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Current Developments in Tort Claims

Claire Louis - PricewaterhouseCoopers LLP

November 14, 2005

Casualty Actuarial Society

Baltimore, Maryland

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

1

Key Topics



– Asbestos



– Drug products and devices


2

Tort claim drivers

• U.S.

– 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 inflation3

Tort claim drivers

• International– 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• 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

4

Key Topics



– Asbestos





5

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

6

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

7

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

8

Asbestos


– 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

9

Asbestos


– 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

10

Asbestos


– 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

11

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)

12

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

13

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

14

Key Topics



– Asbestos





15

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

16

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

17

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

18

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)

19

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 frauds20

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 international regulators21

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

22

Key Topics



– Asbestos





23

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

– MS, FL, AL still “hot spots”

– Wilkes & McHugh may be moving on

– Fewer trials, more settlements

– Operator financial difficulty increasing insurer risk

24

Medical malpractice

• Drivers of med mal claims

– Not just a tort system issue

– Other factors

• Sicker, older population

• Greater expectations for medical care

• Breakdown in doctor-patient relationship

• Incidence of medical error

25

Medical malpractice

• Prospects for reducing med mal claims

– Increased diagnostic testing

– Peer review and disciplining

– Improved communications with patients

– Technology

26

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

27

Medical malpractice

• State approaches to med mal reform

– 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 payments28

Key Topics



– Asbestos





29

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

30

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

31

Key Topics



– Asbestos





32

Tort reform: current efforts

– Federal • Intent is to address lack of uniformity at the state level

• Class Action Fairness Act of 2005 – Feb 2005

• Lawsuit Abuse Reduction Act

– State• Extent of reform varies by state

• Current focus is on damages caps, joint and several, punitive damages, collateral source rule

– Tort reform effectiveness• 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

33

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