Consumers, businesses, and insurers are increasingly fraught by the impact of legal system abuse and the resulting skyrocketing verdicts. Legal system abuse, often referred to as social inflation, applies to a variety of tactics the trial bar uses to initiate more lawsuits, drive up litigation expense costs and settlements for defendants, and secure higher verdicts.

Several social, political, legal, and economic drivers contribute to making legal system abuse one of the major emerging risks the insurance industry faces today.

“Nuclear Verdicts” are defined as verdicts over $10mn. A new term emerging – “thermonuclear” verdicts – are far exceeding the $10mn threshold and can only be explained by emotional or punitive juror motives.

Source: Institute for Legal Reform. 2022.⁴

Source: VerdictSearch. 2023.⁵

Third-party litigation funding (TPLF) is surging, with more than $11bn of capital invested in the United States.⁶ This driver of legal system abuse is an arrangement where a funder that is not a party to a lawsuit provides funding to a plaintiff or law firm in exchange for an interest in the potential award in a lawsuit. Plaintiffs do not have to repay the funding if their lawsuit is not successful.

Sources
¹ The US Tort System Costs $443 Billion, US Chamber of Commerce, The Institute for Legal Reform, January 5, 2023 The U.S. Tort System Costs $443 Billion | ILR (instituteforlegalreform.com) 
² Pain, D. 2020. Social Inflation: Navigating the evolving claims environment. Geneva Association. Retrieved: January 23, 2023. (https://www.genevaassociation.org/sites/default/files/research-topics-document-type/pdf_public/social_inflation_web_171220.pdf)
³ Insurance Research Council. 2022. Public Attitudes on Litigation Trends and the Role of Attorneys in Auto Insurance Claims. Retrieved: January 26, 2023. (https://www.insurance-research.org/research-publications/countrywide-patterns-auto-injury-claims)
⁴ U.S. Chamber of Commerce Institute for Legal Reform. 2022. Nuclear Verdicts: Trends, Causes, and Solutions. Retrieved: January 22, 2023. (https://instituteforlegalreform.com/wp-content/uploads/2022/09/NuclearVerdicts_RGB_FINAL.pdf)
⁵ Law.com VerdictSearch. 2023. Featured Verdicts. Retrieved: January 24, 2023. (https://verdictsearch.com/state/all/)
⁶ American Property Casualty Insurance Association. 2023. Legal System Abuse Hurts Families and Affects Jobs. Retrieved: January 23, 2023. (https://www.apci.org/legal-system-abuse/)