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Current Developments in Tort Claims Claire Louis - PricewaterhouseCoopers LLP. Casualty Actuarial Society Baltimore, Maryland. November 14, 2005. Key Topics. Tort claim drivers Major areas of tort liability Asbestos Securities litigation Medical malpractice

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Current Developments in Tort Claims

Claire Louis - PricewaterhouseCoopers LLP

Casualty Actuarial Society

Baltimore, Maryland

November 14, 2005

key topics
Key Topics
  • Tort claim drivers
  • Major areas of tort liability
    • Asbestos
    • Securities litigation
    • Medical malpractice
    • Drug products and medical devices
  • Status of federal and state tort reform

1

key topics1
Key Topics
  • Tort claim drivers
  • Major areas of tort liability
    • Asbestos
    • Securities litigation
    • Medical malpractice
    • Drug products and devices
  • Status of federal and state tort reform

2

tort claim drivers
Tort claim drivers
  • U.S.
    • Culture of blame
    • Contingency fees
    • Plaintiffs bar and judiciary
    • Promotion of attorney services
    • Technology
    • Expanded bases of liability
    • Tort reform erosion
    • Media
    • Medical advances and medical cost inflation

3

tort claim drivers1
Tort claim drivers
  • International
    • Differences in legal and structural systems
    • Loser pays winner’s attorney fees: After the Event insurance
    • European social insurance: greater medical and financial benefits
    • Traditionally, contingency fees not allowed
      • Maintenance and champerty
    • England and Wales: “success fee” arrangements
      • Courts and Legal Services Act of 1990 and related legislation
      • Allowed in all civil proceedings except family cases
      • Still exception rather than the rule
      • Based on solicitor’s costs, not damages
    • EC
      • Move to harmonize different legal systems
      • Elements of civil and common law system
      • Strict liability still new
    • New Zealand and Switzerland have abolished tort law system

4

key topics2
Key Topics
  • Tort claim drivers
  • Major areas of tort liability
    • Asbestos
    • Securities litigation
    • Medical malpractice
    • Drug products and medical devices
  • Status of federal and state tort reform

5

asbestos
Asbestos
  • More than 8,400 businesses affected
  • Original projected costs - $8 bn
    • Total projected costs - $300 bn
  • Original projected claims – 60 mm
    • Total claims to date – 770 mm
    • Total projected claims – 3.3 bn

6

asbestos1
Asbestos
  • Since 1981, ten attempts to pass federal asbestos legislation
  • S.852 – Fairness in Asbestos Injury Resolution Act of 2005
    • $140 bn over 30 years
    • Would eliminate virtually all existing and future cases
    • Lacks support from insurers, certain defendants, and other interest groups
    • Insurance industry concerns include lack of finality, exigent claim issues, and orphan share funding

7

asbestos2
Asbestos
  • State asbestos reform
    • Legislative
      • Ohio Asbestos Reform Bill (Sept 2004)
        • Intent is to give priority to the truly sick
        • First state to require actual impairment under objective medical criteria
        • Already there are attempts to circumvent

8

asbestos3
Asbestos
  • State asbestos reform
    • Legislative
      • Texas (Sept 2005)
        • Requires a report from a qualified physician stating a diagnosis of mesothelioma or other cancer
        • Specific X-ray and PFT criteria must be met
        • Expedites malignancy cases for trial
        • Prohibits reliance on reports or opinions produced by labs linked with law firms

9

asbestos4
Asbestos
  • State asbestos reform
    • Legislative
      • Florida (July 2005)
        • Sets minimum medical criteria
        • Requires that qualified doctors read X-rays
        • Protects the rights of those who become sick in the future

10

asbestos5
Asbestos
  • State asbestos reform
    • Judicial
      • Inactive dockets (IL, NY, WA; Baltimore, Boston, Chicago)
        • Favorable experience
        • Defer and protect unimpaired claims until individual develops an impairment
        • Must meet medical criteria
        • Sick receive priority
        • Relieves docket congestion
        • Preserves scarce financial resources

