Large liability claims are becoming more expensive, complex and international, with activity increasing outside the United States, according a report published by Allianz Global Corporate & Specialty (AGCS).
“Although recent years have seen a noticeable rise in large environmental liability claims, pharmaceutical and automotive product liability and product defect/recall are the main drivers for large liability claims globally,” said the report, titled “Global Claims Review – Liability in Focus.”
“While we have not necessarily seen an increase in the frequency of large liability claims, those that are filed are typically now more complex and with a higher spend than in the past,” said Larry Crotser, head of AGCS Chief Claims Office, North America.
Indeed, industrial, environmental, product liability and financial lines claims surpassing $1 billion are more commonplace and are no longer confined to the U.S. and Europe, said the report.
AGCS quoted a 2015 study from Aon, which identified 86 corporate liability losses in excess of $1 billion since 1989. “Some 57 of these losses were in excess of $2 billion and 13 over $10 billion, mostly from pollution incidents and regulatory actions.” (The Aon report was titled “Global Insurance Market Opportunities.)
Large environmental liability claims, such as pollution, are increasing – particularly those from the mining and construction sector – which can be complex, costly and take a long time to settle, the report said.
Peter Oenning, global head of Claims Liability, AGCS, noted that environmental liability claims can be particularly challenging in emerging markets. “They can be complex and difficult to deal with, given cultural differences, language and legal systems that may be less predictable than courts in the U.S. and Europe,” he said.
For example, one of the largest losses of 2015 came after the collapse of an iron ore tailings dam at the Samarco mine in Bento Rodrigues, Brazil.
The Samarco mining disaster is one of the country’s largest environmental disasters, killing 19 people and causing “extensive pollution and property damage.”
“Samarco and its owners (the mine is a joint venture between Vale and BHP Billiton) have agreed to settle a $48 billion compensation claim from federal prosecutors by June 2017,” the AGCS report said.
“In addition, the two mining companies reached a settlement with Brazilian authorities of at least $2.6 billion to cover clean-up costs and compensation,” it continued.
The largest corporate liability loss in recent years was BP’s 2010 Deepwater Horizon explosion and oil spill, which has a price tag of $61.6 billion, “covering multiple liability settlements with federal and state authorities, shareholders, property owners and consumers,” AGCS said.
AGCS said that the emissions cheating scandal in the automotive industry is an example of how complex liability losses can become, with “multi-jurisdictional regulatory investigations and litigation for carmaker Volkswagen and its directors.”
“In October 2016, Volkswagen agreed to a $15 billion settlement with a group of U.S. federal and state regulators covering some 475,000 vehicle owners in the U.S. In December 2016, it agreed to a further $1 billion settlement to fix or buy back another 80,000 vehicles sold in the U.S.”
Another factor in the increasing size of liability claims is the more challenging product liability and recall incident environment. “With complex global supply chains and large numbers of products and suppliers being concentrated on a smaller number of larger companies, product liability and recall claims have been becoming larger and more challenging to settle,” the report said.
As an example, the report noted that U.S. auto recalls have hit a record high for the past three years in a row, culminating in the recall of around 53.2 million vehicles in 2016.
One of the major recall cases involved faulty airbags made by Japanese manufacturer Takata, which has affected approximately 42 million vehicles and 19 automakers to date, the report said.
“[Takata] has agreed to plead guilty to criminal wrongdoing and pay approximately $1 billion to resolve a U.S. Justice Department investigation into ruptures of its airbag inflators.”
Meanwhile, pharmaceutical liability and recalls also continue to generate large claims, the report said, pointing to the rise in claims against pharmaceutical companies in the U.S. “over suspected links between talcum powder and ovarian cancer, as well as a potential source of asbestos.”
“In three separate cases during 2016, juries awarded $72 million, $55 million and $71 million, respectively, to plaintiffs in talcum powder cases tried in Missouri,” said AGCS. “As of October 2016, there were believed to be around 1,700 similar lawsuits in state and federal courts.”
With an increasing proportion of goods now manufactured in Asia, the report continued, product liability claims have become a significant driver for large liability claims from China, accounting for 2,124 product recall cases in the U.S. during 2015, followed by 685 U.S. companies.
“China accounted for 62 percent of the product safety alerts issued by the European Union in 2015.”
Part of the reason for the escalating size of liability claims is that regulators around the world are getting tougher, “making corporations and their directors more accountable,” AGCS explained.
The report cited the example of the Samarco mining disaster and its effect on domestic regulation. The disaster has led to a “significant increase in environmental exposure and claims in Brazil as environmental laws have been clarified and as the regulator has become more aggressive,” according to Tiago Santos Badin, claims manager, AGCS Brazil, who was quoted in the report.
Further, Crotser noted that the number of recalls has been rising along with an “increased focus on product and workplace safety, as well as more proactive regulation.”
“At the same time, consumer protection laws have been strengthened in many countries and U.S.-style litigation continues to spread around the globe,” said AGCS, noting that consumers in countries such as China, Singapore and Japan “have a greater awareness of compensation.”
The report predicted that global class actions by consumers and investors will become more significant. Although they remain a largely U.S. affair, “collective redress is taking on a more international dimension, including in Europe.”
Source: Allianz Global Corporate & Specialty