Sedgwick’s Take on Unprecedented Litigation
In a follow-up to last week's Social Inflation Insight newsletter on COVID-19’s impact on social inflation, we wanted to highlight a study by Sedgwick that analyzes trends in liability claims litigation over the past decade and through the pandemic. The results are predictably unsettling. To bolster its findings, Sedgwick cited research conducted previously by two affiliates of The Institutes: The Insurance Information Institute (Triple-I) and the Insurance Research Council (IRC).
Early attorney involvement in general liability and auto liability cases has rapidly grown over the past five years, the Sedgwick study stated. Since claims involving attorneys resolve at 34 times the cost of those without attorneys, it's not surprising that insurers’ incurred losses are steadily growing.
When considering what effect COVID-19 may have on future trends, Sedgwick provides multiple notable facts:
- Nuclear verdicts of $20 million or more grew by over 300% between 2019 and 2020.
- The pandemic “litigation lull” from fewer open businesses and delayed court proceedings is over.
- Riskier driving habits due to reduced traffic during the pandemic have continued, resulting in a historic rise in traffic fatalities.
- Jurors’ opinions of businesses have further deteriorated, and larger jury verdict payouts have grown.
- And most importantly, the pandemic will almost certainly be the most litigation-driving incident in history.
Sedgwick’s study makes it clear that insurers need to act now to protect themselves against the potential surge in nuclear verdicts, which had previously been defined as jury verdicts of more than $10 million.
In the study, Sedgwick offers several recommendations for limiting insurer litigation risks.
They write: “Promoting litigation avoidance at the claim stage must be a focus. Tactics such as advocacy, timely communication and a resolution focus will help ensure that claims do not become litigated. Further, utilization of predictive modeling to identify claims likely to become litigated can prompt an aggressive workflow to push appropriate and timely resolution. Resolution prior to a claim becoming litigated remains a primary avoidance strategy.”
In other words, limiting the time litigants spend in court remains a more immediate solution to social inflation than influencing juries, according to the Sedgwick study.