Category Archives: Legal Environment

Dog bite claims fell 4.6 percent in 2020 despite pandemic pet adoption surge

Pandemic-related lockdowns have led many people to bring new furry friends into their homes.

A survey from the Insurance Research Council (IRC), found that 21 percent of homeowners reported adopting a dog in 2020.

Despite the increase in the number of dogs in American homes, homeowners dog bite (and related injury), claims fell overall by 4.6 percent in 2020 from the previous year, to 16,990 from 17,800 nationally, according to Triple-I and State Farm analysis.

March had the most dog-related injury claims last year, when people first went into lockdown at the start of the COVID-19 pandemic, according to State Farm. Dog bites were up 21.6 percent from the previous March, likely due to dogs dealing with owner stress, disruption in routines and more people around the house throughout the day. Experts fear another disruption—this time cause by the easing of restrictions for activities outside the home—could lead to another spike in bites.

Though the overall number of claims decreased, the total cost of claims increased by 7.1 percent to $853.7 million, up from $796.8 million in 2019. And the average cost per claim increased 12.3 percent to $50,245, up from $44,760 in 2019.

Dog bite related claims costs have been climbing for years. The average cost per claim nationally has risen 162 percent from 2003 to 2020, due to increased medical costs and the upward trend in the size of settlements, judgments, and jury awards.

Claims costs are attributable not only to dog bites but also to dogs knocking down children, cyclists, and the elderly, which can result in costly injuries.

The latest Triple-I dog bite claim figures are released in conjunction with National Dog Bite Prevention Week, an event held each year to help reduce the number of dog bites.

Children are particularly at risk for dog bites and are more likely to be severely injured, so it’s essential for parents to teach their kids to be safe around strange dogs and their own pets.

Dog training is, of course, key to preventing dog bites and related injuries for everyone, and National Dog Bite Prevention Week’s organizers offer many practical tips. This year, dog experts are particularly focused on re-socializing animals that have been isolated along with their humans for the past year.

To provide more tips for pet owners, members of the National Dog Bite Prevention Week Coalition— which includes the American Veterinary Medical Association (AVMA), State Farm, Insurance Information Institute (Triple I), American Humane and Victoria Stilwell Positively— will be hosting a Facebook Live event on Monday, April 12, at 1 p.m. Eastern.

Triple-I recommends that you check your homeowners or renters insurance policy to be sure it covers liability for dog bites and related injuries. Click here for more details about dog bite liability insurance.

Related content:

Infographic: National Dog Bite Prevention Week

Spotlight on dog bite liability

Facts about pet insurance

Nevada Class Actions Against Auto Insurers Risk Hurting Policyholders

Class action lawsuits filed in Nevada last month against 10 auto insurers are more likely to hurt policyholders than help them.

The suits contend that discounts, rebates, and policyholder dividends provided in 2020 – amounting to about $14 billion nationally – were not “meaningful” and that the rates charged violate state law against excessive premiums. The $14 billion figure does not include the more than $280 million in philanthropic contributions the industry has also made during COVID-19 to support communities.

The fact is, auto insurance premium rates fell nationally in 2020 for the first time in a decade. Insurers’ net income after taxes fell 26.1 percent through the third quarter of 2020, compared with the same quarter the previous year. A major factor was the pandemic-related discounts granted in 2020.

“The rate is lower because people are driving less,” said Triple-I chief actuary James Lynch, noting that during a lockdown period in the spring driving was down as much as 50 percent. Fewer cars on the road should lead to fewer accidents, and this expectation is what led insurers to proactively provide discounts and other policyholder benefits during the pandemic. Many auto insurers have built these discounts into premium rates for 2021, Lynch said.

Accidents down, fatalities up

Accidents did decline in 2020; unfortunately, traffic fatalities and claims increased. According to the National Highway Traffic Safety Administration (NHTSA), fatalities rose 4.6 percent in the first nine months of 2020, despite overall vehicle miles traveled having decreased. Fatalities in the third quarter of 2020 were 13 percent higher than in the same period of 2019 – the largest such increase in more than a decade. This suggests that driver behavior deteriorated rapidly and significantly during the pandemic.

The 2020 premium reduction would have even been larger, Lynch said, “if people had slowed down.”

Claims rising faster than premiums

Even before COVID-19, auto damage claims were rising faster than general inflation, and auto insurance premium increases trailed inflation. Fatalities had been declining as cars became safer – but safety technology is expensive, making repairs more costly and driving up the size of policyholder claims.

The 2020 trend of increasing fatalities could worsen as traffic volume returns to pre-COVID levels. Data show that many motorists who substantially increased their driving speed when traffic was 50 percent below normal have not slowed down as traffic increased, Lynch said.

