An appetite for legal liability in Europe?

For policymakers in the European Union, harmonisation has been the ideological goal driving the common market since day one. In that utopian construct, unified structures of regulation and legislation would promote free trade to the benefit of all members and with this in mind, insurance industry observers still await the day when the EU becomes a homogenous whole. It already happens to a certain extent; with directives affecting the civil and criminal liability of clients and the rights of claimants to bring legal actions across all corners of the union.

It is in this context that broker Guy Carpenter and other firms with a vested interest in the topic, monitor the development of liability law across the EU. David Lewin, managing director for International casualty specialty at Guy Carpenter & Company, says that the broker's twice annual report Recent Legislative and Judicial Developments in Continental Europe, is published to give an overview of the liability trends affecting insurers and insureds on a country by country basis.

Worse case scenarios
He says the report is important from the perspective of Solvency II because insurers and reinsurers are asked to consider what their worst case scenario is. "Of particular importance are systemic exposures, which can come in a number of guises, but a major source is legislative change. It could also be social change, which may then influence law-making. The trick is to spot what judgements are going to have an impact on the way that insurance policies are interpreted, or the way that the underlying legal liability is perceived and indemnified."

In Mr Lewin's opinion, the overriding theme across Europe is of conservatism, with neither judges nor politicians in many countries willing to make decisions that would create a sea change in civil liability.

Common law precedents
"Clearly in the UK the judicial element is more dynamic and powerful than in other jurisdictions - because it's common law which develops through precedent and case law, whereas in Europe, most movements are by statute or decree. Although that's not to say that a judge can't interpret something in a new way in a country or determine new award levels based on the particulars of a given victim," he adds.

However, there are others who appear less sanguine. Thomas Fausten, senior claims expert at Swiss Re, believes that one of the most significant developments in Europe in 2010 was the first-time bridging of class actions, forum shopping and third-party funding, which occurred in the Netherlands.

Forum shopping
"This happened with respect to the so called ‘Vedior' settlement," says Mr Fausten. "The case relates to damage suffered by investors following a late ad-hoc publication by the company Vedior which subsequently merged with Randstad NV. The settlement, following a class action claim pending before an Amsterdam Court, also included American plaintiffs who - by way of forum shopping - sued outside their US home territory."

Mr Fausten believes that further expansion of the Dutch class action regime may be likely, attracting plaintiffs and defendants alike seeking a EU class action friendly venue. "The Netherlands saw some of the largest recent European collective action claims, which may indicate that the country is set to become a portal for class action in Europe, sought also by foreign plaintiffs."

A new trend
The trend could be set to continue, he says, adding: "Among the most visible new class action claims in 2010 in the Netherlands was Ericsson and Philips vs Air France, KLM et al. The allegation was the building of a cartel for fixing air freight prices. The suit is funded by the Irish domiciled affiliate of an Australian litigation funding company called Claims Funding International in Dublin."

Peter Taylor, a consultant with law firm Hogan Lovells, maintains a keen eye on liability developments concerning asbestos-related personal injury. He says a judgement from Spain last summer could have significant implications. The Court of First Instance number 46 of Madrid heard judgement on 5 July 2010 that a company producing fibreglass concrete must indemnify the damages suffered by individuals due to the exposure to asbestos, despite the defendant proving it had not negligently exposed the claimants. "This is one to watch, because it applies the theory that if you conduct a dangerous or risky activity you will be held strictly liable for injuries even if they weren't caused by your own negligence," he says.

Claims inflation
Away from the courtrooms themselves, Mr Lewin has witnessed some evidence of bodily injury claims inflation around the EU's periphery. "Greece has seen a major adjustment in terms of bodily injury minimum indemnity levels, which were imposed by the EU rather than locally. If you look at award levels in countries where the pace of economic decline has increased, it won't necessarily reveal a correspondent increase, but frequency may have risen," he says.

"There is a gradual upward rise and over the long term, claims costs will continue to inflate. The fact that we may be seeing some brakes being put on the pace of that development as we illustrated in our September report is in my view unlikely to change the general upward curve."

The State fights back
An area which the UK's courts have significant experience of hearing arguments over is the practice of subrogation between state-funded institutions that often bear the burdens of long-term care, and the private insurance sector which indemnifies employers.

Mr Taylor explains: "France has recently indicated that it intends to increase its work in subrogating claims. The Fonds d'Indemnisation des Victimes d'Amiante which pays out compensation to asbestos victims on a sliding scale, has indicated it will begin making subrogated claims back to liability insurance."

Aggressive subrogation
Indeed, a report from the FIVA in 2009 reports that it instigated over 800 such claims that year and Mr Lewin says the trend is not isolated to France. "I don't think it's likely to happen in Sweden in the short term, but it is beginning to happen in Germany. The Krankenkasse - Germany's public health insurer - has been more aggressive in its subrogation towards insurers."

So far the FIVA's efforts to increase the amount it claws back from private insurers has been limited by the body's own budgetary constraints, with cases numbering approximately 800 in 2009.

There is no need to look far to find evidence of governments and public institutions seeking to transfer risk over to the private sector; perhaps with this example now is the time the rest of Europe will look to the UK to find out how it's done.