Coexisting as both an existing and emerging risk, litigation abuse has been high on the risk on the risk register of reinsurers, insurers, broking and clients alike. As revealed in a recent Swiss Re sigma report Nuclear verdicts smashed records in 2023, with 27 court cases awarding over US$100 million each – and the complex interplay of external conditions shaping the evolution of this space does not look set to abate.
In a recent media roundtable discussion, Tom Thornberry (pictured), group chief claims officer for Zurich, shared insights into some of the trends sweeping the social inflation landscape. It’s no surprise that the focus tends to be on North America, he said, which is primarily down an environment where a well-organised Plaintiffs’ bar shares strategies and resources, and tends to be quite influential at a state and local level.
“We know that throughout litigation, they deploy specific tactics such as ‘reptile theory’, where you make the defendant out to be dangerous and put the onus on the jury to punish them,” he said. “We know they spend an awful lot of money on advertising, around US$1 billion a year, and that's only going up. And they’re using psychological tactics such as anchoring to push for a number well above what might be reasonable in order to get the jury to land at a sort of midpoint and split the difference.
“Again, within the environment of the US, we know that juries are a pretty unique factor that drives some of these nuclear verdicts. Understandably, juries often have little to no expertise on the complex subject matters involved and whereas perhaps previously, they would be willing to listen to experts, there's now a bit of a societal shift where the role of the jury seems to be one that wants to punish.”
Thornberry highlighted a recent survey exploring juror behaviour which found that 76% of jurors believe that company executives will lie and cover up, while 30% believe it takes billions to “send a message” to corporations. Seventy-one (71) percent don’t think there should be any cap on jury awards, he said, and 45% have said they have ignored judges’ instructions. “From that environment, we’ve seen nuclear verdicts. In 2023, across 89 verdicts, juries awarded US$14.5 billion, a 15-year high.”
Another core factor behind the US casualty environment today is that of third-party litigation funders, where a third-party covers the legal expenses, usually with an agreement of a significant share in any award or settlement. This is done under the premise of access to justice, he said, but there are some major challenges with this. For instance, the involvement of third-party funders increases the potential for settlements on non-meritorious claims due to the higher litigation expenses.
Then there’s also the question mark over whether the influence and interest of funders are being put ahead of plaintiffs, but for Thornberry, the biggest challenge is the lack of disclosure. “There are very few places where there is an obligation to disclose litigation funders involvement.” And while discussions tend to centre around US casualty, the emerging nature of this risk in Europe is a concerning trend, and one to watch closely.
“We know that we've got collective action regimes in the UK and now in Europe with the representative actions directive, and we're seeing an influx of US firms and litigations funders setting up shop in Europe,” he said. “There's now around 130 litigation funding on the continent alone, the majority in Germany and the Netherlands, which is where we're seeing the most litigation.”
While in the US, litigation abuse is largely driven by juries, the amount of regulation in the EU – whether it’s to do with ESG, CSRD, or requirements around data privacy, AI etc. – is a key factor shaping the obligations of organisations. When you combine the collective action regimes in Europe with the rising presence of litigation funders, it doesn’t take a great deal of imagination to see a scenario where litigation risk will rise in Europe.
Touching on some of the areas where Zurich is seeing litigation emerging, he highlighted the concerns around PFAS and forever chemicals – and the rising number of related actions being seen in Europe. Other cases driving some of the litigation being seen include around allegedly carcinogenic products. “We’re seeing a rise in studies being presented that will link certain products to illnesses, and will drive that litigation in the US and seems to be driving litigation in Europe also.”
There is a significant variety of factors driving these litigation trends, he said, and the question for the team at Zurich is how they can help their clients, many of whom are global organisations, to both navigate and mitigate this risk environment. The group has a dedicated resource in the US, he said, and both its claims and legislative affairs team are committed to understanding the risk facing customers, and communicating that to them to ensure they’re equipped with all the necessary knowledge and support to prevent those risks.
The claims team at Zurich works very closely with colleagues across Zurich Resilience Solutions (ZRS) and underwriting, he said. In addition, the team champions proactive claims management to make sure it has the right level of resource available to be on top of these claims as quickly as possible. In the US, the business has doubled its casualty team in the last few years and it’s an active proponent of discussing the challenges facing the market, particularly as they relate to litigation abuse and the influence of third-party litigation funders.
“Zurich was a signatory of an open letter last month which pushed the US judiciary to enact rules around the use of litigation funders,” he said. “We know that US lawmakers at a federal level have pushed forward a bill to mandate the transparency of funding. It's that lack of transparency that really drives some of the dangers. We expect the EU to introduce a similar bill in 2025. So, it's critical, from a claims perspective, that we are proactive in our communication with our customers.
“[We need] to make sure that we are driving, with our ZRS colleagues, a safety culture within the organisations that we insure to proactively mitigate against the risk of litigation abuse. But it's also a case of ensuring that we are looking at the data… and developing more granular data-led insight in order to share that with our customers. That’s so they are kept informed as to how that litigation is being driven, as an existing risk in the US and an emerging risk in Europe.”
