Category Archives: Legal Environment

Exxon Valdez Ruling

A divided U.S. Supreme Court yesterday reduced the $2.5 billion punitive damages award in the 1989 Exxon Valdez oil spill disaster to $500 million. In a 5-3 ruling the justices decided that punitive damages must be “reasonably predictable† and may not exceed what Exxon Mobil has already paid to compensate plaintiffs for economic losses. For more on this story, check out Insurance Journal’s June 25 online article by reporter James Vicini. Further I.I.I. information on the liability system is available online.  

Pride Focus

As June is Pride month, it’s time to review a number of legal and legislative developments with implications for the lesbian, gay, bisexual and transgender (LGBT) community. From next Tuesday same-sex marriages will be legal in the state of California. The change in law follows a May 15 ruling by the Supreme Court of California overturning the state’s ban on gay marriage. California follows Massachusetts where same-sex marriage has been legal since May 2004. California already has a domestic partnership law in place.

A growing number of other states now have civil union or domestic partnership laws, including: Vermont, Connecticut, New Jersey, New Hampshire, Oregon, Maine, Washington, and the District of Columbia. Other trends to watch for†¦ Two cases, one before the Supreme Court in Connecticut  and another about to be heard in Iowa, could bring rulings making same-sex marriage legal. Meanwhile same-sex marriage legislation is being considered by legislatures in both New Jersey and New York. While state laws do not extend any of the benefits on the Federal level, insurers along with other businesses are monitoring these developments.  

RI Lead Paint Hearing

Keep your eyes peeled on the Rhode Island Supreme Court today where a case involving three former lead paint manufacturers is due to be heard. It comes two years after the landmark February 2006 RI lawsuit against the three companies. Last September the state released a proposal detailing cleanup and related costs, requiring the paint manufacturers to pay out $2.4 billion to clean up 240,000 housing units (see our Monday Sept 17, 2007 posting). A decision in the case is expected this summer. We note that recent court decisions in other states, including New Jersey, Missouri, and Ohio have rejected the public nuisance legal theory on which the RI lead paint suit was based. Check out further I.I.I. info on products liability emerging exposures.

State Litigation Threat

The U.S. Chamber Institute for Legal Reform (ILR) has released its annual study ranking the best and worst state liability systems across the country. For the third year running, West Virginia’s legal climate ranked as the worst in the country. Louisiana, Mississippi, Alabama and Illinois rounded out the bottom five states. Meanwhile, the states doing the best job of creating a fair and reasonable litigation environment are: Delaware, Nebraska, Maine, Indiana and Utah. The ILR noted that just over half (55 percent) of senior attorneys view the state court liability systems in America as only fair or poor. A majority (63 percent) also report that the litigation environment in a state is likely to impact important business decisions at their company, such as where to locate or do business, up from 57 percent in 2007. Check out further I.I.I. information on the liability system.  

Securities Class Action Settlements Update

Despite a rise in the number of securities class action cases settled last year, the total value of those settlements plummeted 60 percent from the all-time high of $17.2 billion reported in 2006, to $7 billion in 2007. That’s the latest analysis from Cornerstone Research in its 2007 Securities Class Action Settlements Report. More than 70 percent of this drop was due to the largest settlement in history, the $7.2 billion Enron settlement, the majority of which was approved in 2006. Cited in the Cornerstone press release, Stanford Law School professor Joseph Grundfest, director of the Securities Class Action Clearinghouse (sponsored in cooperation with Cornerstone Research), says: “It seems clear that the aggregate dollar value of settlements over the next two or three years is likely to decline significantly because the inventory of large cases in the pipeline just isn’t there. The interesting open question is whether the subprime crisis will cause an uptick in securities fraud settlement activity that might, given settlement cycles in the litigation industry, only become apparent three to five years from now.† Further commentary on the Cornerstone Research study can be found at The D&O Diary, a blog focused on D&O liability issues.

Excess Liability Limits

Marsh’s latest annual Limits of Liability report is out. The report surveys the excess liability insurance buying patterns of a huge number of firms (7,265) from 58 countries. Perhaps not surprisingly, the historical results of the report suggest that companies buy higher limits when prices are down, and lower limits when prices are up. But as Marsh notes, it’s all a question of balance: managements need to weigh the cost of average coverage against the company’s realistic exposure to a catastrophe.

