NU Online News Service, May 29, 12:14 p.m. EDT

Lawsuits related to climate change could expand faster than the explosion of asbestos claims and have significant impact on insurers, Swiss Re is warning in a new report.

The Zurich-based firm, in an examination of the consequences of globalization of class actions on insurers, said, "We expect, however, that climate change-related liability will develop more quickly than asbestos-related claims and believe the frequency and sustainability of climate change-related litigation could become a significant issue within the next couple of years…"

The company advised, "Given the potential implications of this shift for the insurance industry, developments need to be monitored closely."

At the moment, the report noted, while a legal basis has been established in the case of a climate change-related lawsuit against a public entity, there had not been a similar standing against a private entity through 2008.

But because it expects this could change, Swiss Re said it has "included climate change-related litigation in its emerging risks framework in order to systematically monitor developments, quantify risks and define mitigation measures."

As class-action suits or "collective action" systems are "increasingly being adopted by countries around the world," Swiss Re said insurers should be ready to lobby governments and lawmakers "to help strike a balance between the positive aspects of collective redress systems and some of the unforeseen developments witnessed in the U.S."

Misuse of class actions, Swiss Re said, has contributed to civil litigation costs reaching more than $250 billion.

Among the problems noted with the U.S. system, Swiss Re said lawyer contingent fees led to inflated settlement values, jury trials to inflated payouts, opt-out clauses to inflated awards and costs, lack of loser-pays rules to speculative litigation and punitive damages provisions that create "extreme" awards.

Swiss Re said that after some abatement, the current financial crisis is expected to bring a "powerful surge" in U.S. class actions. The report said lawsuits in connection with subprime and securitized mortgage debt now exceeds 1,000.

Bank losses, it said, could mean potential litigation with consequences for insurers and reinsurers in the form of directors and officers liability and errors and omissions claims.

The report, in warning insurers to play a role in any expansion of class-action systems, said that for large companies, wider introduction of collective actions "might in fact encourage coercive settlements."

Swiss Re said that when considering improving access to justice through collective redress, "the focus should not be exclusively on collective action; consideration should be given to alternative dispute resolution schemes."

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