Escalating jury awards and the hard market for insurance coverage.

• Author: Parsons, Gary S.
• Position: The 2002 Law Journal

The recent economic downturn has led to a combination of risk-management and litigation problems for businesses that had not been seen in years. First, many forms of insurance are entering a so-called "hard" market, in which coverage is far less available and sharply more expensive. At the same time, unmet expectations of persons or rival businesses resulting from the downturn in employment and the financial markets are leading more of the disappointed to the courts to resolve those unmet expectations, whether through contract actions, business tort claims, employment litigation or securities class actions.

The results in the courts

Surveys of jury verdicts, while often unscientific, shed light on the dilemma increasingly faced by businesses and their litigation attorneys. A headline in the July 2002 issue of Best's Review trumpeted "Juries Award Plaintiffs More Money More Often." It reported that, according to a nationwide survey of jury verdicts, plaintiffs prevailed 51% of the time in product-liability cases in 2000. The median jury award in those suits jumped to $1.8 million in 2000 from $1.6 million in 1999. Premises-liability awards against owners or operators of industrial properties were highest in that category, at $280,000, with recreational-facility owners at $90,000.

Another, even more volatile area o1 concern is growing punitive-damages verdicts. One study found that in 2001 the cumulative total of these verdicts in excess of $1 million was $162.8 billion.

Traditional primary sources

In late 1999 and 2000 the insurance industry was entering the first hard market in over a decade. Businesses seeking property-and-casualty insurance, including liability, were finding coverage to be less available, if available at all. Businesses were finding the cost for the most basic commercial insurance rising at double-digit rates. This trend was sparked by shrinking investment income because of the falling stock market, growing uncertainty in the re-insurance market and increases in claims on several fronts, including directors-and-officers liability.

In this already volatile market, the Sept. 11 terrorist attacks had the effect, in one writer's words, of "pouring gasoline on a brush fire." Prices for coverage increased at even sharper rates, and insurers became far more cautious in writing certain types of business insurance. If the carriers accepted the risk, it was often at lower coverage limits, with higher deductibles or self-insured...