Transcript Handout - Casualty Actuarial Society

Current Developments in Tort Claims
Claire Louis - PricewaterhouseCoopers LLP
Casualty Actuarial Society
Baltimore, Maryland
November 14, 2005
Key Topics
• Tort claim drivers
• Major areas of tort liability
– Asbestos
– Securities litigation
– Medical malpractice
– Drug products and medical devices
• Status of federal and state tort reform
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Key Topics
• Tort claim drivers
• Major areas of tort liability
– Asbestos
– Securities litigation
– Medical malpractice
– Drug products and devices
• Status of federal and state tort reform
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Tort claim drivers
• U.S.
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Culture of blame
Contingency fees
Plaintiffs bar and judiciary
Promotion of attorney services
Technology
Expanded bases of liability
Tort reform erosion
Media
Medical advances and medical cost inflation
Tort claim drivers
• International
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Differences in legal and structural systems
Loser pays winner’s attorney fees: After the Event insurance
European social insurance: greater medical and financial benefits
Traditionally, contingency fees not allowed
• Maintenance and champerty
– England and Wales: “success fee” arrangements
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Courts and Legal Services Act of 1990 and related legislation
Allowed in all civil proceedings except family cases
Still exception rather than the rule
Based on solicitor’s costs, not damages
– EC
• Move to harmonize different legal systems
• Elements of civil and common law system
• Strict liability still new
– New Zealand and Switzerland have abolished tort law system
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Key Topics
• Tort claim drivers
• Major areas of tort liability
– Asbestos
– Securities litigation
– Medical malpractice
– Drug products and medical devices
• Status of federal and state tort reform
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Asbestos
• More than 8,400 businesses affected
• Original projected costs - $8 bn
– Total projected costs - $300 bn
• Original projected claims – 60 mm
– Total claims to date – 770 mm
– Total projected claims – 3.3 bn
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Asbestos
• Since 1981, ten attempts to pass federal
asbestos legislation
• S.852 – Fairness in Asbestos Injury Resolution
Act of 2005
– $140 bn over 30 years
– Would eliminate virtually all existing and future cases
– Lacks support from insurers, certain defendants, and
other interest groups
– Insurance industry concerns include lack of finality,
exigent claim issues, and orphan share funding
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Asbestos
• State asbestos reform
– Legislative
• Ohio Asbestos Reform Bill (Sept 2004)
– Intent is to give priority to the truly sick
– First state to require actual impairment under objective
medical criteria
– Already there are attempts to circumvent
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Asbestos
• State asbestos reform
– Legislative
• Texas (Sept 2005)
– Requires a report from a qualified physician stating a
diagnosis of mesothelioma or other cancer
– Specific X-ray and PFT criteria must be met
– Expedites malignancy cases for trial
– Prohibits reliance on reports or opinions produced by
labs linked with law firms
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Asbestos
• State asbestos reform
– Legislative
• Florida (July 2005)
– Sets minimum medical criteria
– Requires that qualified doctors read X-rays
– Protects the rights of those who become sick in the future
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Asbestos
• State asbestos reform
– Judicial
• Inactive dockets (IL, NY, WA; Baltimore, Boston,
Chicago)
– Favorable experience
– Defer and protect unimpaired claims until individual
develops an impairment
– Must meet medical criteria
– Sick receive priority
– Relieves docket congestion
– Preserves scarce financial resources
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Asbestos
• Federal asbestos reform
– Federal MDL
• Thousands of unimpaired claims dismissed
• 20,000 Jones Act cases dismissed (1996)
– Few claims reinstated
– Evidence of “manifest injury”
• Administrative dismissal of mass screening cases
(2002)
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Asbestos
• International
– Focus is serious disease cases: escalating
mesothelioma rate in the UK (3.8 X higher than U.S)
– Claimants fearful of judicial system
– Burden of proof difficult to satisfy
– Claimants were socially marginalized
– Possible national solution sought in UK
– European Asbestos Conference Sept 2005
– 2005-2006 EU Year of Action on Asbestos
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Asbestos
• U.S. insurance issues
– Dramatic decrease in new filings; increase in severe case filings
– Few surviving matrix agreements
• Battles fought case-by-case
• Stricter proof requirements
• More trials
– Insurers looking for finality:
• Push for buy-outs of Tier Two and Three players
• CSAs for relatively minor defendants
– Bankruptcies: in general, has not caused the acceleration in
insurance pay-outs once feared
– Silica
• Plaintiffs bar repackaging asbestos cases as silica cases
• Rate of filings jumped 2002-2003
• Favorable developments in Texas
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Key Topics
• Tort claim drivers
• Major areas of tort liability
– Asbestos
– Securities litigation
– Medical malpractice
– Drug products and medical devices
• Status of federal and state tort reform
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Securities litigation
• In 2004, securities litigation became global:
securities litigation, securities regulatory
investigations, and enforcement actions
increased substantially around the world
• U.S. private securities actions increased
• More litigation, investigation, enforcement
activity against foreign private issuers than ever
before
• Skyrocketing settlement costs
• Regulation, regulatory enforcement, and
securities litigation
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Globalization of securities litigation
• In 2004, 29 foreign filers listed on foreign
exchanges—the highest number in one year-were sued in U.S. private securities class
actions: a 90% increase from 2003
• 22 of the cases involved allegations of
accounting irregularities and financial fraud
– Parmalat
– Ahold
– Royal Dutch Shell
• Adoption of IFRS and SOx 404 compliance
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U.S. private securities actions
• 203 private securities actions filed in 2004:
16% increase
• Drivers
– New SEC rules and regulations
– New PCAOB rules
– Effects of private class actions and court
decisions: Enron, WorldCom, HealthSouth
• Effects of SOx still to be felt
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2004 settlement trends in U.S.
