In the past few years, insurers and their insureds have been forced to navigate increasing legal costs, which have been driven by the collision of economic inflation and abuse of the legal system.

Consider just two lines of business for a moment. In commercial and personal auto liability combined, there has been an increase from $96 billion to $105 billion in claim payouts in the years between 2013 and 2022, an Insurance Information Institute report notes. Moreover, product liability, bodily injury liability and other forms of liability insurance have seen significant increases as well.

Early on, industry experts attributed these increases in claim payouts to so-called legal system abuse — a phenomenon where jurors are delivering increasingly high verdicts because of certain abusive tactics used by plaintiff attorneys and mistrust of corporations. Now, add in economic inflation, and claim costs have skyrocketed.

“The combination of legal system abuse and monetary inflation has led to a spiral of plaintiffs and their attorneys seeking larger and larger jury awards with a lack of favorable settlements taking place,” said Josh Hackett, head of casualty, Munich Reinsurance America, Inc. (“Munich Re US”). “It has grown into a very lucrative venture for some less than scrupulous actors.”

Insureds and their carriers need to understand the factors driving legal system abuse in order to effectively combat them. Seasoned adjusters who are aware of the latest judicial trends can help.

Ultimately, legal reforms are needed in order to reduce legal system abuse, but it will take time to educate individuals and legislators about the costs plaintiff attorneys abusing the legal system are putting on everyone. Reinsurers play a key role in educating clients and brokers about the risks of legal system abuse and the need for reform.

“The prevalence of the awards, and the ubiquity of them is obviously highly concerning,” Hackett said. “I think reform is really going to be the key source of remedy here.

What’s Driving Legal System Abuse?

Josh Hackett, Head of Casualty, Munich Reinsurance America, Inc.

Legal system abuse has a myriad of causes. Plaintiff attorneys have long conducted targeted advertising campaigns — think of all those billboards advertising legal services along highways — to drum up their business. This type of advertising has increased in recent years. An Insurance Research Council survey from 2022 found that 50% of respondents felt that attorney advertising increased over the past year. In 2024, it is estimated that more than $2.5 billion was spent on more than 26.9 million ads for legal services or soliciting legal claims across the United States.

Over the past decades, third-party financers have been supporting claimants’ litigation, with the hopes of securing a percentage of high-dollar verdicts. In recent years, Third Party Litigation Financing (TPLF) has experienced explosive growth worldwide, and in 2023 it was estimated U.S. commercial litigation investments to be $15.2 billion.

These funders, who have no direct involvement with the lawsuit, are associated with a 60.5% increase in claim payments, and a 140% increase in resolution duration, one study found.

“You have highly targeted legal advertising in core geographic regions with populations that are amenable to pursuing litigation. You have open and free flowing sources of capital from third parties that promise to inflate the award size at low to no risk to the claimant, and a well-orchestrated tactical playbook by plaintiff attorneys,” Hackett said. “All these factors have coalesced together, and they created this perfect storm of runaway liability.”

An example of these tactics is when plaintiff attorneys play on jurors’ emotions and their mistrust of corporations to try to secure larger verdicts. In 2023, there was a 27% increase in the number of so-called “nuclear verdicts”, those exceeding $10 million, compared to 2022. “Thermonuclear verdicts”, those over $100 million, increased by 35%, the same report found.

“There’s this skepticism that people have and continue to hold towards corporate entities,” Hackett said. “They can represent a David versus Goliath narrative that plaintiff attorneys can latch on to.

The Real Costs of Legal System Abuse

Legal system abuse affects a wide range of insurance lines. “Anything with third party bodily injury has the potential to be a legal system abuse candidate,” Hackett said.

Insurers need to be prepared to address these kinds of claims and act quickly. More experienced adjusters can help try to bring claims to settlement. Data systems can help insurers determine what claims might be at-risk and adjusters can intervene to try to prevent them from spiraling out of control. Finding attorneys and adjusters with experience in securing settlements will be key. Paying attention to judicial trends will also be important as these claims’ trends continue to evolve.

“There is a need for more adjusters with complex claim experience, and more sophisticated data tools and techniques that will help shorten cycle times or more appropriately triage claims that have that higher potential to be a legal system abuse candidate,” Hackett said.

It’s important to address claims with high legal system abuse potential as quickly as possible. The longer a claim is open, the more likely it is to become severe.

“Time is not your friend,” Hackett said. “Actively monitoring the sensitive claims with severity potential is table stakes now. Insurers also should continue to seek out equitable resolutions throughout the life cycle of the claim.

Raising Awareness to Drive Reform

Education is important to curb legal system abuse. “It’ll take a growing awareness to eventually lead to reform,” Hackett said.

As a reinsurer, Munich Re US is actively educating clients and brokers about what’s driving legal system abuse, helping them stay ahead of the curve. As part of this effort, Munich Re US and the American Property Casualty Insurance Association (“APCIA”) recently released survey results on consumer attitudes about certain plaintiff attorneys’ tactics.

To make a significant impact, (re)insurers will need to continue to spread awareness about legal system abuse and find elected officials to champion laws limiting this practice. Some states, like Florida and Georgia, are starting to implement legal system abuse reform. However, these efforts are still in the early stages.

“There’s some disclosure around third-party litigation financing in several states, but it’s nascent and those processes can be circumvented in some instances or at least obscured to a certain degree,” Hackett said.

One thing Hackett believes can help drive support for legal system abuse reform is educating consumers about its costs. In a 2025 report, the Perryman Group found that legal system abuse costs an average of $5,215 annually per U.S. family of four.

“Businesses will see their costs go up and it stands to reason that they’ll pass that along to the end consumers,” Hackett said. “This can also lead to depletion of municipal resources, financial strain on insurers, and disincentives for businesses to take risks.”

There is still much work to be done to rein in the abuses of our legal system. While some progress has been made, gaps still remain, and we should continue to educate all parties involved about this important issue.

To learn more, visit: https://www.munichreamerica.com.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Munich Re US. The editorial staff of Risk & Insurance had no role in its preparation.