“The concern is that frequency patterns will return to the norm, but fast driving will keep claim severity high, putting upward pressure on rates,” Lynch said.

The salient point is this: Insurers have kept their promises to pay claims, given $14 billion back to policyholders, and generously supported communities through philanthropy – even as rising accident severity during the pandemic dented their net incomes. Defending themselves against frivolous litigation will only add to their expenses, and lower premiums are unlikely to be the result.

Experts discuss social inflation in a Tobin College of Business webinar

Social inflation – increasing insurance claims costs related to legislative and litigation trends – may be spreading beyond the United States, attendees were told at a webinar with the Greenberg School of Risk Management of St. John’s Tobin College of Business.

The webinar, held on February 10, was aimed to help lawyers and claims professionals understand the phenomenon, which is characterized by claims costs rising faster than general economic inflation can explain.

Annette Hofmann, Ph.D., professor of actuarial science at the Maurice R. Greenberg School of Risk Management, Insurance and Actuarial Science, pointed out that “though it is largely a U.S. issue, there are signs of social inflation in other countries with potential for further international contagion, albeit not to the same degree as in the U.S.”

She added that the impact of social inflation in the U.S. has been most evident in commercial auto liability insurance.

“Litigation finance, societal attitudes toward corporations and large jury payouts are all behind the phenomenon,” according to James Lynch, Chief Actuary of Triple-I and one of the presenters.

In his presentation, Lynch showed how incurred losses in commercial auto liability have been climbing steeply since 2010.

Lynch said Triple-I studied the link between social inflation and trends in actuarial data (rising loss development factors) by focusing on long-tailed liability lines including Commercial Auto, Medical Malpractice and Other Liability.

He said actuaries look at the pattern of reported losses – the sum of claims experts’ estimates of every known loss. Even if the ultimate amount of claims rises or falls from year to year, the pattern of emergence should stay the same. That hypothesis is at the core of standard actuarial practices.

In this case, it is increasing.

One interesting offshoot of this work is that actuaries can also predict how much in losses will be reported in any 12-month period. The chart on the right shows how actuaries analyzing countrywide data have not been able to do this in commercial auto. And this is not just happening in auto, medical malpractice occurrence, and other liability are seeing the same effect.

Lynch went on to discuss some of the potential reasons behind large jury payouts. One explanation is the darker view of life that people have. Confidence in government has plummeted, incomes and life expectancy have declined, and Google Trends indicates that searches for the word “dystopia” have increased by over 400 percent from 2005 to 2020.

In the meantime, Lynch and another presenter, Julie Campanini of Magna Legal Services, noted that huge amounts of money have been normalized by billion-dollar lottery jackpots, sky-high celebrity net-worth, and news reports of “nuclear” awards verdicts.

Other speakers included:

  • Jonathan E. Meer, partner at Wilson Elser, who spoke about the state of tort reform.
  • Jeff Cordray, a vice president and economist at Christensen Associates, who discussed the importance of determining economic damages, particularly when there is a potential for punitive damages in a case.

To view the slides from the webinar click here.

Poverty and opioids unexpectedly tied to rise in personal umbrella claim severity: Gen Re

Insurers saw  more costly personal umbrella claims before the start of 2020, according to a Gen Re analysis, and the reinsurer expects  such claims  to continue as we emerge from the COVID-19 pandemic.

Personal umbrella insurance covers liability costs beyond the limits of the policyholders’ homeowners or auto policies.

Gen Re has uncovered some of the top drivers for the large claims, and they have to do with some of society’s harshest ills. Top reasons cited were increases in:

  • the annual poverty rate;
  • opioid prescription rates;
  • fatal accidents;
  • brain injuries;
  • attorney representation; and
  • injuries involving a fatality and multiple claimants.

Other notable predictors linked with higher claims severity include laws permitting recreational marijuana and a lack of motorcycle helmet laws.

Gen Re said poverty, opioid use, and marijuana laws were unexpected predictors of umbrella claim severity and that all of the analysis’ findings “will facilitate deeper client interaction on this line of business.”

 “Social inflation” – a term used to describe growth in liability risks and costs related to litigation trends – has been a growing concern for insurers. The phenomenon has mostly affected the commercial auto and general liability lines, but the findings here – particularly the increase in attorney representation – suggest that it might be making inroads into personal lines.

Study: Most Americans disapprove of COVID-19 lawsuits, prefer government aid for small businesses

The vast majority of Americans believe COVID-19 relief should come via public policy solutions — and not litigation — according to polling released last week by the American Tort Reform Association (ATRA). 

