An empirical look at social inflation
Social inflation is taking hold at different rates in different states. Four states house the largest jury-award increases overall.
Some phrases seem to sneak into the litigation vernacular before there’s time to stop and think about what they actually mean.
That’s how I felt about the term “social inflation” until very recently. Social inflation gets thrown around often by defense lawyers and those in the insurance industry to explain what they see as trendlines broadening tort liability — and the costs associated with that liability. Those that most often employ the term would argue social inflation has created a feedback loop where the level of potential dollars at stake has led claimants and their lawyers to expect even more windfalls leading to more claims and lawsuits, rinse and repeat.
Related: The insurance, societal impact of legal system abuse
There’s a good reason I said “until recently” above. I hadn’t stopped to contemplate the term until earlier this month when the folks at the RAND Corporation dropped a comprehensive 103-page study on the topic. RAND researchers took a look at court filings, verdict data and insurance claims to test empirically whether or not what’s been going on over the past decade looks like what the folks who talk about social inflation describe as its likely outcomes.
The authors pointed out that the term has been around since at least the 1970s when Warren Buffett described social inflation as “a broadening definition by society and juries of what is covered by insurance policies.” The term fell out of vogue in the wake of the Great Recession, but the authors note that there’s been an increase in its usage since some large verdicts landed in the middle of the 2010s.
So what do the RAND folks conclude about the social inflation phenomenon?
Although they didn’t try to isolate social inflation from all other potential factors, the RAND authors found evidence “consistent with an upsurge in social inflation during the 2010s.”
Where did they find this evidence?
Among the data the RAND authors dug into were 37,668 verdicts from between 2010 and 2019 provided by my colleagues at Law.com’s VerdictSearch, which included 26,114 personal injury and wrongful death verdicts that the RAND researchers homed in on. The authors limited their research to that period to avoid any potential impacts of the pandemic. The report also looked at data from the National Center for State Courts for 19 states that tracked net tort filings in their general jurisdiction courts for at least a decade, and augmented that with data from California, which was not one of the states in the NCSC data.
What did the data show?
Let’s look at the verdict data first: There plaintiff win rates in cases tried to verdict rose from 53% to 64% over the study period. Not only were plaintiffs winning more often, they were bringing home higher damages awards. Trial awards per plaintiff in the personal injury and wrongful death cases increased by a 7.6% compound annual growth rate over the decade.
The RAND researchers note that growth came in ebbs and flows. There was little overall growth between 2010 and 2013 with a steeper increase from 2014 through 2019. The amount of trial awards the authors categorized as large — those of $5 million or more in 2019 dollars—also saw an uptick toward later years in the study range. Large awards ranged from about 5.5% to 7.5% of all awards between 2010 and 2016, and grew to 12% by the end of the study.
The authors found the growth in the overall win rate in particular was consistent with the commonly proposed narrative surrounding social inflation. “One possible mechanism that could lead to such an increase is delayed defense response to changes in case values,” the authors wrote. “If defendants are not making settlement offers that are keeping up with rising settlement values, cases that plaintiffs will win might go to trial that would have settled otherwise. Over time, defense strategy may adapt, and the plaintiff win rate might return to previous levels.”
One finding that ran counter to expectations, however, was that social inflation does not appear to have affected organizational defendants — including large corporations — any worse than non-organizational defendants. Annual growth rates in trial awards against both groups was similar.
As for the court filings, tort cases filed increased by 10% percent between 2012 and 2019 in the 19 states where data was available. According to the authors, total civil filings per capita dropped by the same amount, 10%, over the same period.
The authors report social inflation is taking hold at different rates in different states. They report the largest increases in trial awards and the earliest onset of those increases were in New York, California, New Jersey and Texas, with smaller increases and later onsets reported in Pennsylvania, Illinois and Florida.
“Concluding that social inflation exists is not an assessment about whether it is good or bad — that will depend on the factors driving it,” the RAND authors concluded. “For example, one could argue that an increase of trial awards because jurors are ignoring the law or insurance contract language is a negative driver of social inflation. Conversely, elimination of a cap on noneconomic damages by legislative action could be viewed as a positive driver consistent with broader public will.”
The RAND authors suggest that further research is needed to assess precisely what is causing social inflation to determine “whether these factors serve broader social goals.”
The full report is available for download here.
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