Two By Fours, Rivets and Artificial Intelligence. CLM’s Construction Claims Take

While AI has penetrated awareness in the larger culture, construction companies have been delving into it themselves in recent years including using it to optimize work schedules, to improve workplace safety, and to keep a close eye on construction sites.

It wasn’t that long ago that artificial intelligence seemed the stuff of science fiction. Think of HAL, the fictional AI character in Arthur C. Clarke’s Space Odyssey series.

But the emergence of AI into the greater national consciousness, signified by the introduction in March 2023 of ChatGPT, has many people in the construction industry asking questions about the potential perils and pluses of using the technology in legal cases.

Questions and concerns about AI in the courtroom, particularly for construction cases, and much more will be addressed in a session “No Escaping Artificial Intelligence: Emerging Issues for Contractors, Carriers and Lawyers” at 1 p.m. Sept. 28 at CLM’s Construction Conference.

The round table discussion will be interactive and lively. Attendees will be encouraged to participate in discussions about the adoption of AI in varying degrees in construction-related legal cases.

The panelists will include David Zehner, founding partner of Zehner Trial Consulting, Phyllis Modin, director of senior counsel at Markel Service Inc., Stephen Henning, founding partner of Wood Smith Henning & Berman, and Jay Sever, partner at Phelps Dunbar.

Henning predicts there will be strong interest in the session, and information provided will not be limited to those involved in the construction industry.

“AI is top of mind for everyone right now,” he said. “It is the hottest issue in the legal industry as a whole. Every stakeholder in the litigation process—general counsel, risk managers, law firm leaders–are trying to get their proverbial hands around this issue. The potential for efficiency and cost savings is huge.”

Prepare for Round Tables

CLM’s round table format is intended to spur in-depth discussions, and attendees will be invited to bring up issues related to AI and its uses.

“This particular format allows participants to share thoughts and practice pointers for the group, which elevates the educational level for all. This is not four talking heads, it is interactive and informative,” Henning said.

AI also is already being used in the insurance industry in various ways including pre-assessing claims, enabling automated fraud detection in claims using data analytics, routing of initial claims and streamlining administrative processes.

So it’s clear that AI is already making an impact in various industries. And the legal industry is not going to forego the use of AI especially as “the industry is under a lot of pressure to be efficient, cost-effective and to provide consistent, strong results,” Henning said.

At its most useful, AI– or machine learning–finds patterns and deviations in data. It utilizes pattern recognition to sift through mountains of data, which can help identify potential issues or problems much faster than humans can.

Some ways in which AI could be useful tasks related to legal cases include legal research and document review, drafting legal documents, predicting case outcomes, due diligence in transactions, client interaction and support, and for spurring insights and arguments that bolster legal strategies.

“As the technology improves, there will be many ways to make case management more efficient and get improvements in outcomes,” Zehner predicts. “It’s a new tool and we will be exploring the possible ramifications of it in the session.”

Troubleshooting AI

While better case management is one potential outcome, there are glitches and challenges in AI that cannot be ignored.

One case that’s sure to be discussed, and which reflects the potential perils of using AI in the courtroom, will be a case earlier this summer of a New York attorney who used AI to prepare a court filing on behalf of a man suing an airline. Unfortunately, the AI tool invented cases that the lawyer cited in his pleadings that were not real.

“The potential is there for AI to create a documents or cite authority that are inaccurate,” Henning said. “We have to remember the technology is imperfect, and the potential for a bad product or results is real.”

Henning pointed to the New York case, which resulted in “sanctions and national embarrassment” as one that anyone in either the legal or construction industries will want to avoid.

“Citing cases which do not exist in the first instance should have been an easy task to flesh out during the document review, but that apparently never happened,” Henning said.

The Construction Industry Perspective

The panel will include different points of view for those handling construction claims including the perspective of builders who are adopting AI, a claims professional handling construction matters, a lawyer handing all aspects of construction claims through trial and a jury consultant seeing AI being implemented in jury selection.

Another where AI could be used beneficially is in making jury selection faster and more efficient and identifying jurors that would regard a construction company’s case favorably, Zehner said.

“AI could comb through social media and see everything about a potential juror and see if they’d be a good juror for your case,” he said.

Zehner said he can see AI being used to select jurors that “would be more sympathetic to the themes that are prevalent in construction cases such as identifying people who understand that when something goes wrong there are often multiple causes –not one single cause.”

Zehner said he’d like attendees to come away from the session with a better understanding of AI as a tool to be used in their legal cases.

Henning said he’d like attendees be aware of its potential pitfalls and pluses.

“I think whatever is created by AI has to be looked at with a critical eye,” he said. “I don’t think you should believe everything that it puts out there.”

Even with all the talk about AI, Henning does not expect that it will replace lawyers.

“But I do believe lawyers using AI will have an advantage in the future when it comes to drafting documents, pleadings and even in trial,” he said. “Big picture, exploration and adoption of AI will present big challenges – but also will present big opportunities for creation of efficiencies and successful outcomes.” &

The R&I Editorial Team can be reached at [email protected].

How a Carrier Partner Can Help Navigate a Challenging Management and Professional Liability Market

A combination of a choppy economy with increased claims frequency and severity could lead to rate increases in the Management & Professional Liability market.

By: Risk & Insurance | April 3, 2024

Rates in the management & professional liability (M&PL) markets were on the rise from 2020 to early 2023 and are now falling rapidly.

M&PL divisions manage a number of different insurance products including management liability (D&O), professional liability (E&O), employment practices liability (EPL), fiduciary liability policies, cyber, etc. In 2023 and into 2024, a big influence on the marketplace has been the extremely aggressive and softening public company D&O market.

Though these rates have been softening for management liability, that may change over the next few years as companies continue to adjust their business models motivated by economic uncertainty. Layoffs were up nearly 200% last year, Forbes reported, even as other recession indicators, like the inflation rate, improved. A recession could lead to an increased claim activity and force carriers to raise rates.

“Whenever there is a meaningful downturn in the economy, we tend to see claim frequency pop up,” said George Schalick, Jr., senior vice president of the Management and Professional Liability Division at Philadelphia Insurance Companies (PHLY).

With continued fiscal uncertainty, businesses potentially already burdened with pandemic-related claims should seek a carrier with a long history in M&PL products. They will provide much-needed risk management guidance and be better positioned to support their insureds during market fluctuations.

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

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