There are certain significant general liability trends that are becoming large cost drivers in the construction industry. While there are no complete solutions to these challenges so far, we can offer awareness and comprehension.
“These general liability trends and issues make insurance choices more complex and certainly add to the typical challenges facing contractors,” said Michael Myers, National Director of Contracting and Construction at Safety National. “If all the stakeholders work together, we can continue to come up with options to combat these issues that help insurance and construction companies alike.”
Understanding Costly Claims
Nuclear verdicts are increasing for a number of reasons. Data from the National Law Journal shows that the cost of the 100 largest claims have more than tripled, going from $64 million to $214 million. The litigation environment has also changed. Plaintiff attorneys are much more organized around conducting discovery and actively soliciting for plaintiffs because there is more funding for litigation. These investors provide funds to the plaintiff or plaintiff’s attorney during litigation and get their return at the end of the process. This allows the plaintiff and their attorneys to be more aggressive.
Social changes are also a factor. Jury pools in recent years have displayed more mistrust of corporations and more interest in the public good, which makes them more disposed against corporate defendants. The use of the appellate process has also evolved, with it becoming more common for verdicts to stand up on appeal. In the general liability space, these evolving trends make historical data less reliable in predicting claim litigation outcomes. All of these factors lead to claims being more likely to settle for higher amounts. In the long term, some legal reform will be needed to help mitigate this, such as setting up guidelines for how trial lawyers can fund litigation, what reward levels are appropriate for certain damages, and not having rewards related to corporate punishment.
Volatile Weather Impacts
Insurers are keeping an eye on weather changes beyond historical patterns, such as the drought and then storm after storm in California last year. If an area has not historically received large amounts of rain or has flooded, this opens the affected areas to potential water damage claims they have never experienced. These kinds of unpredictable events could be drivers of liability claims that may increase insurance costs in the future. For contractors, it means planning for worst-case scenarios, historical or not.
Supply Chain Increases
In the last two years supply chain costs for contractors have increased significantly, adding another challenge that is not easy to solve. In 2022, inflation was more than 20 percent for materials and supplies. Those factors inflate the costs of liability claims when property is damaged. A general liability property damage claim made today has the potential to cost much more than a carrier planned for at policy inception.
We do see some early indications that the supply chain cost is moderating. It is still going up, but not as much as it did in 2022. Year over year it is north of 20 percent. The latest increase was 7 percent, but cumulative changes over the last several years are stacking up. We do not see deflationary pressure reducing the economy to a pre-pandemic level. When we provide coverage for the years going forward, we need to recognize that situation.
On given projects, contractors know materials costs are going to be significantly more than when the contract was signed. On the claims side, if there is property damage, replacing it will cost more. Contractors may need to approach this differently from what was in the project plan, such as replacing materials with a similar alternative or different materials that will do the job for the same claim costs.