 Key takeaways from the poll include:

  • 59% say those harmed by the pandemic should get assistance from policies passed by elected officials, versus just 7% who say they should get payouts from lawsuits;
  • 74% say small businesses affected by COVID-19 should be supported by government grants or loans versus 6% who say lawyers should help small businesses pursue legal claims.
Source: ATRA

More information on the polling results is available on ATRA’s website.

For information on the principles the broader insurance industry has put forth for a government-backed pandemic policy solution, click here

What Is Social Inflation? What Can Insurers
Do About It?

A recent study by the Geneva Association on the topic of “social inflation” addresses the challenges of defining and quantifying the phenomenon. More important, it takes on the question of what insurers and reinsurers can actually do about it.

“Social inflation is a term that is widely cited in insurance debates but it is often ill-defined or at best only loosely explained,” the report begins. Broadly speaking, it “refers to all ways in which insurers’ claims costs rise over and above general economic inflation.”

Actuaries typically label such growth in claims costs “superimposed inflation,” the study says, but their measures “may not adequately account for advances in medical technology, which create new therapies, change the costs of treatment, and increase the lifespan of seriously injured claimants,” as well as other considerations.

More narrowly, the report says, “social inflation refers to legislative and litigation developments which impact insurers’ legal liabilities and claims costs.”

The definitional difficulties are well illustrated in the rendering below, from the study.

Understanding what drives these costs – and whether they are temporary phenomena or a long-term trend – is essential to adequately pricing insurers’ exposures and enabling them to pay claims.

Major drivers, possible solutions

Rollbacks in tort reforms stemming from past insurance availability and affordable crises have been implicated by some for driving social inflation. The report finds that any such correlations are “weak at best.”

More significant, the study found, are shifting judge and jury attitudes in ways favorable to plaintiffs; growing anti-corporate bias; and aggressive tactics used by plaintiff attorneys, including third-party litigation funding.  

What can insurers do to battle social inflation? The report suggests four areas of focus:

  • Engage in the public-policy debate to promote legislative changes that further level the playing field between plaintiffs and defendants;
  • Get better at defending against aggressive and increasingly well-armed plaintiffs’ attorneys;
  • Upgrade underwriting to reduce opportunities for claims surprises. “Insurers need better early-warning systems,” the report says, drawing on information from across their organizations, their own and competitor liability cases, and data from social and digital media;
  • Develop products with an eye toward mitigating social inflation. Given the scale of potential liability exposures, the report says, “co-participation arrangements” to share risks among reinsurers could help maintain and even expand the boundaries of insurability. Parametric insurance also might have a role to play.

More on social inflation, from the Triple-I Blog

LITIGATION FUNDING RISES AS COMMON-LAW BANS ARE ERODED BY COURTS

SOCIAL INFLATION AND COVID-19

LAWYERS’ GROUP APPROVES BEST PRACTICES TO GUIDE LITIGATION FUNDING

IRC STUDY: SOCIAL INFLATION IS REAL, AND IT HURTS CONSUMERS, BUSINESSES

FLORIDA’S AOB CRISIS: A SOCIAL-INFLATION MICROCOSM

Litigation Funding Rises as Common-Law Bans
Are Eroded by Courts

Litigation funding – the practice of third parties financing lawsuits in exchange for a share of any funds the plaintiffs might receive – was once widely prohibited. As these bans have been eroded in recent decades, the practice has grown, spread, and become a contributor to social inflation: increased insurance payouts and loss ratios beyond  what can be explained by economic inflation alone.

Social inflation is a broad term that insurers use to describe these rising expenses. Litigation funding is just one factor driving it.

The relevant legal doctrine – called “champerty” or “maintenance” – originated in France and arrived in the United States by way of British common law. The original purpose of champerty prohibitions, according to an analysis by Steptoe, an international law firm, was to prevent financial speculation in lawsuits, and it was rooted in a general mistrust of litigation and money lending.

The erosion of champerty prohibitions can be traced to the early 1990s in the United Kingdom and Australia.

“By the mid-1990s, a handful of Australian states had already done away with Maintenance and Champerty offenses such that they were no longer crimes or torts,” according to an article published by Harvard Law School’s Center on the Legal Profession. “Whether this rendered litigation finance permissible, however, remained doubtful. One jurisdiction [New South Wales] notably abolished Maintenance and Champerty offenses through formal legislation.”

These moves, the article goes on to say, “produced ambiguity around the use of litigation finance arrangements, where before they were more clearly prohibited.”

