Is Runaway Litigation a Real Issue? Three Experts Explain the Phenomenon and How It’s Affecting the Insurance Industry

At Triple-I’s Joint Industry Forum, a panel discussed runaway litigation and how it is affecting the industry.
By: | December 16, 2021

D&O policy holders have been griping about higher premiums for the last few years. And rates are likely to continue climbing. 

The reason? Runaway litigation. 

Businesses have seen a higher number of unsuccessful lawsuits over the last few years, causing insurers to dole out multi-million dollar settlements and jury verdicts. This increase in litigation has led to a 20% uptick in punitive award frequency over the last five years, and it has some insurers clutching their pocket books. 

During a session at the Insurance Information Institute’s (Triple-I) Joint Industry Forum, panelists Sherman Joyce, president of the American Tort Reform Association, Michael Menapace, attorney with Wiggin and Dana LLP, and Rick Merrill, founder and CEO of the litigation analytics firm Gavelytics, discussed runaway litigation and its affects on the insurance industry.   

The panel was moderated by Frank Tomasello, J.D., executive director of The Institutes Griffith Insurance Education Foundation.

Defining Runaway Litigation

Tomasello kicked off the session by asking the panelists to define what those in the insurance industry mean when they say “runaway litigation.” The term is often used interchangeably with “social inflation” to refer to a recent uptick in litigation costs, more aggressive plaintiffs attorneys and a recent spate of nuclear verdicts

“What we call runaway litigation or social inflation, we talk about it as insurers’ claims expenses [increase] faster than the general inflation, generally due to some combination of increased litigation costs, defense costs, a higher percentage of plaintiff verdicts, and … jury awards that are increased,” Menapace said. 

The group named third-party litigation financing — and its growth over the past few years — as a driver of this phenomenon. The industry has grown to around $10 billion globally, AGCS reported in early 2020.

Is Runaway Litigation Real?

The panelists also pondered the question of whether runaway litigation is a real phenomenon.  

“My personal opinion is that this issue deserves further empirical study, and I would ask everybody to ensure they don’t rely on anecdotes or rumors,” Merrill said. 

Merrill, whose company has insight into litigation trends, noted that it’s important to consider what sector an employer is working in and what area of the country they are based in when considering their litigation risk. 

When you consider these factors the answer to whether or not runaway litigation is real or not is simply, it depends. Some industries and some areas of the country are seeing more litigation and higher jury verdicts than others. 

“I can tell you firsthand that in certain places it’s true. The odds of a successful litigation outcome have gone down in a number of places,” Merrill said. 

“With the increased costs …  there are different reasons for this in different sectors,” Menapace added.

Courtney DuChene is an associate editor at Risk & Insurance. She can be reached at [email protected]

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