-low settlement strategy’—where you’re on the courthouse steps and you see if you can negotiate with the plaintiffs the minimum that they’ll walk out with but you also cap your maximum.”

“But you need to have your insurance tower on board with you to do that,” he said.

“I’ve also seen it be very effective [when] policyholder clients show empathy…It does seem to have an impact,” he added.

Offering a final word of advice, Dorion recommended: “Mediate early when you can.”

Separately, Munich Re published a white paper, “Taking a Team Approach: A reinsurer’s perspective on social inflation,” advocating that insurers and reinsurers organize cross-functional teams of claims, legal, underwriting, actuarial and data analytics experts to stay ahead of trends. Munich Re, for example, is hunting for new sources of data and previously unnoticed correlations. Other advice in the paper includes: considering the use of mock jury exercises; working with industry associations to try to get more transparency in litigation funding and; for reinsurers specifically, leaning toward proportional rather than excess of loss treaty structures to align the interests of insurers and reinsurers.

About Susanne Sclafane

Sclafane is Executive Editor of Carrier Management, the Wells Media Group publication for the property/casualty insurance C-suite..

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