According to a recent Chubb survey of 800 high-net-worth individuals in the United States and Canada, 92 percent are concerned about the size of a verdict against them if they were a defendant in a liability case – yet only 36 percent have excess liability insurance.
When it comes to liability, Chubb says respondents are most worried about auto accidents, allegations of assault or harassment, and someone working in their home getting hurt. Damage awards are rising dramatically for a number of reasons, according to Laila Brabander, head of North American personal lines claims for Chubb.
“Economic damages historically were based on factors such as the extent of an injury and resultant medical expenses or past and future loss of income,” she said. “But we are seeing a rise in non-economic damages, such as pain and suffering and post-traumatic stress disorder, that overshadow actual economic losses.”
Brabander described a case in which a client at a yoga studio fell onto the person next to her and was sued by the injured party for pain and suffering.
“The same plaintiffs’ tactics to encourage large verdicts in commercial trucking, auto liability, product liability and medical malpractice suits are now being utilized to push for larger jury awards against our high-net-worth clients,” Brabander said.
Another factor driving up the cost of settlements is the third-party litigation funding, in which firms provide funding to plaintiffs and their lawyers in exchange for a percentage of the settlement. These private-equity firms began in the commercial space and are now funding lawsuits against individuals and their insurers.
High-net-worth people also are deeply concerned about the threats posed to their homes by extreme weather and climate-related events. Much of this concern may be due to increased development in coastal areas vulnerable to tropical storms and flooding and in the wildland-urban interface – areas in which development places property into proximity with fire-prone wilderness (see links below).
Chubb’s findings are based on a survey of 800 wealthy individuals in the United States (650 respondents) and Canada (150 respondents). Respondents had investable assets of at least $500,000, with the majority reporting assets of $1.5 million to $50 million and 12 percent reporting assets of more than $50 million.
By Jeff Dunsavage, Senior Research Analyst, Triple-I
I’m pleased and proud to have been part of Triple-I’s Town Hall — “Attacking the Risk Crisis” — in Washington, D.C. In an intimate setting at the Mayflower Hotel on November 30, 120-plus attendees got to hear from experts representing insurance, government, academia, nonprofits, and other stakeholder groups on climate risk, what’s being done to address it, and what remains to be done.
Triple-I’s first-ever Town Hall was designed as a logical step in its multi-disciplinary, action-oriented effort to change behavior to drive resilience. Capping a year in which headlines about “insurance crises” in several states garnered major media attention, Triple-I and its members and partners recognized the need for clarification.
“What we’re seeing is not an ‘insurance crisis’,” Triple-I CEO Sean Kevelighan told the standing-room-only audience. “We’re in the midst of a risk crisis. Rising insurance premium rates and availability difficulties are not the cause but a symptom of this crisis.”
Whisker Labs CEO Bob Marshall discusses innovation with moderator Jennifer Kyung, Vice President and Chief Underwriter at USAA.
While the insurance industry has a critical role to play and is uniquely well equipped to lead the attack, simply transferring risk is not enough. A recurring theme at the Town Hall was the need to shift from a focus on assessing and repairing damage to one of predicting and preventing losses.
Three moderated discussions – examining the nature of climate risk and its costs; highlighting the need of strategic innovation in mitigating those risks and building resilience; and exploring the role and impact of government policy – gave panelists the opportunity to share their insights with a diverse audience focused on collaborative action.
The agenda was:
Climate Risk Is Spiraling: What Can Be Done?
Moderator: David Wessel, Senior Fellow and Director at the Brookings Institution and former Economics Editor for The Wall Street Journal.
Panelists:
Dr. Philip Klotzbach, Colorado State University, researcher and Triple-I non-resident scholar.
Dan Kaniewski, Managing Director, Public Sector at Marsh McLennan, Former FEMA Deputy Administrator.
Jacqueline Higgins, Head, North America & Senior Vice President, Public Sector Solutions, Swiss Re
Jim Boccher, Chief Development Officer, ServiceMaster.
Jeff Huebner, Chief Risk Officer, CSAA.
Innovation, High- and Low-Tech: How Insurers Are Driving Solutions
Moderator: Jennifer Kyung, VP, Chief Underwriter, USAA.
