Beware Europe, a new era of litigation looms, warns expert

The trend of growing litigation, deemed a predominantly US phenomenon, has started to ripple into Europe on the back of rising social inflation. Historically less litigious, Europe is now experiencing a surge in collective redress or class actions, especially in countries like the Netherlands, signalling a significant shift in the legal landscape and the need to address these emerging challenges.

At Intelligent Insurer’s Re/insurance Outlook Europe 2023 conference in Zurich this week (June 19-20), Penny Seach, group chief underwriting officer, Zurich Insurance Group, shared these insights with the attendees.

In a presentation entitled ‘Are judicial hellholes no longer a US construct? How to navigate a challenging risk environment’, she explained how the escalating trend of litigation is extending beyond America’s shores as well as the potential impact this might have for businesses across Europe. Seach also outlined strategies to mitigate the impact of social inflation on claims.

“Social inflation has been far outpacing normal economic inflation and it is rapidly growing, with the biggest driver being societal issues,” Seach stated. “There has been a significant increase in the size of awarded claims in the US.

“Since 2015, we have seen that for a single fatality claim in the US the award on average has doubled, and if we look at things like harassment and discrimination matters, that has tripled over the same period.”

“We now have something new called the ‘thermonuclear’ awards, which is where the award is in excess of $100 million,” she added. “That is, unfortunately, very much the normal amount right now in Florida. We see one in four tracking claims that are litigated results in a nuclear verdict. And that is absolutely terrifying for all of us.”

Seach highlighted that notorious “judicial hellholes”, regions known for their litigious environment, include Florida and California, closely followed by New York and Texas. “The tort reform that has just been enacted in Florida in March is a really good piece of reform that still allows claimants access to the data to awards that they need and to access the legal funding that they need. But it takes away, in many respects, the conflict of lead funders to push matters to court,” she explained.

Despite the progress of tort reform, Seach noted that it fails to address retroactive accountability, leading to emotional and belief-driven verdicts instead of fact-based judgments. “Holding companies accountable and making sure that they act in a socially responsible way has always been important, but increasingly, emotions have become the main driver of some of the recent awards," she pointed out.

She underscored the dwindling public confidence in big businesses, creating a conducive climate for large claims. “Confidence in big business is an all-time low in the US, and I would put money on it that it’s probably not just a US issue.”

The litigation funding market currently stands at an estimated $12 to $18 billion and is projected to double by 2030, according to Seach. This trend isn’t restricted to the US alone. About 16% of the global total stems from the EU and UK, a percentage anticipated to increase due to various factors.

She cautioned that the increasing propensity for litigation in the US is “here to stay”, given the lack of “regulation and transparency” in litigation funding. “There is no governance overseeing its operation. So often, you don’t even know if an accident is being litigated.”

“Another key factor is the changing liability theories,” she added. “For instance, in public nuisance theories, we see that claims can be made to harm the public at large” even when the damage can’t be directly traced back to the defendant.

The escalating size of awards, Seach emphasised, poses a threat to the stability of businesses and may deter investments in certain states. Therefore, a balanced approach is needed to tackle these issues, particularly as this trend begins to infiltrate Europe.

“Historically, Europe has been less litigious, but there are signs that this is changing,” she warned. “We are seeing an increase in collective redress or class actions, especially in countries like the Netherlands. We will be seeing more and more coming through.”

While the Netherlands has always been the most active in this area, Seach pointed to Germany as a rising area of concern. She also noted that France has recently seen a surge in collective action.

In conclusion, Seach emphasised that enhancements, particularly in maintaining transparency and fairness, are crucial to establishing a more efficient legal system across Europe.

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