Commercial Auto Insurers Struggling Amid High Volumes Of Claims & Multi-Million Dollar Awards

Panelists speaking at the 2017 Risk Management Summit expressed concern about the financing of litigation, the problem with distracted driving, and many surprising high-dollar verdicts that have recently been rendered. 

Brian McCarthy, of Energi Insurance Services, outlined how the commercial auto industry has been enduring losses recently amid a lengthy period of higher claims that has led to higher prices. Scott Cottingham, an industry veteran, explained the market has been losing $1.02 for each dollar earned lately. He stated that reserves allocated for claims have been insufficient to cover the recent larger claims, many of which resulted in massive $10 million verdicts. Litigation financing is alleged to be playing a role in the prevalence of larger verdicts while distracted driving has resulted in a steady volume of claims in general.

Potential Solutions: Distracted Driving

Insurers in the sector are implementing telematics technology to better track driver behavior. The recent focus on driver accountability has many in the industry hopeful that economic conditions will improve. Telematics are capable of monitoring activity including acceleration, abrupt braking and other potential indicators of inattentive vehicle operation. Mobile device applications that block distracting incoming alerts have also been made available from companies including LifeSaver, as well as Apple with their latest iOS 11 phone update.

Litigation Financing

Champerty is a common law principle that seeks to prevent third parties from intervening with financing designed to profit from the outcome of litigation. Pennsylvania does recognize this doctrine, which may be employed to defend against contract enforcement. A claim may be deemed champertous, thus invalid, if proven that these three elements exist:

• An involved third party has no legitimate interest in the suit
• An involved third party uses their own money to finance the suit
• This party does so with the understanding that they will benefit from any proceeds

Opposition to Case Financing

The U.S. Chamber Institute for Legal Reform (ILR), a legal advocate and affiliate of the U.S. Chamber of Commerce, has been strongly opposed to third-party litigation funding. The primary reasons they cite are as follows:

• The practice encourages and increases the number of cases
• It tends to lengthen the litigation process and lead to more rejections of equitable settlement offers
• The plaintiffs have reduced control of the action because of the financial interests of the third-party
• The practice creates questionable concerns regarding ethics, as legal counsel may lose sight of what is in the plaintiff’s best interest

Litigation Funding in Philadelphia

Thus far, litigation funding has been less common in the Philadelphia area when compared to markets such as New York. There have been smaller investment entities and out-of-state funding that has surfaced in many cases. Woodford, a large London-based investment firm, has recently entered the Philadelphia market. They are an organization specializing in litigation and arbitration funding that could have an impact on some claims with larger potential awards, such as those exceeding $10 million.