Year End and Insurance Claims — Why Right Now is the Time for Both Sides to Explore Settlement

Tue, Sep 29th, 2020 | by Miles Mediation and Arbitration | Article | Social Share

By Nigel Wright, Mediator & Arbitrator 

In years past, insurers dreaded the advent of a trial at the end of a year. The thought was that juries were likely to be more generous with their awards and that any goodwill would be given exclusively to the plaintiff. Mediations and settlement conferences were crammed into October and November — and possibly for those late to the party — even the first week of December, all designed to try to settle the case before the pending December trial date.

Times have changed. Civil trials won’t be happening this year and insurers may seem less pressured to try to resolve cases by year end. The longer the case goes on, the more pressure there may be on the plaintiff whose date in court, and any potential award, may be many months away, at best. Or at least that is how many plaintiff lawyers may see the current backlog of cases. Will settlement now be seen as weakness on the part of the plaintiff? Better to hang onto those cases to a time when defendants may fear a looming trial?

Sometimes we need to look at things from a different perspective. Despite the number of courts rejecting coverage for business interruption claims in the US, based on the coronavirus, insurers have paid out significant claims relating to Covid-19 in other lines of business. Insurance losses this year are significant, and the hurricane and wildfire season isn’t even over. With this background, coupled with the struggles of working remotely, insurers will likely post historic losses for 2020. Lloyds of London has even gone on record to state that the losses from the Coronavirus will be the largest ever to hit the worldwide insurance market. These losses will be compounded by premium returns, low interest rates that affect investment income and the weather events, not just in the US, but globally. The rate increases that insurers are seeing will not save 2020.

So, what does this mean for insurance backed cases in the US? When P&C and Specialty insurers face a significant financial loss from catastrophic losses, the strong carriers recapitalize to enable them to take advantage of the hardening insurance rates that are expected to result from such losses. In recent months, the insurance industry has been doing just that. What this means for plaintiffs is not that insurers now have extra money that they will simply to hand out to plaintiffs but rather insurers are currently highly motivated to resolve cases by year end — but in 2020 for completely different reasons than has typically been the case.

Insurers’ financial results are reported quarterly, and the fourth quarter is usually completed just before year end, based upon projections, and subsequently adjusted early in the new year for accuracy. Significant reserve movements in the fourth quarter, especially late in the fourth quarter, are frowned upon, as management has business plans to finalize for the upcoming year and expect the claims teams to have already reported any adverse reserve movements in the third quarter, if not before. However, with the pandemic, it should be expected that a larger number of losses and reserve movements will be reported late in the third or early in the fourth quarter this year. When losses are as bad as they are likely to be in 2020, it is better to report adverse developments and close those cases in a historic down year than impact a potentially good year in 2021. Stock market investors and analysts have already “written off” 2020, and share prices and projections are forward looking, and the impact of historic losses have already been “priced in”. In profitable years, with hardening rates, insurers may be more willing to take cases to trial, buoyed by healthy balance sheets and surplus premium income which protect them against unexpected verdicts, softening the blow of the much feared, and talked about, runaway verdict.

For claims handlers, resolving claims in 2020 enables them to release reserves, close files and prepare for a new year. Having old claims that could deteriorate further in 2021 will not only potentially impact a hoped-for good year but will raise questions about claims management. Management may ask why, if insurers are in their best position to resolve liability cases in the pandemic, due to the absence of civil trials, that such cases are left open to affect subsequent years` cash flow and IBNR? They will not look favorably on claims handlers who could have settled their cases in 2020 but choose to delay resolution to 2021 when the threat of jury trials, pre-judgment interest and legal cost will all increase, possibly significantly. In addition, defense costs are continuing to accrue raising the total cost of the claim to insurers. Put simply, insurers consider that claims only get more expensive as time goes on.

Insurance claims managers and handlers should want to resolve their cases in 2020, when they are not facing the immediate pressure of trial or budgets bloated by trial preparation. Plaintiffs should want to resolve their cases in 2020 which, from an insurance industry perspective, will likely be a “bad year” but which actually incentives resolution by insurance carriers, and finally courts should definitely want cases settled in 2020 to clean up the docket, in preparation of the onslaught of delayed civil trials and the advent of in-person hearings.

If you want to take advantage of this unusual alignment of interests between plaintiffs, defendants and the court system, consider scheduling your mediation now, when it is still relatively easy to do so.

ABOUT NIGEL WRIGHT

As a mediator and arbitrator at Miles, Nigel Wright handles extensive personal injury claims in disputes in over 50 countries and complex claims (including class actions) for A&H, Aviation, Casualty, Commercial Property, Construction defect, Crisis Management, Cybersecurity, D&O, E&O, Energy and Marine, Environmental, Financial Lines, Insurance coverage, IP, Pharma, Product defect, Professional Liability, Political Risk, and Surety.