Why Your Clients Need Excess Liability Coverage


Today’s legal environment continues to be impacted by social inflation, which is characterized by various factors, including third-party litigation funding, tort reform rollbacks, plaintiff-friendly juries, and public distrust of companies, all driving larger settlements and jury awards – and, inevitably, the need for additional Liability insurance.

For example, according to the National Law Journal’s Top 100 Verdicts, the average verdict more than tripled from $64 million to $219 million. This trend, most notably, is in automobile liability cases. According to an American Transportation Research Institute study, there has been a nearly 1,000% increase in large verdicts involving truck crashes. Over nine years (2011-2020), the average verdict for a lawsuit involving a truck accident increased from $2.3 million to $22.3 million.

In addition, according to a study by Swiss Re, litigation funding reached an estimated $17 billion worldwide in 2020, contributing to social inflation. Fifty-two percent of the funding occurred in the United States.

Attorneys Getting Involved Earlier in the Claims Process

According to a report by Sedgwick, auto and general liability cases are experiencing attorney representation earlier in the claims process. In 2017, just under 43% of all auto and general liability claims eventually became litigated and had representation in place within 24 hours of reporting the incident. By the end of 2021, the percentage for both auto and general liability had risen to over 54%, a 25.5% increase over five years. With attorney involvement earlier in the process, the cost of claims escalates.

Juries are also increasingly sympathetic to severely injured plaintiffs. For example, in 2021, a virtual trial was conducted involving a 2019 accident in which a pedestrian was struck by a van at the airport in Houston, rendering him a paraplegic. The Texas jury awarded the injured individual $353 million, with the owner of the van found 70% liable and the driver 30% responsible for the accident.

Notwithstanding nuclear verdicts, even the mean average of all personal injury awards rose by more than 50% from 2012 to 2018 to nearly $1.7 million, according to the Sedgwick report.

The Role of Insurance

Of course, companies should foster a risk management culture with high standards for safe and responsible practices and processes across the board to mitigate losses. Consultation and assessments for loss control, data and predictive analytics, and emerging technologies such as telematics can all be beneficial in developing overall avoidance and mitigation plans.

In addition, a review of all primary Liability policies should be performed with the client to assess the adequacy of each of the company’s policy limits. Underlying Liability policies – General Liability, Auto Liability, Employers Liability, etc. – are not designed to respond to catastrophic claims and today’s large settlement amounts and jury awards. This is where Excess Liability coverage comes in.

Excess Liability insurance is designed to step in after the client’s primary limits have been exhausted. The coverage provides an extra layer of protection to protect a company’s assets and balance sheet and covers the same types of claims as an underlying Liability policy. Excess Liability insurance is imperative for high-risk or litigious industries to survive a major incident or lawsuit.