11

asbestos6
Asbestos
  • Federal asbestos reform
    • Federal MDL
      • Thousands of unimpaired claims dismissed
      • 20,000 Jones Act cases dismissed (1996)
        • Few claims reinstated
        • Evidence of “manifest injury”
      • Administrative dismissal of mass screening cases (2002)

12

asbestos7
Asbestos
  • International
    • Focus is serious disease cases: escalating mesothelioma rate in the UK (3.8 X higher than U.S)
    • Claimants fearful of judicial system
    • Burden of proof difficult to satisfy
    • Claimants were socially marginalized
    • Possible national solution sought in UK
    • European Asbestos Conference Sept 2005
    • 2005-2006 EU Year of Action on Asbestos

13

asbestos8
Asbestos
  • U.S. insurance issues
    • Dramatic decrease in new filings; increase in severe case filings
    • Few surviving matrix agreements
      • Battles fought case-by-case
      • Stricter proof requirements
      • More trials
    • Insurers looking for finality:
      • Push for buy-outs of Tier Two and Three players
      • CSAs for relatively minor defendants
    • Bankruptcies: in general, has not caused the acceleration in insurance pay-outs once feared
    • Silica
      • Plaintiffs bar repackaging asbestos cases as silica cases
      • Rate of filings jumped 2002-2003
      • Favorable developments in Texas

14

key topics3
Key Topics
  • Tort claim drivers
  • Major areas of tort liability
    • Asbestos
    • Securities litigation
    • Medical malpractice
    • Drug products and medical devices
  • Status of federal and state tort reform

15

securities litigation
Securities litigation
  • In 2004, securities litigation became global: securities litigation, securities regulatory investigations, and enforcement actions increased substantially around the world
  • U.S. private securities actions increased
  • More litigation, investigation, enforcement activity against foreign private issuers than ever before
  • Skyrocketing settlement costs
  • Regulation, regulatory enforcement, and securities litigation

16

globalization of securities litigation
Globalization of securities litigation
  • In 2004, 29 foreign filers listed on foreign exchanges—the highest number in one year--were sued in U.S. private securities class actions: a 90% increase from 2003
  • 22 of the cases involved allegations of accounting irregularities and financial fraud
    • Parmalat
    • Ahold
    • Royal Dutch Shell
  • Adoption of IFRS and SOx 404 compliance

17

u s private securities actions
U.S. private securities actions
  • 203 private securities actions filed in 2004: 16% increase
  • Drivers
    • New SEC rules and regulations
    • New PCAOB rules
    • Effects of private class actions and court decisions: Enron, WorldCom, HealthSouth
  • Effects of SOx still to be felt

18

2004 settlement trends in u s private securities class actions
2004 settlement trends in U.S. private securities class actions
  • Increasing trend in high-dollar settlements
  • 104 cases settled for $5.4 bn ($2.8 bn excluding WorldCom)
  • Average settlement value: $27.6 mm (up 18% from 2003)
  • Median settlement value: $7mm (up 25% from 2003)

19

drivers of u s private securities class action settlements
Drivers of U.S. private securities class action settlements
  • High level of market capitalization
  • Role of retirement fund and pension fund fiduciaries and institutional investors as lead plaintiffs in class actions
  • Intersection of private securities class action claims with financial restatements
  • Severity of accounting scandals and financial frauds

20

regulation enforcement and securities litigation
Regulation, enforcement, and securities litigation
  • Securities class action litigation not just a U.S. phenomenon, e.g., France and Netherlands
  • Reach of regulatory enforcement crosses borders
  • Convergence of generally accepted accounting principles: IFRS and US GAAP
  • Greater coordination among securities regulators worldwide
  • International cooperation agreements to facilitate enforcement and prosecution
  • Joint investigation protocol between U.S. and other countries
  • Adoption of SOx-like regulations and reforms by international regulators

