Prepare to Hear “See You in Court”

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The insurance industry is no stranger to litigation. International law firm Fulbright & Jaworski LLP’s annual U.S. Litigation Trends survey found that 93% of insurance companies faced at least one new lawsuit in 2007. As part of that number, 33% of insurers faced more than 20 new suits, and 54% reported enduring at least one $20 million suit. In addition, the report states that 79% of insurance companies filed at least one suit themselves in 2007 acting as plaintiff, with 28% of the suits seeking in excess of $20 million.

A new TowerGroup Inc. report says the financial meltdown represents unprecedented interdependencies and negative forces that insurers and distributors must be prepared to deal with in new ways when it comes to litigation.

Karen Pauli, research director in the insurance practice at TowerGroup, an independent research firm owned by MasterCard Inc., tells INN that today's economic situation includes the added issues of applicable insurance and lawyers with experience in insurance litigation and class action looking for the next new frontier. Many cases, she believes, will warrant settlement, but many others will not, and carriers must be able to detect a change in the legal merits of cases.

The report suggests insurers—specifically those providing directors and officers insurance (D&O)—employ leading-edge technology for document and data management and for claims administration to control their financial destiny.

Technology, such as the modern, open-architecture document management systems, and Web-enabled policy and claims administration systems, will be important, Pauli says. Also vital is text mining, which is a significant part of e-discovery. “Most commercial lines today are still paper-based, so getting modern, state-of-the-art document management, claims and policy admin technology is critical,” she says.

In addition to technology, insurers will need superior management skills, according to the report. The complexity of the financial instruments involved in the meltdown makes data management vital. Risk management will be imperative, particularly as litigation periods stretch. The legal landscape will change over time, and only the carriers with superior access to data and skills with integration will be able to effectively respond. The report predicts the entanglement resulting from the economic crisis will continue for an undetermined length of time, and suggests insurers and distributors be prepared to manage the next phase of the meltdown—in court.

D&O and, to a lesser degree, errors and omissions, will be most affected, Pauli stresses. According to the report, several of the carriers that are the largest writers of D&O insurance are themselves caught up in the worst of the crisis, including AIG, which is the second-largest writer of banking D&O, and the fourth-largest writer of non-banking financial services D&O. Also embroiled in this situation is The Hartford—the third-largest writer of non-banking financial services D&O. Because of this, executives and management must focus on keeping litigation under control to maintain underwriting and claims discipline.

Carrie Burns is senior managing editor of Insurance Networking News. You can reach her at carrie.burns@sourcemedia.com.

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