Panelists:
Partha Srinivasa, EVP, CIO, Erie Insurance.
Sam Krishnamurthy, CTO, Digital Solutions, Crawford.
Bob Marshall, CEO, Whisker Labs.
Stephen DiCenso, Principal,Milliman.
Charlie Sidoti, Executive Director, InnSure.
Outdated Regs to Legal System Abuse: It Will Take Villages to Fix This
Parr Schoolman, SVP and Chief Risk Officer, Allstate.
Tim Judge, SVP, Head Modeler, Chief Climate Officer, Fannie Mae.
Dan Coates, Deputy Director, DRS, Federal Housing Finance Agency.
Fred Karlinsky, Co-Chair of Greenberg Traurig’s Global Insurance Regulatory & Transactions Practice Group.
Panelists and participants alike appreciated the compact, action-focused, conversational nature of the single-afternoon event, as well as the opportunity to discuss areas in which their diverse industry- or sector-specific priorities and efforts overlapped.
If you weren’t able to join us in Washington, don’t worry. In his closing remarks, Kevelighan announced plans to take the program on the road with a local and regional focus, so stay tuned. You can contact us if you’re interested in participating in future Town Halls or other Triple-I events. You also can join the “Attacking the Risk Crisis” LinkedIn Group to be part of the ongoing conversation.
Louisiana lawmakers passed several bills to reinforce the state’s weakened property insurance market during the recently completed 2023 legislative session. These included one that would have required parties to a lawsuit to disclose third-party litigation funding agreements within 60 days of a filing. However, that legislation was vetoed by Gov. John Bel Edwards, and lawmakers do not plan to override it.
Also included was a broad ban on assignment of benefits (AOB), the practice by which policyholders sign over to a third party – a contractor, attorney, or public adjuster – their right to bill an insurance company directly for repairs or other services. While this is a common practice across the country, in some states – notably, Florida and Louisiana – it has been a source of extensive claim fraud.
The Louisiana property insurance market has been significantly weakened since the state was hit by record hurricane activity during the 2020/2021 seasons. Indeed, 11 insurers that write homeowners coverage in Louisiana were declared insolvent between July 2021 and February 2023. Additionally, 12 insurers withdrew from the state and 50 companies stopped writing new business in hurricane-prone parishes, creating a capacity crisis.
A persistent problem
Legal system abuse has been a persistent issue in Louisiana for some time. The state’s “onerous bad faith laws contribute significantly to inflated claims payments and awards,” according to a joint paper published by the American Property Casualty Insurance Association (APCIA), the Reinsurance Association of America (RAA), and the Association of Bermuda Insurers and Reinsurers (ABIR).
These problems were highlighted in February 2023, when Insurance Commissioner Jim Donelon issued a cease-and-desist order against a Houston-based law firm, accusing it of fraud involving potentially hundreds of hurricane-related claims in his state. According to Donelon, the firm filed more than 1,500 Hurricane Laura claim lawsuits in Louisiana over the span of three months in 2022, prior to the deadline to file suits over the Category 4 major hurricane that struck the state in 2020.
“The size and scope of McClenny, Moseley & Associates’ (MM&A) illegal insurance scheme is like nothing I’ve seen before,” Donelon said in a press release. “It’s rare for the department to issue regulatory actions against entities we don’t regulate, but in this case, the order is necessary to protect policyholders from the firm’s fraudulent insurance activity.”
According to reporting by the Times Picayune/New Orleans Advocate, an investigation by the Louisiana Department of Insurance found the Houston-based law firm engaged in insurance fraud and unfair trade practices through Alabama-based Apex Roofing and Restoration and has faced accusations of criminal behavior and mounting sanctions. MM&A has since shut down its operations in Louisiana.
Some states have considered mandating greater transparency around the practice, and Montana in May approved legislation requiring certain disclosures in litigation financing. Louisiana’s Senate Bill 196 would have required parties to a lawsuit to disclose such arrangements within 60 days of filing a suit.