England, Canada, and Australia have since largely abandoned their laws against champerty, Steptoe writes, but Ireland, New Zealand, and Hong Kong continue to prohibit certain transactions as “champertous.”

Slow to take hold in U.S.

Despite the size of the potential market, litigation funding took time to gain traction in the United States because prohibitions on champerty are left to state legislatures and courts.  Some states have abandoned their anti-champerty laws over the past two decades. Others still prohibit champerty, either by statute or common law. Some, like New York, have adopted “safe harbors” that exempt transactions above a certain dollar amount from the reach of the champerty laws.

Minnesota recently became the latest state to abandon its champerty prohibition. In Maslowski v. Prospect Funding Partners LLC, the Minnesota Supreme Court held that the litigation funding agreement under consideration was champertous; however, it also held that champertous contracts no longer contravene “public policy as we understand it today.” 

The court explained that the common-law prohibition against champerty was originally based on a desire to prevent abuse of the court system by individuals wealthy enough to finance lawsuits. It held that the doctrine against champerty is no longer the only or best tool for achieving that goal – and, in fact, may “increase access to justice” by enabling individuals who might not otherwise have the financial means to pursue their claims in court. 

Courts drive decline of anti-champerty laws

The Minnesota Supreme Court was able to abolish the doctrine, Steptoe writes, because Minnesota’s prohibition was based on common law, rather than statute. This is in contrast to New York, where the prohibition is statutory. Re-examining it is the responsibility of the state legislature, not the courts.

As the popularity of litigation funding – along with awareness of its impact on insurers and policyholders – grows, the practice has come under increased scrutiny.  The policymaking arm of the American Bar Association (ABA) recently approved a set of best practices for such arrangements. 

The resolution – adopted by the ABA’s House of Delegates by a vote of 366 to 10 – lists the issues lawyers should consider before entering into agreements with outside funders. While it avoids taking a position on the use of such funding, it recommends that lawyers detail all arrangements in writing and advises them to ensure that the client retains control.

The resolution also cautions attorneys against giving funders advice about the merits of a case, warning that this could raise concerns about the waiver of attorney-client privilege and expose lawyers to claims that they have an obligation to update this guidance as the litigation develops. 

COVID-19-Related Litigation: A Snapshot

At a recent webinar hosted by the American Tort Reform Association (ATRA), Cary Silverman, a partner at the law firm of Shook, Hardy & Bacon, presented a breakdown of COVID-19-related litigation drawn from his firm’s research.

The charts below are based on 4,283 complaints that – while not comprehensive – provide a useful snapshot of the types of litigation and their relative frequency. They were updated on November 8.

Contract-related cases accounted for 1,255 suits and the largest percentage. Not far behind are insurance cases – mainly involving business interruption – at 1,054 and employment cases at 910.  Employment cases, Silverman said, allege wrongful termination or  failure to pay employees properly during the pandemic.

Taken together, the three broad categories – contract, insurance, and employment – account for more than 75 percent of COVID-related litigation to date.

Among contract cases, the largest share is in the Miscellaneous category (278 cases), which Silverman said are general contractual disputes where performance was affected by the pandemic. The second-largest group (262) consisted of lawsuits against schools (primarily higher education), seeking refunds of tuition and fees. Next come litigation involving leases (225) and event, ticket, or other refunds (224).

Cases involving actual exposure to the coronavirus come in relatively low, at 343 (8 percent), a fact that Silverman attributes to the economic lockdown.

“As more businesses reopen, exposure cases are likely to increase,” he said.

Perhaps unsurprisingly, nearly half of those cases (164) have involved nursing homes. Cruise ship passengers account for 64 exposure claims, and suits related to exposure risk have totaled 58. At least 44 cases to date have involved employee injury or death.

Trials and Errors: Plaintiffs’ Attorneys Could Complicate Efforts to Help Businesses Hurt by COVID-19

By James Ballot, Senior Advisor, Strategic Communications, Triple-I

It’s been more than eight months since COVID-19 first struck the U.S., and millions of small business owners are still hurting. All the while, a few plaintiffs’ attorneys are treating the pandemic as another opportunity to profit from costly insurance litigation.

At a time when businessowners are looking for leadership to bring much needed financial support, these same attorneys are hoping legislators and judges will help them retroactively rewrite business income (interruption) (BI) insurance contracts. One key figure in this effort is John Houghtaling, a New Orleans-based plaintiffs’ lawyer who was featured in a recent Bloomberg Businessweek profile.

Yet, despite the efforts of Houghtaling and others, courts across the country have to date overwhelmingly affirmed BI insurance policies do not cover losses resulting from the COVID-19 pandemic. And the facts supporting these decisions offer clear and unambiguous evidence indicating BI insurance policies are not designed to cover pandemic-caused business interruptions.

