From climate change litigation to social inflation, we offer our international experts’ predictions on the opportunities and challenges that the international casualty market may face in the coming year and beyond.
1. Climate change litigation will gather speed
Insurers will receive a significant increase in notifications of claims relating to the impact of climate change – particularly in the heavy industry and oil and gas sectors. Climate change related litigation is starting to gather momentum, as courts around the world are more inclined to give standing to individuals to bring claims related to its impact. In the near term, insureds with existing policies will look increasingly to their insurers for support in meeting the defence costs of the litigation. The next battle will be on causation. It will remain difficult to evidence that there is any significant causal link between one company and the effects of climate change. Claimants may be encouraged by the landmark decision in Urgenda v The Netherlands that saw the court hold the Dutch government accountable for meeting targets to reduce emissions. It remains to be seen whether this reasoning will transfer to the private sector.
2. Act now on climate change
Insurers and their corporate policyholders will need to work together to undertake climate change risk assessments (e.g. through the framework of the Task Force on Climate Related Disclosures) to identify, mitigate and/or adapt to the risks arising from climate change. Insureds will need to alter their supply chains and eliminate carbon intensive aspects of their operations. This will protect the insured (and its directors and insurers) from future liabilities. Any company using carbon intensive products, such as non-recyclable plastics or unsustainable palm oil, must take action: a failure to decarbonise these risks now will result in claims in the future.
3. Supreme Court ruling awaited on group litigation against multinationals in the English courts
Since the 2019 decision in Vedanta v Lungowe, the trend of foreign litigants seeking to bring group litigation against English domiciled parent companies in the English courts continues. In particular, we are seeing claims being brought by litigants in Africa and Latin America. The Supreme Court in Vedanta identified two crucial factors for granting permission for claims by Zambian villagers in the English courts: 1) the prospects of establishing parent company control over a subsidiary’s practices in order to establish a duty of care; and 2) the claimants’ lack of access to justice in their own jurisdiction. In November 2020, the High Court dismissed £5bn group litigation brought by Brazilian third parties against mining giant, BHP Billiton, in relation to the 2015 Samarco dam disaster. The court considered that due to parallel claims in Brazil, allowing group litigation of such a large scale would be an abuse of process. We currently await the Supreme Court decision in Okpabi v Royal Dutch Shell (RDS), an oil pollution case brought by Nigerian villagers. The Court of Appeal dismissed the application in Okpabi on the grounds of insufficient evidence of RDS’s control. It will be interesting to see if the Supreme Court takes a similar stance to Vedanta, particularly in light of potential new evidence concerning corporate control exercised by RDS (and alleged corruption) and whether the Claimants would have adequate access to justice in the Nigerian courts.
4. Opioids litigation will raise novel coverage issues
The opioids litigation brought by state authorities against US pharmaceutical manufacturers, distributors and other healthcare providers rumbles on. Across the US, claims have been brought by public authorities which have allegedly incurred significant losses due to the fall-out from the opioids addiction crisis, including increased healthcare and law enforcement expenditure. They allege cynical marketing practices against the pharmaceutical industry. Currently, a US$22bn settlement is being discussed by four distributors including McKesson. Meanwhile Purdue and Mallinckrodt have filed for bankruptcy protection while seeking to resolve opioid lawsuits. At the end of October 2020, Purdue agreed a settlement with the Department of Justice. The claims present novel coverage issues for general liability insurers, including the trigger of coverage by reference to ‘personal injury’ (given the direct victims of opioid abuse are not the claimants) and whether there are fortuity/’expected/intended’ or non-disclosure arguments.
5. Health and social care claims: a perfect storm
We predict an increase in abuse, neglect and other casualty claims as a result of the COVID-19 pandemic and lockdowns which have affected the protection of the most vulnerable. In the first wave, schools were closed to all but the children of key workers. Opportunities were lost for schools to spot signs that children were suffering from physical abuse, neglect, domestic violence and emotional harm. There was a drop in referrals to social services and other agencies. Social services will struggle to meet the increased demand for services following children returning to school and this will lead to an increase in ‘failure to remove’ claims against local authorities. In addition to the widely anticipated claims from families of care home residents and staff working in care homes in relation to the lack of effective PPE and exposure to COVID-19, we expect adult social care in residential settings and in the community to also been impacted. An inability to access community facilities, reduced home and family visits, unavailability of staff and the unfamiliarity of greater numbers of agency staff increases the risk of volatility and incidents of violence and aggression directed towards staff and peers. Difficult balancing decisions are being made by managerial staff in often isolated circumstances and uncertainty and a general lack of control over working conditions increase the chances of workplace stress.
6. A US perspective: bad faith allegations will appear earlier and across all areas
Liability claims in the US will become increasingly high value and complex for insurers. Although insurers are used to dealing with allegations of bad faith, we predict these allegations will be made early on in litigation as plaintiff firms look to maximise the available pot for their clients. This tactic is already prevalent in motor cases, but is increasingly being used across all product lines and in high-exposure matters. Even in cases that would not traditionally fall within an insuring agreement, there is a trend for plaintiffs to include single line allegations in complaints with the objective of triggering a duty to defend for insurers. The argument here is that if there is a duty to defend then there is a duty to settle, even uncovered claims, and that the failure to accept the early demand opens the limits. In high value, complex cases, particularly those involving multiple insureds or cross-jurisdictional issues, insurers are well-advised to take coverage advice early on.
