Unpaid insurance claim suits disputed as reason for rate hikes

Insurance industry economic cycles, rather than litigation against insurers, are a larger cause of rate increases and non-renewals, according to a consumer advocacy organization responding to insurance industry lobbying against plaintiffs' litigation.

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"Under the theory that the legal system has something to do with why hard markets kick in, one would have to believe that jury verdicts or trial lawyers have timed their 'aggression' or 'abuse' to precisely coincide with the insurance industry's economic cycle," stated Joanne Doroshow, executive director, Center for Justice & Democracy (CJD) at New York Law School, in an email response to questions. CJD is a national consumer organization dedicated to protecting the civil justice system.

Doroshow pointed out that the most recent hard market cycle for the industry, with rising rates, started in 2019 and "continued even through the pandemic, when courthouses were closed and there were no jury verdicts."

A recent industry-sponsored survey about plaintiff lawyers suing insurance carriers found that 69% of a sample of 2,000 U.S. adults believe that legal tactics like third-party litigation financing and jury anchoring will increase the cost of home, auto and business insurance. The survey, conducted by The Harris Poll, was commissioned by the American Property and Casualty Insurance Association (APCIA) and Munich Reinsurance America. 

In a June 2024 statement to the U.S. House Judiciary Subcommittee, APCIA stated that nuclear verdicts against companies, meaning cases where a plaintiff was awarded $10 million or more, cause a "tort tax" of $1,424 per citizen and $3,681 per household annually. 

In Florida and Georgia, insurance industry representatives have blamed those states' home insurance availability and affordability problems on litigation costs. In November 2024, the Florida legislature reversed its support for this idea, according to the Tampa Bay Times. The Georgia state senate on February 21 passed tort reform limiting lawsuits, and is considering limiting third-party financing of lawsuits.

In Louisiana, during the first half of 2024, the state legislature passed four separate bills regarding lawsuits against insurers, addressing the time frame for legal claims, the ability to sue out-of-state insurers, third-party funding of lawsuits and thresholds for settlement offers. 

CJD's Doroshow stated that lawsuits against insurers are often legitimate and not a result of legal system abuse, as industry critics say. "No one wants to have to sue their insurance company. People sue because legitimate insurance claims are not being paid," Doroshow said. A 2020 CJD study said the industry was deceiving consumers in preparation for a crisis of skyrocketing rates. A 2023 CJD study said industry criticism of nuclear verdicts and jury grievance reports,  "whitewash often egregious corporate malfeasance that led to these verdicts, dehumanize the experiences of those who have been hurt, and mock jurors who carefully make their decisions based on evidence presented by both sides of a case."

Tort reform would make a difference in insurance costs, according to Todd Greenbaum, president and CEO of Input 1, a billing, payments and financial services company based in Thousand Oaks, Calif. 

"If lawsuits were handled in a more objective fashion, as opposed to, generally speaking, companies, certainly in California, are generally guilty until proven innocent, you would see a change in behavior," he said.

Tort reform could bring a decrease in home insurance premium rates, according to Greenbaum. "Some people might say once the insurance companies have raised their premiums, they're not going to drop them," he said. "What's going to happen is some really smart actuaries at a newer insurance company are going to look at this and say, 'everyone else is still charging this legacy price, as if there was no tort reform. Look what we can do if we drop our premiums 10% below the market.' Then they would start to grab up the business. The free market will drive this. There is no question that premiums will drop. How long it will take, that's another question."