Adds Michael Barry, Head of Media and Public Affairs, at the Insurance Information Institute, “Not one business interruption insurance policy in the U.S. was written on the assumption nearly every business would be interrupted at the same time.” Barry adds, “This is why regulators and judges are consistently siding with insurers who argue direct physical damage to property is needed to trigger a business interruption policy.”

Irrespective of insurers’ and trial attorneys’ competing points of view, the authors of the Bloomberg Businessweek article cite the need for timely and decisive action: “A yearslong legal battle might not be much help to struggling businesses,” the article states. As the end of 2020 approaches, litigation seeking to compel insurers to cover pandemic-related income losses appears likelier to further the lawyers’ interests as opposed to those of businessowners seeking financial support.

Other potential solutions are on the table, most of which are taking shape around the idea that the federal government is the only entity with the reach and financial resources to help businesses recover from an event the magnitude of a global pandemic. On this point, a growing consensus of legal scholars and insurance industry experts concur, with Stefan Holzberger, AM Best chief rating officer, concluding in commentary to a recent report, that “pandemic risk does not afford insurance companies any geographic diversification due to its global nature … Only a governmental program, or perhaps a public-private partnership, could provide the backstop sufficient to compensate for lost revenue to businesses.”

Watch: Can Businesses Win the Fight Over COVID-19 Insurance Claims

As a counterpoint to statements made by Houghtaling and other plaintiffs’ attorneys, Sherman Joyce, President of the American Tort Reform Association presents a competing vision for how American businesses can unite to recover economically from the COVID-19 pandemic: “Americans’ elected representatives — not the trial bar — should have the authority to regulate business within the U.S.” Joyce continues, “The courts must restore that balance of power by rejecting the dreaded return of regulation through litigation.”

N.C. Ruling Goes Against Prevailing Judicial Wisdom on COVID-19 Business Interruptions

A North Carolina court has ruled that Cincinnati Insurance Co. must pay 16 restaurants’ claims for business income (interruption) losses due to government-ordered COVID-19 shutdowns – a decision that runs counter to those of most judges who’ve ruled on similar cases.

As hundreds of COVID-19-related lawsuits regarding business interruption coverage make their way through U.S. courts, judge after judge has found in favor of insurer defendants. The central point has been that coverage depends – as specified in the insurance policies – on the policyholder suffering a “direct physical loss.”

“Business income (interruption) policies generally reimburse a business owner for lost profits and continuing fixed expenses when its facilities are closed due to direct physical damage from a covered loss, such as a fire, a riot, or a windstorm,” said Triple-I CEO Sean Kevelighan. “Insurers have been prevailing nationwide in nearly all of the litigated COVID-19 BI lawsuits because, as North Carolina’s Insurance Commissioner has noted, ‘Standard business interruption policies are not designed to provide coverage for viruses, diseases, or pandemic-related losses because of the magnitude of the potential losses.’ ”

 “Policy language controls whether COVID-19 interruptions are covered,” said Michael Menapace,  a professor of insurance law at Quinnipiac University School of Law and a Triple-I Non-Resident Scholar. “The threshold issue will be whether the insureds can prove their business losses are caused by ‘physical damage to property’.”  

Cincinnati Insurance has said it plans to appeal the ruling.

Learn More from The Triple-I Blog

THE FUTURE OF AMERICAN INSURANCE AND REINSURANCE (FAIR) RELEASES A DIGITAL BUSINESS INTERRUPTION INSURANCE EXPLAINER

POLL: GOVERNMENT SHOULD PROVIDE BUSINESS INTERRUPTION SUPPORT

U.K. BUSINESS INTERRUPTION LITIGATION SEEMS UNLIKELY TO AFFECT U.S. INSURERS

BUSINESS INTERRUPTION VS. EVENT CANCELLATION: WHAT’S THE BIG DIFFERENCE?

BUSINESS INTERRUPTION COVERAGE: POLICY LANGUAGE RULES

CHUBB CEO SAYS BUSINESS INTERRUPTION POLICIES ARE A GOOD VALUE AND WORK AS THEY SHOULD

U.S. TREASURY WEIGHS IN ON DEBATE SURROUNDING BUSINESS INTERRUPTION INSURANCE

TRIPLE-I CEO AMONG PANELISTS DISCUSSING BUSINESS INTERRUPTION INSURANCE LEGISLATION

P/C INSURANCE GROUP PUTS PRICE TAG ON CORONAVIRUS

BUSINESS INTERRUPTION CLAIMS RELATED TO COVID-19