21

future securities litigation trends
Future securities litigation trends
  • Steady increase in number of private securities class actions and regulatory enforcement actions
  • Continuing significant increase in dollar values of private securities class action settlements
  • Significant increase in Section 10(a), SEC (and others) investigations, internal corporate investigations leading to more restatements, more regulatory enforcement actions, more private securities litigation

22

key topics4
Key Topics
  • Tort claim drivers
  • Major areas of tort liability
    • Asbestos
    • Securities litigation
    • Medical malpractice
    • Drug products and medical devices
  • Status of federal and state tort reform

23

medical malpractice
Medical malpractice
  • Trend toward higher verdicts and median awards
  • Severity increasing in serious injury cases
  • Sharp rise in defense and administration costs
  • Nursing home litigation continues strong
    • MS, FL, AL still “hot spots”
    • Wilkes & McHugh may be moving on
    • Fewer trials, more settlements
    • Operator financial difficulty increasing insurer risk

24

medical malpractice1
Medical malpractice
  • Drivers of med mal claims
    • Not just a tort system issue
    • Other factors
      • Sicker, older population
      • Greater expectations for medical care
      • Breakdown in doctor-patient relationship
      • Incidence of medical error

25

medical malpractice2
Medical malpractice
  • Prospects for reducing med mal claims
    • Increased diagnostic testing
    • Peer review and disciplining
    • Improved communications with patients
    • Technology

26

medical malpractice3
Medical malpractice
  • Reform
    • National med mal reform defeated in 2005
    • Certain recent reforms appear to be working: caps on awards appear the most effective
    • Not infrequently, medical mal reforms are challenged and overturned or circumvented

27

medical malpractice4
Medical malpractice
  • State approaches to med mal reform
    • Advance notice of claim
    • Statute of limitations
    • Joint and several limitations
    • Compulsory ADR
    • Expert affidavit
    • Limited attorney fees
    • Modification of collateral source rules
    • Damages caps: pain and suffering, punitive, total
    • Periodic payments

28

key topics5
Key Topics
  • Tort claim drivers
  • Major areas of tort liability
    • Asbestos
    • Securities litigation
    • Medical malpractice
    • Drug productsand medical devices
  • Status of federal and state tort reform

29

drug products and medical devices
Drug products and medical devices
  • Current claim drivers
    • Fast-track FDA approval
    • Direct to consumer marketing: erosion of learned intermediary defense
    • Off-label promotion of drugs
    • New drug delivery technologies
    • Clinical trials
    • Product counterfeiting
    • Quality control (Ortho-Evra patch)
    • Aging of population

30

drug products and medical devices1
Drug products and medical devices
  • Limiting drug and medical devices product liability
    • Proposed federal legislation
      • Pre-emption of punitive damages against manufacturers of FDA-approved drug products
      • Healthcare providers shielded from liability
    • Federal pre-emption of state tort claims
      • FDA intervention in private lawsuits involving drugs or medical devices
    • State tort reform initiatives

31

key topics6
Key Topics
  • Tort claim drivers
  • Major areas of tort liability
    • Asbestos
    • Securities litigation
    • Medical malpractice
    • Drug products and medical devices
  • Status of federal and state tort reform

32

tort reform current efforts
Tort reform: current efforts
  • Federal
    • Intent is to address lack of uniformity at the state level
    • Class Action Fairness Act of 2005 – Feb 2005
    • Lawsuit Abuse Reduction Act
  • State
    • Extent of reform varies by state
    • Current focus is on damages caps, joint and several, punitive damages, collateral source rule
  • Tort reform effectiveness
    • No single reform offers the perfect solution
    • Damages caps appear to be the most effective means to reduce the number of lawsuits and the value of awards
    • In the end, what matters most for insurers is predictability

33

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