One Law Firm’s Insurance Industry Predictions for 2023

Attorneys with Clyde & Co., an international law firm, offer these predictions for the insurance industry in the coming year:

Onslaught of litigation has subsided but some changes are here to stay.

It is safe to say that, for the COVID coverage litigation, at least 10 years’ worth of insurance claims litigation was conducted in the last two and a half years. Lawsuits regarding COVID coverage claims were so numerous, so intense, and moved so quickly that a large volume of caselaw on multiple issues and in multiple jurisdictions developed very rapidly. Judges dealt with “stretch” arguments and extravagant claims, such as plaintiffs’ claiming there was actual physical damage to a structure caused by the presence of the COVID virus.

These arguments for COVID coverage were overwhelmingly held unjustified and weak. As a consequence, we are now seeing courts treat policyholders’ arguments in a wide variety of coverage disputes with more skepticism. There will be other ripple effects as well; for example, we are also seeing courts according less deference to a policyholder’s choice of forum, refusing to allow litigation to take place in a location unrelated to where either party is based and forcing policyholders to litigate in a natural or appropriate forum.

COVID forced the world to do business in new ways, and litigation was no exception. While the frantic pace at which legal business was conducted during COVID has now subsided, we believe that some of the court’s changing ways are here to stay.

–Patrick Hofer, Washington, D.C.

There will be an increase in governmental action on PFAS in 2023.

Since the 2000s, various federal, state and international authorities began to establish regulations addressing per- and polyfluoroalkyl substances, known as PFAS. In April 2022, the US Environmental Protection Agency announced three clean water actions, including the first Clean Water Act aquatic life criteria for PFAS, focusing on perfluorooctanoic acid (PFOA) and perfluorooctane sulfonate (PFOS). In May 2022, the EPA added five PFAS to a list of risk-based values for site clean-ups. In June 2022, the EPA released four drinking water health advisories for PFAS and issued its first test order under the EPA’s National PFAS Testing Strategy, requiring PFAS manufacturers to provide the agency with toxicity data and information on categories of PFAS chemicals to inform future regulatory efforts. In August 2022, the EPA released its landmark proposed rule designating two PFAS (PFOA and PFOS) as “hazardous substances” under CERCLA.

In 2023, there will be increased EPA action on PFAS. The EPA is well on its way to adopting guidelines regarding PFAS and anticipates that it will implement drinking water MCLs by fall 2023. Further, the adoption of the proposed rule designating PFOA and PFOS as “hazardous substances” under CERCLA will create other indirect requirements, including the ability of the EPA to order cleanups and recover costs. The Infrastructure Investment and Jobs Act (effective Nov. 15, 2021), includes $10 billion to addressing PFAS and other emerging contaminants.

There has also been an increase in state actions. States have established various standards including MCLs or proposed MCLs and classifying PFAS as hazardous wastes/substances. 2023 will see increased state action to establish groundwater quality control, remediation and the regulation of Class B Firefighting Foam. Increased awareness of the toxicity of PFAS will also lead to an increase in litigation targeting chemical manufacturers and suppliers.

–Alex Potente, Los Angeles

Advances in technology to drive litigation.

Autonomous vehicles will continue to be on the move in 2023, and with the technology getting more sophisticated each year, we are sure to see an uptick in related litigation.

Level 3 vehicles, which have “environmental detection” capabilities and can make informed decisions for themselves such as accelerating past a slow-moving vehicle, are expected to hit the market soon. Though these vehicles require human override, they are still highly autonomous, especially in comparison to previous models.

While we are not in the age of fully autonomous vehicles yet, it is not surprising that the Level 3 cars still come with risks and potential for lawsuits. Litigation that we expect to see may include failure to equip the vehicle, failure to use, and failure to monitor. We also anticipate litigation related to training, including negligent training, disengagement training, and over- or under- training. Additionally, we believe that the industry will see product liability claims related to equipment and maintenance, as well as cyber and software.

The types of parties who will be sued is numerous, ranging from the actual operator of the vehicle, to the car/parts manufacturer, to the dealership. And don’t forget the software developers and consultants, all of whom may also have liability.

While we don’t expect to see fully autonomous Level 4 and 5 cars rolling off the assembly line in 2023, the vehicles that are currently on the market already come with risks. We will be watching to see what developments are made and how we can stay ahead of expected litigation.

–Doug Horelick and Nanci Schanerman, Miami

Drivers will include rising corporate mistrust, growth in third party litigation funding and fake advertising.

The rise in social inflation is not a new phenomenon, but it’s increasingly become a factor in a significant number of jury cases. Nuclear verdicts – exceptionally high jury verdicts (greater than $10m) that exceed what most would consider reasonable – show no sign of slowing down in 2023, and large public companies are especially vulnerable.

Nuclear verdicts will be driven by many factors in the coming year, including growing corporate mistrust, growth in third party litigation funding, social pessimism, savvy plaintiff’s lawyers, reptile theory, lottery mentality, actual liability, bad faith and policy limits demand pressures, and fake advertising in the form of plaintiff’s lawyers misrepresenting verdicts/settlements.

With so much on the line, carriers will start to get more proactive about working with insureds to identify proper outside counsel. It has become increasingly important for carriers and insureds to hire the right lawyer to start with; the cheapest person on the panel may not be the right person for the case and companies are beginning to realize that they must incur appropriate expense at the forefront to retain qualified counsel that can prevent a nuclear verdict.

Combatting social inflation takes several factors, including: 1) a strong claims team, proper defense counsel, cooperative insureds and collaborative dialogue amongst them; 2) early development of a detailed case strategy; 3) a realistic and practical defense budget; 4) an aggressive defense; 5) proper jurisdiction/venue analysis; 6) aggressive discovery tactics; 7) strong pre-trial motions; 8) creative settlement strategies/offers of judgment; 9) intense trial and witness prep (mock trials, focus groups, jury and venue research, jury consultants, witness coaches, etc.); and 10) strong trial experience.

From the outset, insurers must be realistic in terms of budgets for outside counsel, and must be candid and transparent about what is truly needed for a successful outcome. When it comes to counsel, carriers and insureds alike will increasingly need to ensure that proper defense counsel are appointed and balance defense costs against the chance and frequency of nuclear verdicts.

–Fred Fein, Miami