Article: January 2015 Insurance Litigation Update

Risk Developments in the U.S., UK, and Australia. We have recently had the opportunity to talk to liability insurers in the U.S., UK and Australia about risk developments in those jurisdictions. There are both surprising similarities and differences in what is quickly becoming a global economy and litigation landscape.

Comparatively, the U.S. has traditionally been considered the plaintiff’s haven, and the home of the class action. Leading U.S. and UK insurers have reported, however, that U.S. courts have recently been taking a more restrictive approach to claims than courts in the other jurisdictions, especially during the strenuous pre-trial procedures characteristic of the jurisdiction. A headline example is the strict approach that the Supreme Court continues to prescribe for class certification. The traditional view nevertheless remains that, if a plaintiff’s claim survives initial challenges and wins at trial, there will be a substantially higher damages award in the U.S. than if the same claim were made in the UK or Australia.

Though Australian damages awards are usually smaller than those in the U.S., a recent development is that plaintiffs are now considered more likely to succeed before Australian judges than before their U.S. or UK counterparts. An Australian statutory body has recently recommended that Australia join the U.S. and UK in permitting lawyers to charge contingency fees. This will likely further increase the frequency of claims in Australia, where there is no class certification and arguably less obstacles to bringing a class action.

Insurers in the U.S., Australia, and increasingly the UK, remain concerned about securities class actions. Cross-listed businesses and their insurers are particularly concerned about the potential of having to defend parallel class actions in multiple jurisdictions. This of course increases defense costs and creates issues associated with the multiple presentation of evidence. The potential for such actions is increased by the globalization and overall growth of litigation funders. The risk of multiple actions arises in many areas, including white collar crime, particularly given increasing cooperation amongst regulators like the Department of Justice, the Serious Fraud Office and the Australian Securities and Investments Commission. There is similarly the specter of multiple actions in the product liability sphere, as demonstrated by recent highly publicized matters.

In some respects, securities fraud is a relatively straightforward claim for plaintiffs and funders to assess. The information necessary for preliminary assessment is often readily available: a plaintiff firm or funder can analyze publicly-available announcements which trigger share price drops to decide whether a claim of fraud can be asserted. Estimates of damages can be made by looking at the size of the price drop and volume of shares traded. This is not limited to securities actions. Some insurers have reported that publically available information is making it easier for non-securities claimants, and particularly dust diseases claimants, to assess the viability of a claim. One insurer reported that claimants can now access lists of potential asbestos defendants and details of their insurance at the relevant times. Further, UK plaintiff law firms and funders are taking to social media to help market claims. In Australia and the UK, litigation funders report that they are actively moving into areas like product liability and insolvency matters.

There remains a broad concern that litigation funders are supporting claims that are arguably unmeritorious, banking on the claims being too expensive to defend in terms of cost, reputation, and company executives’ time. Settling such claims is seen to reward this behavior. In Australia at least, this has fueled an ongoing debate about the proper role and regulation of funders.

UK insurers also raised serious reservations about the risks associated with companies expanding into foreign jurisdictions with regulatory and legal regimes that are not well understood. There are of course risks associated with operating in new regulatory regimes, and risks arising from the cultural and political situation of a new jurisdiction. A popularly voiced concern is that some political systems may present greater risks of corruption, and are increasingly the focus of international authorities. When businesses expand into developing countries concerns may also be raised about sovereign risk. However, this is not confined to developing economies. Recent actions by Australian legislatures to seize valuable mining rights without compensation (through the passing of legislation such as the Mining Amendment (ICAC Operations Jasper and Acacia) Act 2014) has shown that developed economies are not immune to sovereign risk.

Differences clearly remain between each of these jurisdictions and the emerging risks within them. The inescapable point, however, is that as business and trade become more global, the developing legal trends and the sharing of information among plaintiff firms, litigation funders and regulators means that the risks faced by companies and their insurers become increasingly similar (and international) in scope.