Judicial Trends Favor Insurers in Liability Cases

Article excerpt

have been saving for a string of rainy days while, unknown to you, the climate has been getting steadily drier?

Someday, when the anticipated hard times don't materialize, you are going to find yourself with an unexpected surplus of cash.

An intriguing new academic study of judicial trends in product liability cases suggests that this is just what is in store for some of America's largest insurance carriers.

That could mean that, despite the adverse effects of last fall's spate of natural disasters, the industry's future profits may be stronger than a wary Wall Street anticipates.

The study, published in the February issue of University of Caliornia in Los Angeles Law Review, was written by two professors at the Cornell Law School, James A. Henderson Jr. and Theodore Eisenberg.

After examining hundreds of product liability cases decided since 1976, the two professors conclude that, sometime around the midpoint of the past decade, the judicial tide began to turn in favor of defendants.

``At least since the mid-1980s,'' the authors report, ``published opinions have moved towards benfiting defendants over plaintiffs, have increasingly demanded dismissal of plaintiffs' claims as a matter of law, and have tended increasingly to break new legal ground for defendants.''

While the study included only cases decided by the end of 1988, Henderson said last week that the 1989 cases he has started to examine confirm the trend.

``The results are all, quite remarkably, in the direction we have already identified,'' he said.

Aside from its fascination for judicial scholars and defendants' lawyers, the Cornell study also has important implications for those defendants' insurance carriers, which already have set money aside to pay claims that are working their way through an apparently kinder court system.

``If I were an insurer, I would expect a better-than-expected earnings performance, because I would have a reserve based on judicial experience that has now changed,'' said Henderson.

Given that happy prospect, why aren't insurers announcing these findings from the rooftops?

Politics, apparently. Insurers are among those campaigning at the state and federal level for sweeping legislative and judicial changes that would reduce their exposure to huge punitive damage awards in liabililty cases.

Moreover, insurers may find it harder to raise rates if customers and regulators suspect that higher premiums are contributing to overly generous reserve accounts whose chief beneficiary may turn out to be the insurers' shareholders.

But while the insurance executives' current political agenda may require that they pooh-pooh the Cornell results in public, they are poring through the study in private.

``We've even gotten calls from Europe,'' Henderson said.

``Lloyds of London called asking for 100 reprints. It's a novel phenomonon for those of us whose work is usually of interest primarily to other academics. …