Insurer incentive grants boosted
The Louisiana Legislature also agreed to allocate an extra $10 million for the previously approved insurer incentive program, bringing to $55 million the amount available to insurers that agree to enter the state’s home insurance market to offer new coverage.
Also included in the bills is $30 million for a long-term grant program to help homeowners fortify their homes against hurricanes – a 50 percent increase over the amount Donelon discussed when planning for the legislative session.
The legislation – signed into law by Gov. Eric Holcomb on April 20 – requires that each party in a civil proceeding and each insurer that has a duty to defend a party in court be notified of any litigation funding agreement before the case begins.
The U.S. Government Accountability Office defines third-party litigation funding as “an arrangement in which a funder who is not a party to the lawsuit agrees to help fund it.” Global multi-billion-dollar investing firms have made third-party litigation funding their sole or primary business and are experiencing strong growth.
As the market lacks transparency, estimates on its size can vary but, according to Swiss Re, more than half of the $17 billion invested into litigation funding globally in 2020 was deployed in the United States. Swiss Re estimates the market will be as big as $30 billion by 2028. Meanwhile, affordability of insurance coverage – especially for commercial auto products – has come under threat from increases in litigation and claim costs.
Several states have preceded Indiana in seeking to increase transparency around third-party litigation funding. In 2018, New York enacted legislation that added Section 489 to the New York Judiciary Law. This law mandates the disclosure of litigation financing agreements in class action lawsuits and certain aggregate settlement cases. In the same year, Wisconsin instituted a statutory provision requiring the disclosure of litigation funding arrangements. West Virginia followed suit in 2019.
In 2021, the U.S. District Court for the District of New Jersey amended its rules to require disclosures about third-party litigation funding in cases before the court. The Northern District of California imposed a similar rule in 2017 for class, mass, and collective actions throughout the district.
In 2022, Illinois passed the Consumer Legal Funding Act (S.B. 1099), which implemented several statutory provisions regulating aspects of third-party litigation funding, but it doesn’t address disclosure of these arrangements or information about the existence of a funding arrangement to defendants as part of claim litigation.
Litigation funding not only drives up costs – it introduces motives beyond achieving just results to the judicial process. This is why the practice was once widely prohibited in the United States. As these bans have been eroded in recent decades, litigation funding has grown, spread, and morphed into forms that can cost plaintiffs more in interest than they might otherwise gain in a settlement. In fact, it can encourage lengthier litigation to the detriment of all involved – except for the funders and the plaintiff attorneys.Top of Form
“Litigation funding is a multi-billion-dollar industry that for years has driven up the length and cost of civil cases,” said Neil Alldredge, president and chief executive officer of NAMIC. “While there is much more that needs to be done to address this issue, this law represents important progress.”
Revealing litigation funding from a third party before commencement of a lawsuit “will help thwart opportunistic investors from promoting return on investment over client interests and siphoning value from clients away from policyholders, claimants and insurers,” Alldredge said.
Michigan’s no-fault system reform law, effective in 2020, has led to personal auto insurers paying out fewer claims and many drivers paying less in premiums, according to recent research by two Triple-I nonresident scholars.
The study, No Fault Auto Insurance Reform in Michigan: An Initial Assessment, co-authored by Patricia Born, Ph.D. of Florida State University and Robert Klein, Ph.D. of Temple University, observed substantial decreases in average liability premiums and personal injury protection (PIP) loss costs in 2022. PIP covers the treatment of injuries to the driver and passengers of the policyholder’s car in a no-fault auto insurance system.
“Our initial evaluation of the likely effects of the reform legislation indicates that it is significantly reducing the costs of auto insurance for many Michigan drivers,” the paper states. “How much these reductions will be for any given driver will depend on the PIP option they choose, among other factors.”
The average Michigan policyholder paid $2,611 annually for personal auto insurance coverage in 2019 and $2,133 in 2022, an 18 percent decrease, according to Insure.com. Before the state’s no-fault auto insurance system reform law took effect in July 2020, Michigan regularly ranked as one of the costliest states in the U.S. for personal auto insurance coverage.
