So-called “nuclear” verdicts have led to social inflation, or rising insurance costs due to increases in litigation. Real estate businesses can do more to minimize the price tag and avoid lawsuits.
Settlements exceeding $10 million, otherwise known as “nuclear verdicts,” are no longer uncommon. Unfortunately, property owners and operators and real estate developers are often left to bear the brunt of these settlements.
A slip, trip or fall resulting in a blemish on a person’s face that once settled for $300K may now come with a $1.5 million price tag. In fact, when for-profit enterprise businesses, developers and properties are at the helm, social inflation reaches its highest heights.
This phenomenon, which has led to rising insurance costs for all businesses and properties, has been dubbed “social inflation.”
Social inflation results from an increase in litigation, broader contract interpretations, plaintiff-friendly legal decisions and larger jury awards against businesses. It’s being driven by sensationalized reporting and viral social media, erosion of tort reform, rising medical costs and even litigation funding, in which private equity firms invest in jury trials with the promise of a worthy ROI.
The question at the root of social inflation is: what is that suffering worth?
Social inflation has affected just about every property and casualty (P&C) policy category. From directors and officers (D&O) to auto and commercial carrier, property, environmental and transportation coverage, limits are being retracted, premiums are increasing and exclusions are surfacing.
There are a number of things estate owners and operators can do to keep social inflation at bay. Consider incorporating the following eight best practices into your repertoire.
1. Manage a well-run, safe organization. Profitable businesses, and those with a real corporate safety program, will receive best-in-class pricing for insurance. Make sure you’ve instituted the right policies and procedures to ensure safety both around the perimeter of your facility as well as in any adjoining spaces, including parking lots and outdoor areas. In the winter, keep sidewalks clear, etc.
2. Control losses internally with risk management. Practicing good preventative maintenance inside your facility is the best way to “keep your house in order.” Prevent slips, trips and falls from happening by maintaining common areas, installing hand railings, changing out old electrical panels and replacing them and using signage to alert occupants when the floor is wet. Test fire pumps monthly.
3. Have an emergency plan. Create an emergency plan that reflects your local neighborhood risks. If your facility is in a flood zone, make sure you’ve got a strong emergency plan. If your area has been subject to looting and riots this year, maintain ample security on the premises. Let your insurance broker and carrier know about your plan so they can see that you are a good risk.
4. Vet contractors. Make sure third-party contractors have the right policies and procedures in place and that they operate with best practices as well. Ask them for their certificate of insurance to ensure that they’re covered for any damage they could potentially do to a property—i.e., be wary of hiring a roofer without the right coverage. If he burns down the building while installing a roof and he doesn’t have the right insurance with the right limits, you’ll be liable.
5. Consider the additional layer of liability due to COVID-19. While no one knows what effect COVID-19 will have on nuclear verdicts and social inflation, the pandemic does add an additional layer of liability for businesses. Employers and building owners/operators must be aware of CDC recommendations and maintain compliance, especially in common areas. Provide guidance on your website or in other public spaces of your new cleaning regimen, and what you’re doing to prevent the spread of COVID-19 to reduce your liability as much as possible.
6. Immediately address suffering during an accident—show you care. When facility personnel address a person’s injury or suffering immediately, offering help and seeking medical care on their behalf, the chances of the incident morphing into a large claim worthy of a nuclear verdict are reduced.
7. Document the sequence of events. Take photos of the injured person, the location they were injured and any property damage. Get statements from all witnesses and document what happened clearly, including times and any other relevant information.
8. Secure the property. Take necessary steps to secure the property and area from further damage, post-accident. These additional costs to secure the property, i.e. boarding up a storefront, etc., are covered by property insurance.
Social inflation and other factors like an increase in CAT (catastrophic) claims from recent hurricanes and wildfire have joined forces that led to a hard insurance market. As costs continue to rise and limits are being cut, it’s critical that real estate owners, operators and developers do everything possible to secure and maintain a property. And, should there be an accident, support the injured party. Doing all of these will help keep costs at bay.
About the author
Darren Caesar, CIC, MA, has been a part of Hub International since 2004. He is the President of Commercial Insurance including management of insurance company relation in California. Darren’s insurance and consulting work includes technology companies, financial Institutions, manufacturers and asset management companies. His experience in identifying and underwriting risk has allowed him to develop policy forms to cover specific client property exposures. One of those specific industries is technology companies where he has developed one of the broadest coverage programs to protect the IP and operations of his clients. He and his team provide analysis of insurance coverage to some of the largest companies in California.