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
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. …