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Is This General Liability Claims Cost Driver on Your Radar?

As liability insurance claims continue to increase in frequency and severity, legal system abuse is one of the top general liability claims trends that should be on the construction sector’s radar. Inclusive of social inflation and nuclear verdicts, legal system abuse refers to the factors that can influence litigation results and drive inflated jury awards, now reaching historical highs into the billions.

What Is Contributing to This Costly Trend?

While jury demographics, income inequality, and political factors can all contribute to large jury verdicts, there are a few dominant cost drivers. First, there is a significant devaluation of money, and juries are being anchored by requests to pay large verdicts. Consequently, jurors are increasingly numb to high-dollar awards, with increased exposure through media that is progressively desensitizing them to these inflated figures.

Second is the use of a common trial strategy known as Reptile Theory, which aims to influence a jury’s outcome. Using this approach, the plaintiff’s attorney stresses that if the defendant’s action or inaction were to continue, the defendant could endanger the community and even the jury itself. If this tactic is successful, the plaintiff’s attorney could then convince the jury to return a large verdict against the defendant.

Last, but maybe most eye-opening, is the increased use of third-party litigation funding. This private-equity funding allows third-party sources of capital to invest in lawsuits. In return, the third-party funders would receive a portion of the settlement or verdict. This type of funding has become more prevalent in general liability cases. It also has created a gateway for potential foreign investors to become involved within our judicial system, which adds concern about national security and the ongoing lack of transparency towards all involved in these funding mechanisms.

What Can Businesses Do to Mitigate This Risk?

Implementing good risk management practices can reduce overall risks. Simple, but effective, technologies like security cameras can deter fraud and provide factual answers surrounding the circumstances of a given occurrence. Video footage can enable risk managers to decide whether they should pursue a defense or an out-of-court settlement. Additionally, effective utilization of camera systems is an element of a robust general liability program that insurance providers seek when determining risk appetite, pricing, and terms.

If an injury or loss occurs, ensuring an immediate, methodical response and corresponding incident investigation is critical for closing the loop and preventing litigation. Organizations should have procedures established to attend to any injured persons, conduct immediate accident investigations, and document any findings. Investigative steps can include preserving video footage that captured the incident, collecting supportive documents such as maintenance or housekeeping logs, and documenting any firsthand accounts by witnesses using open-ended interview techniques.

Regular claims review meetings are also a critical step to identify high-cost claims, streamlining claims processes, establishing proactive risk assessments, and potentially resolving claims faster. Developing and deploying early claim litigation review tactics can also help resolve claims expediently before becoming a target of a costly nuclear verdict. Start by setting dollar-threshold guidelines to determine priority of which claims need the most attention and have the potential to explode in cost. Ensure that you include all stakeholders in these reviews, which can include appropriate representatives from your business, the claims adjuster, insurance carrier, and legal counsel. It may seem counterproductive to include your insurance carrier, however, they can serve as an ally to help guide you through the unique territory surrounding these claims. Your carrier sees a variety of liability claims repetitively, so they can offer perspective and comparison that attorneys may not be able to provide. Once you have all the stakeholders at the table, the goal of these claims review meetings is to work through questions and details, then leave with an action plan.

When claims do result in litigation, businesses should consider the ongoing and accumulating exposure and the chance of prevailing. In many instances, early resolution strategies may be the best option. Settling claims starts with the same team of stakeholders mentioned above, where all parties have an opportunity to weigh the merits of early settlement versus prolonged litigation. A meeting with all of these stakeholders can help gain an understanding of the value and obstacles to settling and develop a clear path to move forward.

Safety National® offers a multi-line solution to address construction and contracting risks that includes workers’ compensation, commercial auto liability, and commercial general liability.

To learn more about these offerings, please visit our construction risk webpage.