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Americans’ home and auto insurance rates have been soaring for years, with inflation, mounting losses from natural disasters, and rising repair and construction costs all playing a role.
But the industry points to a significant driver behind accelerating premiums that often goes overlooked: the mounting lawsuits and payouts that cost insurers.
The APCIA says the average American pays a $4,200 “tort tax” due to rising costs associated with abuse of the legal system. (iStock / iStock)
David Sampson, president and CEO of the American Property Casualty Insurance Association (APCIA), told that even with all the pressures the industry is currently facing with huge losses due to hurricanes and wildfires, insurance regulatory dysfunction in some states, and the threat of tariffs driving up costs further, “Our number one priority is still addressing legal system abuse, because it is the major cost driver that’s having a huge negative impact on insurance availability and affordability.”
The APCIA says the American household pays more than a $4,200 “tort tax” due to unnecessary and abusive litigation across the country that raises the costs of products and services like groceries and gas.
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The insurance trade group shows data indicating the average personal injury verdict has ballooned over the last decade or more, going from around $39,300 in 2010 to more than $125,300 in 2020 – a 319% increase.
The APCIA points to data showing the median personal injury award in the U.S. more than tripled in the last decade. (APCIA)
Sampson said nuclear verdicts – defined as jury verdicts of $10 million or more – also continue to rise, with the top 100 verdicts increasing 350% from an average of $64 million to $225 million in just the last six years, which he said shows they are “totally out of proportion to any legitimate damages that are out there.”
He provided everyday examples of legal abuses.
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One is jury anchoring, where lawyers attempt to influence juries by throwing out astronomical numbers for awards. He asserted that when attorneys have billboards up advertising that they won their client $20 million for an auto accident, they are trying to affect the jury pool by putting out astronomical numbers that have no relation to the particular case involved, trying to shift the jury’s mindset.
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Another legal abuse is phantom damages, where plaintiffs’ attorneys are able to only show juries how much a victim was billed for medical services, as opposed to the lower amount the health insurance company actually paid because of its contract with the hospital.
Premises liability has been one of the biggest sources of legal abuse, so multiple states have imposed reforms to make sure property owners and businesses are only liable for things they can directly control.
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The practice of plaintiffs’ attorneys bringing in outside investors to try and influence the litigation process through third party litigation funding (TPLF) has driven up the cost of litigation, too, amid growing concerns that foreign adversaries are using these avenues to invest in U.S. litigation against American companies.
Legal abuses are soaring, accelerating the rise of insurance rates, according to the APCIA. ( Joe Raedle/Getty Images / Getty Images)
Sampson says that in those instances, the victim is no longer in control of their own lawsuit, meaning they can’t settle without the permission of the people who are investing in and financing these lawsuits.
“You’ve had the justice system turned basically into a casino where these major investors are hoping to strike it rich on these suits and they get paid out the majority of the proceeds whenever they do,” he said.
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“Strike it lucky on these major lawsuits, and then, not only do you see that on some of these individual personal injury cases, but even more problematic – as tragic as that is – to the nation’s economy is that you have entities that are backed by foreign players, foreign parties like the [Chinese Communist Party] and others who are filing these third party litigation financed lawsuits against major American industries, especially in the technology sector, and they use these lawsuits to try to gain access to intellectual property through the discovery process.”