Litigation Trends Continue to Mount Worldwide; Insurers Face Five Times the Average Number of Lawsuits

Insurance companies are the litigation champions confronting an average of 1,696 lawsuits, spanning from product liability and environmental class actions to directors and officers claims, and even coverage fights over hurricanes and terrorist attacks, according to a new survey of corporate litigation trends from international law firm Fulbright Jaworski LLP.

In its third annual survey of corporate litigation trends – pulling data from 422 in-house law departments worldwide – Fulbright found that U.S. companies face an average of 305 pending lawsuits internationally. For large U.S. companies – those with $1 billion or more in annual gross revenue – the number of lawsuits soared to 556 cases, with an average of 50 new disputes emerging each year for close to half of them.

Although the majority of those cases are in U.S. courts, the tide of international disputes is rising – more than one-third of companies said that up to 20 percent of their dockets originate in foreign venues, proof that U.S.-style litigation is going global.

U.K.-based companies surveyed by Fulbright reported an average of only 178 cases – 63 in the U.S.

No segment of the American economy was spared a weighty litigation docket more than insurers. Insurance companies, historically the object of disputes brought by policyholders and class action claimants, had more than five times the average cases pending than the next highest sectors – energy (364), retail (333) and financial services (300). And the cases continue to mount – more than half of insurance company counsel reported taking on 50 or more new lawsuits in the past year. Seventeen percent of insurers reported having more than 50 lawsuits pending with at least $20 million at issue. By contrast, only 6 percent of energy companies reported more than 50 suits in the $20 million or greater range.

“Perhaps even more than our two previous studies, our new survey reveals how thoroughly litigation is woven into U.S. corporate culture – the sheer number of cases and huge slice of spending taken up by lawsuits make abundantly clear that litigated disputes are a fundamental part of doing business,” said Stephen C. Dillard, chair of Fulbright Jaworski’s global litigation practice.

“Of course, litigation is not always defensive,” he added. “The great majority of companies report initiating lawsuits in order to enforce contracts, safeguard intellectual property, block monopolistic behavior, and achieve other valid business objectives that require them to take assertive legal action.”

Seventy percent of the in-house counsel surveyed by confirmed that their companies initiated at least one new lawsuit in the past year as plaintiff.

And conventional lawsuits don’t tell the full story: half of participating U.S. counsel said their companies separately faced at least one new arbitration and one new regulatory proceeding in 2005-06, on top of their litigation caseload.

As lawsuits have multiplied – brought by shareholders, regulators, consumers, employees and competitors – so has another related event: the internal investigation. Nearly two-thirds of the U.S. companies interviewed by Fulbright reported that their companies had launched at least one such probe in the past year necessitating use of outside counsel, a certain byproduct of Sarbanes-Oxley legislation, as well as the recent mega-scandals of Enron and WorldCom.

That litigation is an everyday fact of life for American corporations is borne out by findings from companies of all sizes and industries. Ninety-four percent of U.S. counsel canvassed said that their companies had some form of legal dispute pending in a U.S. venue. For 89 percent, at least one new suit was filed against their company during the past year.

Businesses are not expecting litigation trends to ease up. One third of all companies, and nearly 40 percent of $1 billion-plus firms, project the amount of litigation to increase next year.

Cost of litigation
Big litigation comes with a big price tag as well. U.S. companies report spending 71 percent of their overall estimated legal budgets on disputes. Nearly 40 percent of those surveyed reported at least one $20 million suit commenced against them in the past year. Two percent faced 50 new suits or more involving at least $20 million in claims, or more than $1 billion worth of new disputes on the table for some large companies.

For billion-dollar-plus corporations, the costs of litigation are especially significant. Large U.S. companies commit an average of $19.8 million to litigation, approximately 58 percent of total average legal spending of $34.2 million. More than two-thirds of large companies surveyed reported at least one new suit involving $20 million or more in claims; 17 percent faced a minimum of six suits in the $20 million-plus range.

The generally high cost of dispute resolution in the U.S. has not been lost on the rest of the world. For more than half of foreign counsel surveyed by Fulbright, “high legal costs” was cited as a top concern about litigating a dispute in the U.S.

While smaller companies are hardly litigation free, the weight is considerably less. Companies with revenues under $100 million reported only nine cases pending on average. Counsel at American small businesses say their average dispute spending totaled only $178,000.

Participant overview
For this latest edition of Fulbright Jaworski’s Litigation Trends Survey, in-house counsel from 311 companies headquartered in 29 states participated in what has become one of the largest polls of corporate counsel on litigation issues. In addition to U.S. respondents, Fulbright surveyed law departments in 22 other countries, including the U.K., Canada, Mexico, Japan, Brazil and elsewhere in Asia, Europe and Latin America. Eighty-two percent of U.S. participants held associate general counsel or more senior positions, including chief legal officer and chief litigation counsel.

Fifty-two percent of U.S. respondents work for publicly-held companies; a similar percentage represent companies with gross revenues of $1 billion or more. Of the remainder, 28 percent were middle-market firms with sales between $100 million and $999 million and 22 percent had less than $100 million in revenues. The survey breaks down results into 13 different industry sectors, including energy, manufacturing, financial services, retail/wholesale, technology/communications, engineering/construction, health care and pharmaceutical, real estate, insurance and education, as well as non-profit organizations and trade associations.

As in past years, Fulbright asked law departments to identify their greatest concerns on the litigation front – a challenging task given the breadth of lawsuits faced. Despite the recent heat generated by investigations into stock options backdating, companies say their No.1 litigation fear stems from labor and employment claims, followed by old-fashioned contract disputes, and ahead of regulatory actions, patent and other intellectual property suits, and class actions.

For a direct link to the survey results, go to: www.fulbright.com/litigationfindings.

Source: Fulbright Jaworski LLP