RAND Study Eyes Impact of Legal System Abuse and Social Inflation

A study from RAND found that rising litigation rates, trial awards and claim severity are consistent with the expected effects of social inflation.

The study, What Is the Evidence for Social Inflation? Trends in Trial Awards and Insurance Claim Payments, found a 10% increase in the annual number of new court filings per capita between 2012 and 2019 in 19 states, and that 64% of cases reached a verdict in favor of the plaintiff in 2019, up from 53% in 2010.

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It also found a 7.6% compound annual growth rate in inflation-adjusted trial awards in personal injury/wrongful death cases from 2010 to 2019, and a 2.7% annual rise in the inflation-adjusted severity of bodily injury insurance claims between 2010 and 2019 for certain commercial liability and personal auto policies.

Those involved in the study say the increase of legal system abuse generated by billboard attorneys, combined with third-party litigation funding of lawsuits by dark money investors, are contributing factors to rising social inflation—a term to describe social trends believed to expand the liability of parties allegedly responsible for.

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It has been argued that social inflation creates a feedback loop: rising levels of tort compensation fuel expectations of financial windfalls, which stimulates the filing of new claims and lawsuits.

The report shows the percentage of large trial awards ($5 million or more) rose between 2010 and 2019—from a range of 5.5% to 7.5% between 2010 and 2016 to 12% by 2019.