We’re in D.C. today at the Professional Liability Underwriting Society (PLUS) International Conference. Much to talk about for professional liability lines, especially given recent headlines on the subprime market turmoil. Reinsurance broker Guy Carpenter just released a briefing on this very topic titled: “Credit Market Aftershock Threatens Professional Lines Profits.” In its analysis Guy Carp notes that estimates of the insurance impact range from $1 billion to $3 billion, but when the dust settles total insured losses are likely to be at the top end of that scale. Most of the credit crunch’s impact will affect the D&O product line, although E&O suits, ERISA actions and other suits have been filed and could lead to substantial further insurance losses, according to the briefing. Guy Carp puts the potential D&O loss at in excess of $2 billion, but cautions that the full impact will not be known until 2008 or 2009. For our take on the subprime issue, check out a paper authored by Dr. Steven Weisbart, I.I.I. vice president and chief economist.
U.S. companies may afford themselves a sigh of relief, albeit brief, when they take in the headline findings of the fourth annual Litigation Trends Survey by Fulbright & Jaworski showing a distinct drop in the number of new lawsuits and regulatory actions filed against them. Based on interviews with in-house counsel at 250 major U.S. corporations, 17 percent of respondents said their companies had escaped the past year without having to defend a single new lawsuit, a sharp increase from just 11 percent in 2005-06. But despite the fact that internal investigations are down and fewer businesses are filing suit, Fulbright cautions that the litigation landscape remains fully loaded, with one-third of U.S. companies facing at least 25 lawsuits, and 18 percent defending 100+ cases domestically. As industries go, it appears insurers along with retailers faced the most litigation. Some 93 percent reported having to defend at least one new case this past year, and more than half from both sectors got stung with one or more $20 million dispute Ã¢â‚¬“ the highest of 10 industry segments represented. Insurers contended with the most $20 million-plus cases with 54 percent taking on more than 20 such actions. The upshot is that even with fewer companies reporting new lawsuits this past year, Fulbright notes that the vast majority of U.S. businesses remain significantly exposed to litigation. Check out further I.I.I.Ã‚ factsÃ‚ & statsÃ‚ onÃ‚ litigiousness.
Today the U.S. Supreme Court will begin hearing a major securities litigation case with potentially enormous implications for businesses. The outcome of Stoneridge Investment Partners LLC v. Scientific-Atlanta Inc. will decide whether shareholders can sue third parties (such as accountants and lawyers) charged with aiding a corporation that has defrauded its investors. The Securities and Exchange Commission (SEC) already has the ability to sue third parties for aiding corporate fraud, but a decision in favor of investors in this case would likely expose U.S. companies as well asÃ‚ those doing business with them to significant additional costly shareholder suits. We donÃ¢â‚¬â„¢t need to remind you of how much litigation costs U.S. businesses. For more on this, check out I.I.I.Ã¢â‚¬â„¢s liability issues update. Further commentary on the Stoneridge case can be found at The D&O Diary, a blog focused on D&O liability issues.
The overall trend of lower securities class action filings has continued through the first six months of 2007, but that trend may be reversing. ThatÃ¢â‚¬â„¢s the upshot of a recent study from NERA Economic Consulting. The report notes that from 1998 through 2005 there were well over 200 federal class action filings each year, but filings dropped to 136 in 2006. While this general pattern has continued through June 30, 2007, NERA projects there will be 152 filings in 2007, a 12 percent increase on 2006. In the first half of 2007 there have been 76 filings, a 47 percent increase on the second half of 2006. A few other points of interest: the probability of a corporation facing at least one shareholder class action suit over a five-year period has declined to 6.4 percent; for the first time, all of the top 10 shareholder class action settlements exceeded $1 billion; eight of the top 10 settlements of all time were resolved in 2006/07, with EnronÃ¢â‚¬â„¢s $7.2 billion settlement top of the list; excluding the top 10 settlements, average settlement values doubled to $23.2 million in the 2002-2007 period. As for future trends, NERA notes that recent turmoil in the subprime market has led to seven claims in the first half of 2007. For our take on the subprime issue, check out a new paper authored by Dr. Steven Weisbart, I.I.I. vice president and chief economist. Further commentary on the NERA study can be found at The D&O Diary, a blog focused on D&O liability issues.
The next step following the landmark February 2006 Rhode Island lawsuit against three former lead paint manufacturers unfolded Friday with the release of a state proposal detailing cleanup and related costs. In short, the RI Lead Nuisance Abatement Plan would require the paint manufacturers to pay out $2.4 billion to clean up 240,000 housing units. It is, however, subject to court approval. Wherever this plan takes the lead paint issue in RI, itÃ¢â‚¬â„¢s worth remembering 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. Time will tell how future lead paint litigation will develop, but clearly this issue has emerging consequences for a number of industries, including ours. Check out more I.I.I. info on products liability emerging exposures.
