Rand quantifies growing litigation awards
We’re all well acquainted with the idea of inflation – each year the prices go up bit by bit and our buying power goes down. Recently, there has been much discussion surrounding what many in the insurance industry have dubbed “social inflation,” which is the same phenomenon applied to the broadening of tort liability. The term describes a trend we’ve seen over the last decade wherein claims become more and more frequent and claimant payouts get juicer and juicer – a vicious cycle that comes much to the dismay of defense lawyers and insurance companies nationwide. While the term has been around since at least the 1970s (regularly referenced by Warren Buffett back then), it seems to have fallen out of favor sometime around the recession of the late 2000s, only to find its way back to the spotlight after a few landmark verdicts with huge payouts in the mid-2010s. And according to a 103-page study from researchers at the RAND Corporation, there is evidence – court filings, verdict data and actual claims – underscoring the resurgence of social inflation. Let’s take a closer look at the numbers.
The scope of the research included 37,668 verdicts from 2010 to 2019 provided by VerdictSearch and data from the National Center for State Courts which tracked net tort filings from 19 different states. After adding data from California, researchers found that plaintiff win rates rose 11% from 53% to 64% over the 9-year period and they were also winning bigger chunks of change. For personal injury and wrongful death cases there was a compounding 7.6% annual growth rate in payouts that fluctuated over the years. These hikes were mostly stagnant from 2010 to 2013, but jumped from 2014 onwards, even for the “large” trial rewards which need to hit a minimum of a $5 million payout to be qualified as such.
To add to the dogpile, these large payouts began to comprise a much larger piece of the pie, ranging from 5.5% to 7.5% of all awards from 2010 to 2016 and growing to 12% by the end of 2019. While tort cases increased by 10% over the study period and civil filings per capita dropped by the same amount, RAND contends that overall, these data points and growth rates are consistent with the evolving idea of social inflation but were wary of pinpointing a singular cause.
The report stated, “One possible mechanism that could lead to such an increase is delayed defense response to changes in case values … If defendants are not making settlement offers that are keeping up with rising settlement values, cases that plaintiffs will win might go to trial that would have settled otherwise. Over time, defense strategy may adapt, and the plaintiff win rate might return to previous levels.” RAND researchers say the earliest indication of this trend – and with the largest increase in awards – were in California, New York, New Jersey, and Texas. Florida, along with Illinois and Pennsylvania lagged and with smaller increases. Buckle your seatbelts readers, if you live in one of these nuclear verdict states, there is rising pressure on your insurance rates with help from social inflation.
LMA Newsletter of 8-19-24