The 2020 reform law’s enactment allowed for:
Reducing auto insurer payouts of high PIP medical benefits;
Instituting medical cost controls;
Broadening the state’s authority to regulate personal auto insurance rate filings;
Creating a Fraud Investigation Unit within the Department of Insurance and Financial Services; and
Restricting auto insurer use of “non-driving” rating factors (e.g., credit-based insurance scores).
Michigan was the only state to offer unlimited medical benefits through the PIP portion of an auto insurance policy. Insurers also were severely constrained in controlling the medical costs arising from PIP claims. This cost contributed to more than one in four drivers (26 percent) on Michigan’s roadways being uninsured in 2019, the Insurance Research Council (IRC) estimated, nearly twice the national average (13 percent). Michigan is one of 12 no-fault states in the U.S. These systems allow policyholders to file claims with their own insurer after an accident, regardless of whom caused the accident. No-fault states restrict lawsuits to serious cases and promote faster claim payouts.
The Louisiana property insurance market has been deteriorating since the state was hit by a record level of hurricane activity during the 2020/2021 seasons, Triple-I says in a new Issues Brief on the state’s insurance crisis. Twelve insurers that write homeowners coverage in Louisiana were declared insolvent between July 2021 and February 2023.
“While similarities exist between the situations in these two hurricane-prone states, the underlying causes of their insurance woes are different in important ways,” said Mark Friedlander, Triple-I’s director of corporate communications. “Florida’s problems are largely rooted in decades of litigation abuse and fraud, whereas Louisiana’s troubles have had more to do with insurers being undercapitalized and not having enough reinsurance to withstand the claims incurred during the record-setting hurricane seasons of 2020 and 2021.”
Insurers have paid out more than $23 billion in insured losses from over 800,000 claims filed from the two years of heavy hurricane activity. The largest property loss events were Hurricane Laura (2020) and Hurricane Ida (2021). The growing volume of losses also drove a dozen insurers to voluntarily withdraw from the market and more than 50 to stop writing new business in hurricane-prone parishes.
This is not to say legal system abuse is absent as a factor in the Louisiana’s crisis – quite the opposite, as highlighted by Insurance Commissioner Jim Donelon’s cease-and-desist order, issued in February, against a Houston-based law firm. According to Donelon, the firm filed more than 1,500 hurricane claim lawsuits in Louisiana over the span of three months last year.
“The size and scope of McClenny, Moseley & Associates’ illegal insurance scheme is like nothing I’ve seen before,” Donelon said. “It’s rare for the department to issue regulatory actions against entities we don’t regulate, but in this case, the order is necessary to protect policyholders from the firm’s fraudulent insurance activity.”
McClenny Moseley has since been suspended from practice in Louisiana’s Western District federal court over its work on Hurricane Laura insurance cases.
A regular on the American Tort Reform Foundation’s “Judicial Hellholes” list, Louisiana’s “onerous bad faith laws contribute significantly to inflated claims payments and awards,” according to a joint paper published by the American Property Casualty Insurance Association (APCIA), the Reinsurance Association of America (RAA), and the Association of Bermuda Insurers and Reinsurers (ABIR).
“Insurers who fail to pay claims or make a written offer to settle within 30 days of proof of loss may face penalties of up to 50 percent of the amount due, even for purely technical violations,” the paper notes. “To avoid incurring these massive penalties, which are meted out pursuant to highly subjective standards of conduct, insurers sometimes feel compelled to pay more than the actual value of claims as the lesser of two evils.”
As a result of these converging contributors, Louisiana Citizens Property Insurance Corp. – the state-run insurer of last resort – has grown from 35,000 to 128,000 policyholders over the past two years, according to the Louisiana Department of Insurance.
At the end of 2022, the U.S. Government Accountability Office (GAO) released a report, Third-Party Litigation Financing: Market Characteristics, Data and Trends. Defining third-party litigation financing or funding (TPLF) as “an arrangement in which a funder who is not a party to the lawsuit agrees to help fund it,” the investigative arm of Congress looked at the global multibillion-dollar industry, which is raising concerns among insurers and some lawmakers.
The GAO findings summarize emerging trends, challenges for market participants, and the regulatory landscape, primarily focusing on the years between 2017 and 2021.