Reports that four of the largest microwave popcorn manufacturers in the U.S. are working to remove the butter flavoring chemical diacetyl from their products due to health risks to workers is good news for everybody it appears. ItÃ¢â‚¬â„¢s been acknowledged for some time that a potentially significant exposure arises from factories packaging butter-flavored popcorn. Already a number of lawsuits have been pursued by workers at these factories due to alleged exposure to diacetyl. Further, various federal agencies have said they believe the butter-flavored chemical may result in bronchiolitis obliterans, also known as Ã¢â‚¬Å“popcorn packers lung.Ã¢â‚¬ Now Dr. Cecile Rose, a pulmonary specialist at DenverÃ¢â‚¬â„¢s National Jewish Medical and Research CenterÃ‚ has written to federal agencies, saying that doctorsÃ‚ believe they have identifiedÃ‚ the first case of a consumer who developed lung disease from the fumes of microwaving popcorn several times a day for years. The letter was first published by fellow blogger David Michaels, of the George Washington University School of Public Health on his public health policy blog (http://thepumphandle.wordpress.com). An emerging products liability exposure to keep our eye on.Ã‚
Every day another news headline appears on the subprime loan crisis in the U.S., so a release out of the London offices of Marsh on this topic makes for interesting reading. In it Marsh warns that the European financial services sector, including insurers, hedge funds, banks and ratings agencies, may be exposed to greater DirectorsÃ¢â‚¬â„¢ and OfficersÃ¢â‚¬â„¢ liability (D&O) and Errors and Omissions (E&O) liability claims in the wake of the subprime meltdown in the U.S. Citing aÃ‚ recent NERA Economic Consulting primer, Marsh says potential litigation arising out of D&O and E&O liability could include: lendersÃ¢â‚¬â„¢ lawsuits versus banks; shareholdersÃ¢â‚¬â„¢ lawsuits versus lenders, accountants, trustees and underwriters; insurersÃ¢â‚¬â„¢ lawsuits versus lenders; investorsÃ¢â‚¬â„¢ lawsuits versus trustees; trusteesÃ¢â‚¬â„¢ lawsuits versus lenders and underwriters on behalf of investors; as well as individual investor lawsuits. Marsh goes on to caution that European insurers, hedge funds, banks and ratings agencies must continue to assess the risks raised by the crisis and to examine their D&O and E&O exposures. What do youÃ‚ make of this analysis?
YesterdayÃ¢â‚¬â„¢s announcement by toy company Mattel of the recall of 19 million toys made in China is a reminder of the importance of product safety in any business and may be the tip of the iceberg as the holiday shopping season gets underway. Whether itÃ¢â‚¬â„¢s toys, toothpaste or pet food, product recall as a precautionary step or worse following actual injury or damage can be costly to a business and its reputation. Just one example is the 1990 worldwide recall by Perrier when traces of benzene found in the water eventually led to the recall of 160 million bottles of Perrier. The bottom line is if you manufacture, sell or distribute any product there is the possibility that the product could cause bodily injury or property damage for which you would be legally liable. Even if you only sell or distribute the product, you could still be liable depending on the circumstances. According to Jury Verdict Research, the average jury award in product liability cases jumped by 68 percent from 1999 to 2005. Check out further I.I.I.Ã‚ factsÃ‚ & statsÃ‚ onÃ‚ litigiousness and I.I.I.Ã¢â‚¬â„¢s small business owners’ guide to insurance.
Much has been written about the post-Hurricane Katrina litigation facing insurers, so last weekÃ¢â‚¬â„¢s decision by the U.S. Court of Appeals for the Fifth Circuit in favor of insurers was an extremely important one. As the second-year anniversary of Hurricane Katrina approaches, itÃ¢â‚¬â„¢s worth revisiting some of the numbers from the single largest loss in the history of insurance. Firstly, the overwhelming majority of the claims have been settled. In fact, despite the focus on litigation following the storm, the actual number of claims in litigation accounted for a tiny percentage of the total number of claims filed, and most of those are no longer in contention. The I.I.I. estimates that fewer than 2 percent of homeowners claims in Louisiana and Mississippi were disputed through mediation or litigation. Insurers have paid an estimated $40.6 billion to policyholders on 1.7 million claims for damage to homes, businesses and vehicles in six states. Louisiana ($25.3 billion) and Mississippi ($13.6 billion) received by far the most insurance claims dollars to aid in their recovery. Check out further I.I.I. Katrina-related facts online.Ã‚
The filing of a lawsuit against Con Edison less than a week after the New York City steam pipe explosion underscores the importance of liability insurance for businesses everywhere. According to reports, the womanÃ¢â‚¬â„¢s lawsuit accuses Con Edison of negligence, saying the utility failed to properly maintain the pipe that ruptured outside her offices in mid-town Manhattan and is seeking unspecified damages. At least 30 people were injured and one died as a result of the July 19 explosion. Litigation risk is one of the major exposures facing U.S. businesses. A recent study by the Pacific Research Institute put the total annual cost of tort litigation to the economy at $865.37 billion, or $9,800 per family. ItÃ¢â‚¬â„¢s worth noting that this figure includes direct as well as indirect costs. The study also estimates that America wastes $589 billion each year on excessive tort litigation. Check out further I.I.I. info on the liability system.Ã‚