The latest annual report from Chubb reveals a widening gap in liability coverage among companies across various sectors. Despite a clear trend of large losses, many firms continue to underestimate their liability insurance needs.
The 16th annual Liability Limit Benchmark & Large Loss Profile by Industry Sector 2024 highlights the impact of “nuclear verdicts” — settlements and awards of $10 million or more — on this coverage gap.
According to the report, large verdicts against corporate defendants rose to $18.3 billion in 2022 from $4.9 billion in 2020, a 273% increase across 10 industry sectors, including healthcare, life sciences, manufacturing, construction, real estate and hospitality, consumer products, and the chemical industry.
In nine of the 10 sectors covered, the median insurance limit purchased in 2023 was lower than nearly a decade ago. In construction, median limits purchased in 2023 were 44% lower than in 2014.
In healthcare, median limits purchased in 2023 were nearly 31% lower than in 2014. In consumer products, median limits purchased for 2023 were 28% lower than in 2014. Only the utilities sector saw an increase, with coverage up 9% from 2014.
Chubb head of North America industry practices Seth Gillston attributes the rise in liability-related loss costs to factors such as increased litigation funding and societal perceptions that the system is biased against the average person.
“Companies that underestimate the severity of liability losses may face financial, brand, and long-term stock price impacts,” he said.
Third-party litigation funding, valued at $18.2 billion in 2022, is expected to grow at a compound annual rate of 13.2% through 2028, according to industry research. Television advertising for mass litigation verdicts rose in 2023, with nearly 800,000 ads costing over $160 million, according to research firm X Ante.
The Insurance Information Institute reports that funding state and federal litigation cases can yield a 30% to 40% return on investment for third-party funders of mass tort cases.
Changing societal attitudes toward business and corporations, coupled with concerns about social justice and emerging risks like climate change, geopolitics, and data privacy, are also contributing to higher jury verdicts that outpace general economic inflation. The pandemic has exacerbated these trends by creating a backlog of cases, driving up litigation costs.
Extreme weather and employee negligence have also factored in rising costs. In 2023, a jury awarded $112.2 million for a claim related to a flooded factory, and a train engineer received $11.6 million after collapsing from extreme heat.
Other notable cases in 2023 included a $1 billion verdict in a truck driver's negligence case and an $800 million settlement for a mass shooting.
Chubb also noted that determining adequate liability insurance remains challenging. Companies facing litigation losses may suffer severe financial impacts, brand damage, and prolonged stock price declines. Cost considerations and the option to increase self-retention further complicate decisions.
Brokers and insurance carriers can assist companies in assessing their liability coverage needs. This may involve considering punitive damage wraps to provide coverage certainty.
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