Why a regulatory lens on TPLF is important
The agency conducted this research to study gaps in public information about the industry’s practices and examine transparency and disclosure concerns. Three Republican Congress members – Sen. Chuck Grassley (IA), Rep. Andy Barr (KY), and Rep. Darrell Issa (CA) — led the call for this undertaking.
However, as GAO exists to serve the entire Congress, it is expected to be independent and nonpartisan in its work. While insurers, TPLF insiders, and other stakeholders, including Triple-I, have researched the industry (to the extent that research on such a secretive industry is possible), the legislative-based agency is well positioned to apply a regulatory perspective.
Example of Third-Party Litigation Financing for Plaintiffs
The report methodology involved several components, many of which other researchers have applied, such as analysis of publicly available industry data, reviews of existing scholarship, legislation, and court rules. GAO probed further by convening a roundtable of 12 experts “selected to represent a mix of reviews and professional fields, among other factors,” and interviewing litigation funders and industry stakeholders. Nonetheless, like researchers before them, GAO faced a lack of public data on the industry.
Third-party litigation funding practices differ between the consumer and the commercial markets. Comparatively smaller loan amounts are at play for consumer cases. The types of clients, use of funds, and financial arrangements can also vary, even within each market.
While most published discussions of TPLF center on TPLF going to plaintiffs, as this appears from public data to be the norm, GAO findings indicate: 1) funders may finance defendants in certain scenarios and 2) lawyers may use TPLF to support their work for defense and plaintiff clients.
How the lack of transparency in TPLF can create risks
Overall, TPLF is categorized as a non-recourse loan because if the funded party loses the lawsuit or does not receive a monetary settlement, the loan does not have to be repaid. If the financed party wins the case or receives a monetary settlement, the profit comes from a relatively high interest payment or some agreed value above the original loan. Thus, the financial strategy boils down to someone gambling on the outcome of a claim or lawsuit with the expressed intention of making a hefty profit.
In some deals, these returns can soar as high as 220%–depending on the financial arrangements–with most reporting placing the average rates at 25-30 percent (versus average S&P 500 return since 1957 of 10.15 percent). The New Times documented that the TPLF industry is reaping as much as 33 percent from some of the most vulnerable in society, wrongly imprisoned people.
Usually, this speculative investor has no relationship to the civil litigation and, therefore, would not otherwise be involved with the case. However, the court and the opposing party of the lawsuit are typically unaware of the investment or even the existence of such an arrangement. On the other hand, as the GAO report affirms, knowledge about the defendant’s insurance may be one of the primary reasons third-party financers decide to invest in the lawsuit. This imbalance in communication and the overall lack of transparency spark worries for TPLF critics. GAO gathered information that highlighted some potential concerns.
Funded claimants may hold out for larger settlements simply because the funders’ fee (usually the loan repayment, plus high interest) erodes the claimant’s share of the settlement. Attorneys receiving TPLF may be more willing to draw out litigation further than they would have – perhaps in dedication to a weak cause or a desire to try out novel legal tactics – if they had to carry their own expenses.
Regardless, typically neither the court, the defendant, nor the defendant’s insurer would be aware of the factors behind such costly delays, so they would be unable to respond proactively. However, insurance consumers would ultimately pay the price via higher rates or no access to affordable insurance if an insurer leaves the local market.
As the report acknowledges, a lack of transparency can lead to other issues, too. If the court does not know about a TPLF arrangement, potential conflicts of interest cannot be flagged and monitored. Some critics calling for transparency have cited potential national security risks, such as the possibility of funders backed by foreign governments using the funding relationship to strategically impact litigation outcomes or co-opting the discovery process for access to intellectual property information that would otherwise be best kept away from their eyes for national security reasons.
Calls for TPLF Legislation
GAO findings from its comparative review of international markets reveal that the industry operates globally, essentially without much regulation. The report points out that while TPLF is not specifically regulated under U.S. federal law, some aspects of the industry and funder operations may fall under the purview of the SEC, particularly if funders have registered securities on a national securities exchange. Some states have passed laws regulating interest charged to consumers, and, in rarer instances, requiring a level of TPLF disclosure in prescribed circumstances.
