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International Casualty

From climate change litigation to social inflation, we offer our international experts’ predictions on the opportunities and challenges that the international casualty market may face in the coming year and beyond.

International Casualty predictions
#1 Climate change litigation will diversify

In the wake of COP27, we expect to see renewed vigour on the part of climate activists in bringing litigation against both private companies and also governmental agencies and bodies. As the emphasis on green credentials becomes ever more important in marketing, there will be increasing pressure placed on both governments and corporates to comply with any agreed and legally binding targets. Failures will be challenged. An increasingly wide variety of climate litigation is underway, from greenwashing challenges to publicised decarbonisation plans in Australia to applications to the European Court of Human Rights regarding factory farming and consequential impacts. The action by ClientEarth against the board of directors of Shell emphasises the prospect of individual directors being the subject of climate related litigation. The outcome of this action in particular will create an important precedent in the coming years.

#2 Inflation: From economic to social

In a world of increasing economic inflation and financial crisis, social inflation will continue to prove a significant risk for insurers and corporates. Punishing those who are perceived as having ‘deeper pockets’ is an attractive concept to many, particularly within the confines of litigation between injured individuals and large businesses. Social inflation encompasses various influences and takes on different guises around the world, whether the much-reported jury verdicts in the US, the expansion of categories of damages in Mexico, or the willingness of the courts to expand tort/civil liability across Europe. The common thread that will turn social inflation into a global phenomenon is that claimant law firms, regulators and the courts are more open to influence from developments beyond their home jurisdictions. With continuing anti-corporate sentiment and increases in the use of litigation funding as key drivers, those insurers not addressing this issue will need to do so as soon as possible. In our view, the risk associated with social inflation will start to affect insurance pricing, with businesses identified with this phenomenon assigned differing risk profiles in the future.

#3 The moral question of punitive damages

Punitive damages are, accurately or not, often seen as the driver of ‘nuclear verdicts’ in the United States. Perceived as a punishment of defendants, rather than compensatory to plaintiffs, these awards are usually reduced on appeal in line with guidance given by the US Supreme Court. We predict that plaintiff representatives will look to argue for greater non-economic damages such as ‘pain and suffering’ as an alternative to punitive damages. This would be in line with Latin American nations such as Brazil and Mexico where the concept of ‘moral damages’ is increasingly being used not only to compensate the victims but as a reflection of a serious interference to inherent rights due to the acts or omissions of the tortfeasor. Increasing flexibility in the types of awards made to plaintiffs in the US would be consistent with the wider concerns around social inflation.

#4 Litigation funding will face regulatory questions

The rise in the use of third party litigation funding (TPLF) will continue, with finance moving into areas such as environmental, social and governance (ESG) litigation. However, sustained uptake of litigation funding will be met by increased resistance from regulators. The European Parliament recently approved a resolution seeking to reiterate the ethical obligations of funders, including a prohibition on abandoning claimants during litigation. The Parliament invited the Commission to establish common minimum standards in TPLF. In the United States, TPLF investments have increased significantly and are expected to continue. However, there have been calls for greater transparency. The objectives of funders and plaintiff lawyers arguably alter the dynamic of the litigation process by pursuing speculative actions and drawing out the litigation process as ever greater sums of damages are sought.

#5 Litigation risk will prove as persistent as ‘forever chemicals’ themselves

Perfluoroalkyl and polyfluoroalkyl substances (PFAS) litigation will continue to gather momentum across the world, with increasing focus on litigation outside the US. Litigation in the US has led to states such as California now taking measures to ban their use in textiles and cosmetics. The recent $581mn settlement between 3M and the Belgian government highlights that large scale actions are now as likely outside the US, with regulation not far behind. Locations including the Rhône valley and the Veneto are known examples of where regulatory thresholds for PFAS have been breached. NGOs are leading calls for a total ban in EU Member States. The 3M settlement covered environmental remediation costs but not possible personal injuries sustained by the local population. Such claims may be forthcoming, particularly as research into the risk of PFAS exposure continues and the Belgian government is pursuing an environmental criminal investigation into the PFAS leak. We expect to see the 3M settlement kickstart a wave of litigation similar to that seen in the US during the past decade (following the high profile lawsuits against DuPont and 3M). If the pattern follows the US, we can also expect litigation targeting PFAS manufacturers before attention turns downstream to companies using PFAS, such as cosmetics businesses. Insurers need to pay close attention to PFAS risk across these sectors and in multiple jurisdictions.

#6 Protect Duty: Will the US follow suit?

The introduction of the proposed Protect Duty in the UK will require owners and operators of publicly accessible locations to take appropriate and proportionate measures to protect the public from terrorist attacks. We predict that the US is unlikely to follow suit in establishing a duty of this sort at a federal level, and that appropriate standards and duties of care will remain in the hands of individual states. The proposed Protect Duty would place greater levels of responsibility on businesses and non-profit organisations than is placed in the US currently. The National Prevention Framework from the Federal Emergency Management Agency provides guidance that private businesses and the non-profit sector can apply. Businesses are expected to play a role by maintaining a situational awareness of the current threat environment. However, this Framework does not place any specific requirement on businesses and non-profits akin to those in the Protect Duty, such as the creation of plans to deal with a terrorist attack or the implementation of ‘reasonably practicable’ protective security. While the US and UK both use a broad government-owned reinsurer for terrorism, Pool Re in the UK, and the Terrorism Insurance Program in the US, there are no indications that a duty akin to that of the proposed Protect Duty is likely to be established in the US.

#7 Class action landscape will no longer be driven by damages

Changing expectations of governments and society will drive the class action landscape. Class actions will no longer be primarily focused on the recovery of damages, as can already be seen with the increasing number of actions brought by climate activists. The further transfer of responsibility from governments to the private sector will increase vulnerabilities and potential liabilities for insurers. The collective litigation landscape will also be affected by the introduction of the EU’s Representative Actions Directive which will introduce mechanisms for group litigation into every Member State, and cross-border mechanisms. However, the differing methods by which the Directive is implemented by Member States will need to be closely followed, as well as any possible loopholes.

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