private securities class actions
• Increasing trend in high-dollar settlements
• 104 cases settled for $5.4 bn ($2.8 bn
excluding WorldCom)
• Average settlement value: $27.6 mm (up
18% from 2003)
• Median settlement value: $7mm (up 25%
from 2003)
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Drivers of U.S. private securities
class action settlements
• High level of market capitalization
• Role of retirement fund and pension fund
fiduciaries and institutional investors as
lead plaintiffs in class actions
• Intersection of private securities class
action claims with financial restatements
• Severity of accounting scandals and
financial frauds
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Regulation, enforcement, and
securities litigation
• Securities class action litigation not just a U.S.
phenomenon, e.g., France and Netherlands
• Reach of regulatory enforcement crosses borders
• Convergence of generally accepted accounting
principles: IFRS and US GAAP
• Greater coordination among securities regulators
worldwide
• International cooperation agreements to facilitate
enforcement and prosecution
• Joint investigation protocol between U.S. and other
countries
• Adoption of SOx-like regulations and reforms by
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Future securities litigation trends
• Steady increase in number of private securities
class actions and regulatory enforcement
actions
• Continuing significant increase in dollar values
of private securities class action settlements
• Significant increase in Section 10(a), SEC (and
others) investigations, internal corporate
investigations leading to more restatements,
more regulatory enforcement actions, more
private securities litigation
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Key Topics
• Tort claim drivers
• Major areas of tort liability
– Asbestos
– Securities litigation
– Medical malpractice
– Drug products and medical devices
• Status of federal and state tort reform
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Medical malpractice
• Trend toward higher verdicts and median
awards
• Severity increasing in serious injury cases
• Sharp rise in defense and administration costs
• Nursing home litigation continues strong
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MS, FL, AL still “hot spots”
Wilkes & McHugh may be moving on
Fewer trials, more settlements
Operator financial difficulty increasing insurer risk
Medical malpractice
• Drivers of med mal claims
– Not just a tort system issue
– Other factors
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Sicker, older population
Greater expectations for medical care
Breakdown in doctor-patient relationship
Incidence of medical error
Medical malpractice
• Prospects for reducing med mal claims
– Increased diagnostic testing
– Peer review and disciplining
– Improved communications with patients
– Technology
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Medical malpractice
• Reform
– National med mal reform defeated in 2005
– Certain recent reforms appear to be working:
caps on awards appear the most effective
– Not infrequently, medical mal reforms are
challenged and overturned or circumvented
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Medical malpractice
• State approaches to med mal reform
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Advance notice of claim
Statute of limitations
Joint and several limitations
Compulsory ADR
Expert affidavit
Limited attorney fees
Modification of collateral source rules
Damages caps: pain and suffering, punitive, total
Periodic payments
Key Topics
• Tort claim drivers
• Major areas of tort liability
– Asbestos
– Securities litigation
– Medical malpractice
– Drug products and medical devices
• Status of federal and state tort reform
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Drug products and medical devices
• Current claim drivers
– Fast-track FDA approval
– Direct to consumer marketing: erosion of learned
intermediary defense
– Off-label promotion of drugs
– New drug delivery technologies
– Clinical trials
– Product counterfeiting
– Quality control (Ortho-Evra patch)
– Aging of population
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Drug products and medical devices
• Limiting drug and medical devices product
liability
– Proposed federal legislation
• Pre-emption of punitive damages against
manufacturers of FDA-approved drug products
• Healthcare providers shielded from liability
– Federal pre-emption of state tort claims
• FDA intervention in private lawsuits involving drugs
or medical devices
– State tort reform initiatives
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Key Topics
• Tort claim drivers
• Major areas of tort liability
– Asbestos
– Securities litigation
– Medical malpractice
– Drug products and medical devices
• Status of federal and state tort reform
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Tort reform: current efforts
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Federal
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Extent of reform varies by state
Current focus is on damages caps, joint and several,
punitive damages, collateral source rule
Tort reform effectiveness
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Intent is to address lack of uniformity at the state level
Class Action Fairness Act of 2005 – Feb 2005
Lawsuit Abuse Reduction Act
No single reform offers the perfect solution
Damages caps appear to be the most effective means to
reduce the number of lawsuits and the value of awards
In the end, what matters most for insurers is predictability
PwC
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