Tort Inflation 2010: Stability Today, But For How Long?

Tort Inflation 2010: Stability Today, But For How Long?

Dr. Robert P. Hartwig, CPCU and James Lynch
June 28, 2010

Tort inflation is a constant threat to the health of the insurance industry and the U.S. economy. Large increases in tort costs lead to higher insurance costs and can harm businesses trying to grow. In this report, the Insurance Information Institute examines the state of tort inflation in the United States. As with last year’s report, the current environment in some ways seems calm: the average jury award has peaked at just over $1 million; tort costs rose modestly to $838 per person in 2008, though costs are projected to increase in subsequent years; and settlements in securities class actions rose to $3.8 billion in 2009 but remain far below the peak years of 2005-2006. However, there are signs that tort inflation may be returning: businesses in the U.S. and U.K. anticipate more legal disputes—40 percent of companies anticipate facing more legal disputes in the coming year; the largest jury verdicts are getting bigger. The 10 largest jury verdicts in 2009 totaled $1.5 billion, an increase of 12 percent from 2008; trends in presidential appointments and policy directives could give the appearance of a shift away from principles that rein in tort inflation the overall number of actions filed with the Equal Employment Opportunity Commission dipped slightly in 2009, but remains substantially above the levels of 2007 and prior; terrorism remains a liability threat and current proposals could weaken the ability of insurers to offer coverage; and tort costs associated with medical malpractice have fallen four years in a row, an apparent example of the effectiveness of malpractice caps. However, court decisions in Illinois and Georgia have struck down malpractice caps, and other states’ courts are weighing whether to do so. In addition, a number of new issues have emerged with the potential to evolve into mass torts, including faulty Chinese drywall, which could cause $15 billion to $25 billion in economic losses, with some of that falling on the insurance industry; and global warming, which has spawned a flurry of lawsuits against companies, all of which try to create the “next Big Tobacco.”

 

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