7. A US perspective: social inflation will spread to other jurisdictions
Social inflation will continue to concern insurers writing US liability business and looks set to spread to other jurisdictions. Until now, the rising cost of claims, due to social, political, legal and economic developments, has been considered largely as a US phenomenon. It is not new, but has been attributed the cause of year on year increases in jury awards against insureds and their insurers, as well as more frequent ‘nuclear verdicts’. There are signs similar factors may contribute to an increase in the cost of claims in other common law jurisdictions, such as Canada, Australia and the UK, and also civil law jurisdictions, for example the Netherlands and Mexico. In the US, the increase in court awards has been driven by increasingly available litigation funding and the desire of juries to lay the blame for injury and loss at the door of large corporations, especially when they are backed by the perceived ‘deep pockets’ of insurers. Although the US jury system is not replicated in any other country for civil cases, insurers need to consider the widening access to litigation funding outside the US, the growing willingness of courts to hold large corporations to account for activities worldwide, and the risk of increased awards in tort claims, such as for ‘moral damages’ in civil jurisdictions.
8. An Australian perspective: liability risks will continue with glyphosate, opioids and talcum powder – with PFAS and silicosis emerging
Globally, there are increased claims involving glyphosate, opioids and talcum powder, including a notable decision in the US against Johnson & Johnson and a A$10bn settlement of tens of thousands of claims in Australia regarding Roundup. There is also a growing concern around perfluoroalkyl substances (PFAS), with litigation being pursued against the Australian Government regarding PFAS in waterways and land around military bases. Silicosis claims are also emerging from Australian workers exposed to crystalline silica dust associated with the artificial stone industry.
9. An Australian perspective: COVID-19 consumer protection class actions likely to flourish
A representative class action, brought under Australian consumer law, has been commenced in the Federal Court following the spread of COVID-19 onboard the Ruby Princess cruise ship in July 2020. This follows the High Court’s decision earlier in the year in Scenic Tours v Moore, which found damages were recoverable for ‘disappointment and distress’ associated with a European river cruise that was modified to a bus tour due to river flooding. As claims under consumer law are not limited by the caps that apply under liability law, it’s likely plaintiff firms will increasingly pursue this option.
10. An Australian perspective: class actions will force underwriters to consider risk of natural disasters
In addition to injury, property damage and business interruption claims, natural catastrophes can also give rise to class actions. In late 2019, the Supreme Court of New South Wales found in favour of the plaintiff/class in the Queensland Floods Class Action (brought against the dam operators for causing the floods) regarding the Wivenhoe and Somerset dam floods in South East Queensland in 2011. An appeal is currently pending. Underwriters must continue to consider the risk of natural disasters for the customers and businesses they insure, particularly in high risk areas. As premium affordability continues to be an issue, the number of uninsurable risks will continue to rise. Insurance cannot be the only reconstruction solution. Experts are now calling for a levy on the fossil fuel industry for a climate disaster fund to help pay for the impact of natural disasters.
11. A German perspective: European class action reform continues
After the introduction of the so-called model declaratory action by the German legislator at the end of 2018, an EU-wide ‘real’ class action will be put into effect. It is not limited to certain areas of law, but is meant to be a cog in the wheel in order to minimise the risks of the individual in connection with the prosecution of a claim and to grant effective consumer protection. Abuse tendencies that have occurred in other jurisdictions shall be counteracted by defining ‘adverse cost rules’ and the fact that an award of ‘Punitive/Exemplary Damages’ shall not be made possible contrary to national law.
12. A German perspective: upcoming developments in German supply chain legislation
The German legislator wants to oblige large companies to observe duties within ‘risk fields of human rights’ along the supply chain. The nearer companies are located to each other in the supply chain, and – as a consequence – the more influence they may exercise on each other, the more they will be exposed to potential liability. That means undertaking due diligence proportionate to the risk (the likelihood and potential severity of human rights impacts) in a company’s own global operations and those of its suppliers and customers. Companies would be required to establish human rights grievance mechanisms and to use commercial leverage to discourage human rights contraventions. The law will come into force in 2021 despite COVID-19, even though German companies in particular might lose access to important sales markets due to this regulation.
13. A Spanish perspective: COVID-19 related class actions
Spanish law does not recognised class actions as they are understood in other jurisdictions. However, Article 11 of the Spanish Civil Procedural Rules allows a similar action to protect the rights and interests of consumers. These actions can be brought directly by consumers, consumer associations or by the Public Prosecution Service. Such groups have already brought these ‘Spanish style’ class actions against public bodies in relation to COVID-19, alleging breaches of regulations governing safety at work and infringements of constitutional fundamental rights. Even though we anticipate that a number of these on-going actions will be dismissed for procedural reasons (eg where the claimants do not qualify as consumers in accordance with the relevant legislation), the remainder will create a very interesting debate not only in respect of the legal decisions but also in respect of the wider convenience of increasing the number of recognised situations where such collective actions can be used.