Active, visible calls from elected officials for regulatory actions toward transparency come mostly from Republicans, but, nonetheless, from various levels of government. Sen. Grassley and Rep. Issa have tried to introduce legislation, The Litigation Funding Transparency Act of 2021, requiring mandatory disclosure of funding agreements in federal class action lawsuits and in federal multidistrict litigation proceedings. In December of 2022, Georgia Attorney General Chris Carr spearheaded a coalition of 14 state attorney generals that issued a written call to action to the Department of Justice and Attorney General Merrick Garland.
“By funding lawsuits that target specific sectors or businesses, foreign adversaries could weaponize our courts to effectively undermine our nation’s interests,” Carr said.
Florida is one of the least affordable states for personal auto insurance, according to a new study by the Insurance Research Council (IRC). Claims trends are pushing premium rates up nationwide, and Florida is being hit particularly hard.
In 2020, the average expenditure for auto insurance was $1,342 in Florida, more than 30 percent higher than the national average, the IRC report says, citing data from the National Association of Insurance Commissioners (NAIC). In terms of affordability, IRC says, auto insurance expenditures were 2.39 percent of the median household income for the state. Only Louisiana was less affordable.
“Efforts to improve auto insurance affordability must begin with the underlying cost drivers,” the IRC report says. In nearly every of these categories, Florida costs are well above the national average:
Accident frequency: The number of property damage liability claims per 100 insured vehicles in Florida is 10 percent above the national average.
Repair costs: For years, the average cost of a property damage claim in Florida was below the national average. However, evidence suggests repair costs are increasing faster in Florida than elsewhere.
Injury claim relative frequency: Floridians show a greater propensity to file injury claims once an accident occurs, with a relative claim frequency 40 percent higher than the national average. Florida is the only no-fault state with an above-average ratio of bodily injury to property damage claim frequency.
Injury claim severity: The median amount paid per claim for auto injury insurance claims for all injury coverages combined is much higher in Florida.
Medical utilization: Florida auto claimants are more likely than those in other states to receive diagnostic procedures, such as magnetic resonance imaging (MRI).
Attorney involvement: Florida claimants are more likely to hire attorneys. Attorney involvement has been associated with higher claim costs and delays in settlement time.
Fraud and buildup: The percentage of all auto injury claims with the appearance of claim fraud and/or buildup is evidence of Florida’s culture of fraud.
Uninsured motorists: Florida has one of the highest rates of uninsured motorists, both a symptom and a cause of affordability challenges.
Litigation climate: According to a survey of business leaders, Florida’s legal environment ranks near the bottom of state liability systems in terms of fairness and reasonableness.
“Unique features in Florida’s insurance system and a long‐standing culture of claim and legal system abuse have allowed some medical and legal professionals to generate substantial income for themselves at a significant cost to Florida drivers,” said Dale Porfilio, IRC president and Triple-I chief insurance officer. Triple-I and IRC are both affiliated with The Institutes.
Policymakers in the Sunshine State enacted substantial property insurance reform in late 2022 to address the affordability and availability crisis in homeowners’ insurance and pledged to tackle similar issues in other lines of insurance to ease the financial burden that paying for auto insurance represents for Florida drivers.
Bills being addressed by the state’s Senate and House focus on significant tort reform to stop lawsuit abuse, including the elimination of one-way attorney fees for litigated auto claims and abolition of assignment of benefits for auto insurance claims — a generator of fraud and litigation. One-way attorney fees allow drivers who successfully sue their insurer to recoup attorney fees – but not the other way around.
Today’s inflationary conditions may increase interest for group captives – insurance companies owned by the organizations they insure – according to a new Triple-I Executive Brief.
Group captives recruit safety-conscious companies with better-than-average loss experience, with each member’s premium based on its own most recent five-year loss history. Additionally, the increased focus on pre-loss risk management and post-loss claims management can drive members’ premiums down even further by the second and third year of membership.
“Each owner makes a modest initial capital contribution,” states the paper, Group Captives: An Opportunity to Lower Cost of Risk. “The lines of coverage written typically are those with more predictable losses, such as workers compensation, general liability, and automobile liability and physical damage.”
