NEW YORK--Although tort filings in the United States and the United Kingdom have fallen from a 1980s peak, large-scale corporate litigation could be an emerging trend, Lloyd's warned in a presentation here this week.

"In Europe, where we used to think this was an American pastime, it's clear that this is no longer the case," Lloyd's Chairman Lord Peter Levene told an audience that included brokers, insurers and risk managers, referencing a report by Lloyd's titled Litigation and Business: Transatlantic Trends.

"Meanwhile, the current economic conditions only bring a greater likelihood of claims and recent analysis suggests that companies in the U.S. are poised for an increase in actions as a result," he noted.

Mr. Levene said that as the "financial crisis begins to bite, the results of our research with global business leaders suggests that we need to wake up to some new challenges."

He observed that most business leaders relate that the burden and the threat of litigation is becoming an increasing problem. In fact, dealing with liability risk now consumes more than 30 percent of a board's time.

The overall trend, he said, is toward "more action from a broader range of stakeholders," adding that "Right now, newspapers and TV screens are full of groups of angry investors calling for management heads to roll."

While shareholder suits and actions by special interest and lobby groups are on the rise, he said, "one in seven companies is seeing lawsuits brought by regulatory authorities."

Globalization, he said, is driving an environment for litigation, which affects "both sides of the Atlantic."

Because the nature of litigation also is changing and certain groups outside the U.S. are more willing to litigate, he said, "it is expected that class actions will proliferate in the next few years."

The message for businesses internationally, Mr. Levene said, is that "patterns of behavior are changing. Risk can emerge from an increasingly broad geographic base."

To protect themselves, he said, organizations need to understand how their businesses can be affected, so that they can strengthen their risk management strategies.

He pointed out, however, that in order to succeed, businesses need to be innovative and creative, and cautioned that fear of litigation can stifle creativity.

"If left unchecked," he said, "this can have a potentially devastating impact on company growth and protection."

Kenneth R. Feinberg, managing partner with the Feinberg Group, LLP, told the audience that while the trend for decades has been for large defense establishment law firms, to have an international presence, there is now an increase in the number of global plaintiff firms opening offices in Paris, London and Brussels.

He observed, "You are now seeing a new trend in third-party investment in major complex litigation in Great Britain and Europe."

Another trend, he said, is copycat lawsuit filings--when a settlement is reached in the U.S., plaintiff lawyers "turn around and file in Europe in an effort to encourage similar settlements" in London, Brussels and other cities.

Mr. Feinberg said that attorneys in the U.S., as part of any settlement, need to "maximize the global impact of that settlement so that peace is assured everywhere."

Another growing trend in Europe is aggregation of claims, such as class actions, in which thousands of claims are consolidated in one form. He said new initiatives are being seen at the parliamentary level to allow more consolidation of claims in an effort to promote efficiency.

Lloyd's Mr. Levene told National Underwriter that it has taken "four or five years, but class actions are starting to bite." He also said it also remains to be seen what part a changing regime in U.S. government might play.

Also of concern is the effect of the financial crisis. "Where we worry is that the economic downturn and increased unemployment may increase claims," he said. "The type of claims, such as a car being stolen, or claiming to lose a camera when they don't have one."

He cautioned that the insurance industry is "not a money machine. What comes out of the bottom of the machine has to go into the top"--ultimately funded by premium payments.

But while he issued these cautions, Mr. Levene ended his presentation on a positive note. He said that while he has been concerned about how the "compensation culture in the U.S. would infect the rest of the world, so far ... it hasn't happened in a big way."

He added that this may be the case because of differences in business cultures globally compared with the U.S.

The warning from Lord Levene and Mr. Feinberg of litigation activity is increasing abroad follows an earlier report to that effect from the London office of reinsurance brokerage Guy Carpenter & Company, LLC. (see NU Online Sept. 9.)

The firm said European insurers may expect to see increasing legal defense costs as pressure mounts to allow more securities class actions and other forms of litigation that have proliferated in the United States.

Special Reports /

Litigation Escalating Globally, Lloyd's Cautions

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