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Insurer in Full: The settlement complex

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Topics: Casualty Claims & Losses Law Topical Trends

The assertion by Securitas that its insurers were “compelled” to participate in the giant $1bn Florida condo collapse class action settlement because of the climate around litigation and claims rather than liability...

 is a potent reminder of the pervasive impact of social inflation and fear of nuclear verdicts.

And it will doubtless be used by underwriters in renewal negotiations as further evidence for the need to continue pushing on rate, even as pricing momentum has been waning in the sector.

Reports in the Miami Herald suggested the Swedish security firm has settled for the largest part of the overall quantum at $450mn to $500mn.

This publication revealed yesterday that AIG, Chubb, Axa XL and Zurich are among the largest insurers on the $550mn primary and excess general liability insurance cover Securitas bought at 1 January last year, which is now exposed to the payout.

In a statement to The Insurer, Securitas made it clear that the participation of its insurers in the settlement “does not reflect responsibility for the collapse of the building or the tragic loss of life”.

Instead, it stated that it was the legal and insurance environment surrounding the tragic event that compelled its insurers to participate.

Securitas went further to distance itself from actual liability, as it asserted that it did not install or maintain the building’s security or safety systems, fire alarms or intercoms, contrary to reports.

Although the size of the firm’s share of the payout to the families of victims and survivors of the Champlain South collapse has not been confirmed, any significant settlement and the statement from Securitas makes it clear that this was the best outcome for the company, even though it does not believe it bears proportionate responsibility for the tragic event.

The point is that the alternative – a potential trial and jury verdict – were seen as a worse outcome, with the possibility of punitive damages at a time when the forces of social inflation, and especially the hostility of jury members to large corporations, has never been a greater threat.

US-legal-verdicts-are-becoming-more-skewed-towards-large-awards

Multiple sources spoken to by this publication have been agog at the reported size of the overall settlement and of the reported share that will ultimately be paid out by the insurers of Securitas (although subrogation may yet come into play).

They have rightly questioned how it is possible that a security company could be seen as at major fault for the collapse of a condo that is widely reported to have had major structural issues that were allegedly not acted on for several years by its condo association, as well as the claimed impact of construction work in a neighbouring building.

Of course, other parties are also subject to the settlement.

In addition to Securitas, various parties associated with the Eighty Seven Park condo adjacent to Champlain South have settled for about $400mn, according to the Miami Herald report, while parties associated with the Champlain South condo association account will be paying out around $100mn. In addition, the town of Surfside is settling “for a sum in the low, single-digit millions”.

Deepest pockets

Ultimately, though, it seems that Securitas was targeted for having the deepest pockets. And even though – on the face of it – the claim for its liability in the collapse seems a little spurious, the understandable fear of the litigation and claims environment in the US drove a painful yet pragmatic decision.

In this case, there was undeniably a need to try and provide financial restitution for those impacted by the condo collapse, but with insufficient insurance proceeds available elsewhere, the net was cast beyond those that would appear more obvious candidates for liability claims.

The settlement looks set to be the latest major loss to hit the excess casualty market, at a time when nuclear verdicts and surging loss cost inflation have been a major driving force of current market conditions. 

The excess casualty market has been hit with losses running into the hundreds of million dollars apiece from large single claims from wildfire-exposed utilities, mass shootings and other sources, as well as the rise in nuclear verdicts tied to claims in trucking and other sectors.

This publication has previously reported on calls for the insurance industry to stand up and communicate the wider cost of social inflation in order to try and reverse a trend that is also being fuelled by the billions of dollars being poured into litigation financing.

This latest example of a giant settlement to avoid a nuclear settlement should only serve to further marshal those efforts.

Until there is meaningful change, it is inevitable that more insureds and their insurers will be confronted by the settlement complex.

 

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