With these benefits, the group captive model can help to control spiraling litigation costs. This is particularly important as attorney involvement in commercial auto claims – notably in the trucking industry – drives expensive litigation and settlement delays that inflate companies’ expenses.
Indeed, a 2020 report from the American Transportation Research Institute found that average verdicts in the U.S. trucking industry grew from approximately $2.3 million to almost $22.3 million between 2010 and 2018 – a 967 percent increase, with the potential for even higher verdicts looming.
Group captives can improve control over these costs through careful claims monitoring and review, often through providing additional layers of support that improves claims adjusting effectiveness and efficiency.
“Given that members’ premiums are derived from their own loss history, this is yet another way that they are able to lower their premiums, proactively managing and controlling the losses that do occur,” the Triple-I report mentions. “Group captives can provide a viable way to protect companies across several lines of casualty insurance. Their prominence is likely to grow as economic and litigation trends continue to increase costs.”
Most companies that join group captives are safety-conscious, despite often being entrepreneurial risk takers. “While they embrace the risk-reward trade-off, they’re not gamblers,” said Sandra Springer, SVP of Marketing for Captive Resources (CRI), a leading consultant to member-owned group captive insurance companies.
“They are successful, financially stable, well-run companies that have confidence in their own abilities and dedication to controlling and managing risk,” Springer added. “They believe they will outperform actuarial projections, and a large percentage of them do.”
Louisiana Insurance Commissioner Jim Donelon last week issued a cease-and-desist order against a Houston-based law firm, accusing it of fraud involving potentially hundreds of hurricane-related claims in his state.
“The size and scope of McClenny, Moseley & Associates’ illegal insurance scheme is like nothing I’ve seen before,” Donelon said in a press release. “It’s rare for the department to issue regulatory actions against entities we don’t regulate, but in this case, the order is necessary to protect policyholders from the firm’s fraudulent insurance activity.”
According to Donelon, the law firm filed more than 1,500 hurricane claim lawsuits in Louisiana over the span of three months last year.
The Louisiana property insurance market has been deteriorating since the state was hit by record hurricane activity in 2020 and 2021, to the extent that 11 insurers that write homeowners coverage in Louisiana were declared insolvent between July 2021 and September 2022. Insurers have paid out more than $23 billion in insured losses from over 800,000 claims filed from the two years of heavy hurricane activity. The largest property-loss events were Hurricane Laura (2020) and Hurricane Ida (2021).
In addition to driving insurer insolvencies, the growing losses have caused a dozen insurers to withdraw from the market and more than 50 to stop writing new business in hurricane-prone parishes.
Louisiana’s troubles parallel those of another coastal state, Florida, but there are significant differences. Florida’s problems are largely rooted in decades of legal system abuse and fraud, whereas Louisiana’s have had more to do with insurers being undercapitalized and not having enough reinsurance coverage to withstand the claims incurred during the record-setting hurricane seasons of 2020 and 2021. In general, Louisiana insurers have not experienced the level of excessive litigation that Florida insurers have faced.
“It now appears some trial attorneys are trying to take a page out of the Florida playbook by engaging in litigation abuse against Louisiana property insurers,” said Triple-I Director of Corporate Communications Mark Friedlander. “We commend Commissioner Donelon for quickly addressing these fraudulent practices.”
According to reporting by the Times Picayune/New Orleans Advocate, an investigation by the Louisiana Department of Insurance found the Houston-based firm engaged in insurance fraud and unfair trade practices through Alabama-based Apex Roofing and Restoration and has faced accusations of potentially criminal behavior in courts across the state. In one such case, the paper reported, a woman testified that she had never intended to retain the law firm when she hired the roofing company to fix her hurricane-damaged roof.
“The firm told her insurance company that it represented her and even filed a lawsuit on her behalf, though she said she was unaware of it,” the paper said.
Legal system abuse is a pervasive problem that contributes to higher costs for insurers and policyholders nationwide, as well as to rising costs generally, given the importance of insurance in development and commerce. Triple-I is committed to informing the discussion around this critical issue.