This year’s study reveals that for the third consecutive year, the average price for $1 million of liability coverage among U.S. firms declined, falling by 4.6 percent to $11,348 in 2007, compared to $11,895 in 2006. After three years of price decreases, costs in 2007 fell to 2003 levels, providing some relief from the steady price increases of previous years. The largest U.S. firms in the study – those with revenues exceeding $10 billion – purchased limits of $288 million on average, the greatest amount of coverage of all firms. Check out further I.I.I.  facts  & stats  on litigiousness.

Stoneridge Decision

Yesterday the U.S. Supreme Court issued its  decision in the much anticipated securities litigation case of Stoneridge Investment Partners LLC v. Scientific Atlanta Inc. In a 5-3 opinion, the Court held that  shareholders cannot sue third parties (such as accountants and lawyers) charged with aiding a corporation that has defrauded its investors. The ruling upholds two lower court decisions. As we have discussed before (see our October 9, 2007 posting), a decision in favor of investors would have exposed U.S. companies as well as those doing business with them to the likelihood of significant additional costly shareholder suits. Further commentary on the Stoneridge case can be found at The D&O Diary, a blog focused on D&O liability issues.  

2007 Judicial Review

Apart from the headline news that Atlantic County, New Jersey, and Clark County, Nevada, for the first time made the 2007 judicial hellholes list, the American Tort Reform Association’s (ATRA) sixth annual report highlighted a number of other hotspots. One trend to watch, according to ATRA president Sherman Joyce is the increasingly common contractual relationships between some state attorneys general and their leading political patrons: personal injury lawyers. ATRA explains: “The scheme works like this: trial lawyers help a friend become an attorney general, the attorney general then “hires† his or her trial lawyer friends by deputizing them with the awesome power of the state and unleashing them to sue entire industries for the promise of billions of dollars in contingency fees.† The problem? These contingency fee arrangements are too often made behind closed doors without any public oversight, leading to potential abuse for personal gain, political patronage and litigation based on profit, not the public interest. In the last year ATRA says it has filed amicus (friend of the court) briefs in three appeals against these unholy alliances, including one in a Rhode Island lead paint case. By the way, last year’s public nuisance trial in the state’s lead paint case put Providence, Rhode Island on ATRA’s watch list for the first time. It remains a place to watch this year. Check out further I.I.I. info on the liability system.  

Tort Costs Update

Tillinghast has just released its 2007 update on U.S. Tort Cost Trends. The good news is that tort costs declined by 5.5 percent to $247 billion in 2006. That approximates $825 per person – $57 less per person than in 2005. The $13.4 billion decrease in costs over 2005 marks the first downward trend since 1997. A significant drop in commercial tort costs, due in part to the waning impact of asbestos costs was a contributing factor. But the near-term outlook is not so rosy, according to Tillinghast. It warns that several factors, including the potential fallout from the current subprime loan crisis, are expected to reverse the figures in 2007. As it notes: when people lose money, litigation tends to follow. Looking ahead Tillinghast expects growth in U.S. tort costs of around 2.5 percent in 2007, with slightly higher growth of 4.5 percent in the following two years. As well as subprime mortgages, global warming and backdating of options are just some of the issues that it expects will impact future trends. Check out I.I.I.’s update on the liability system.  

E&O Subprime Risk by State

Reinsurance broker Guy Carpenter has released a  briefing on the threat of errors & omissions (E&O) litigation on U.S. real estate professionals. To more accurately gauge the likelihood of litigation Guy Carp has developed its own subprime E&O litigation index. The index measures a combination of factors influencing the E&O litigation climate including foreclosure rate, subprime mortgage delinquency rate, litigation attorneys per mortgage professional, truth in lending legislation and banking litigation ranking. According to the index, Illinois, Michigan and Massachusetts claim the highest overall E&O litigation risk levels, with Mississippi, Indiana and Ohio close behind. The study throws up an interesting fact: there is little to no correlation between the highest risk states for subprime-related E&O litigation and those states such as Arizona and Nevada with the greatest number of subprime mortgage delinquencies and/or foreclosures. Guy Carp also notes that the riskiest states are those with average rankings in most categories and an extremely high result in a single category.