The cost of a liability claims — whether it’s a slip on a sidewalk, an employment-related dispute or a severe sports injury — has dramatically increased at K-12 schools over the past several years. When the cost of claims rises above general economic inflation, the trend is called social inflation. Driving factors include mistrust in institutions, increased advertising by attorneys soliciting plaintiffs and increased legislative risk.
Third-party litigation financing (TPLF) has also increased in recent years. In TPLF, a funder that is not party to a lawsuit agrees to provide funding to a plaintiff or law firm in exchange for an interest in the potential recovery in a lawsuit.
Litigation funders may position themselves as organizations that enable a person without financial means to bring a suit against a wealthy institution. In these circumstances, however, an individual’s interests are not the central driver to settling the claim. Instead the driver is realizing a profitable return. At times, a claimant will receive as little as 10% of the settlement amount, according to Rebecca Fozo, an associate vice president of claims, judicial and legislative affairs from Zurich North America, in a recent webinar.
Financers admit they make it harder and more expensive to settle cases. The arrangement discourages settlements and increases litigation costs and settlement values.
Financers admit they make it harder and more expensive to settle cases. The arrangement discourages settlements and increases litigation costs and settlement values.
Berkley Insurance CEO Rob Berkley stated earlier this year that liability lines are “hammered by social inflation and that third-party litigation funding is the ‘jet fuel’ emboldening the plaintiffs’ bar and launching verdicts into the stratosphere.”
This litigation financing has grown to $15.2 billion in the United States, according to the American Property and Casualty Insurance Association. Endowments for some K-12 schools and colleges unknowingly invest in TPLF.
Source: The Westfleet Insider, 2023 Litigation Finance Market Report
Lack of disclosure requirements makes it difficult to determine the source of the litigation financing, the scale and pervasiveness. Potential foreign influence, conflicts of interest and fraudulent claims are concerns across the insurance industry.
All this has contributed to the rise in the median top 50 U.S. verdicts —from $26.3 million to $72 million — over the past decade. This sharp rise speaks volumes (even accounting for the COVID-era dip when courts were closed).
Source: Top Verdict https://topverdict.com/
More specifically for education, United Educators’ latest Large Loss Report reveals that publicly reported losses of $2.5 million or more increased from $105 million in 2021 to $434 million in 2024 for K-12 schools. With these increased stakes, every incident should be handled with the utmost care and precision.
Given the numerous challenges school administrators face, figuring out how to combat social inflation may seem overwhelming. There are options for concrete action leaders can take that will not drain your balance sheet. Steps include:
- Elevate risk management to a strategic enterprise concern to help prevent claims.
- Handle individual incidents with empathy while consistently applying your policies and procedures.
- Take advantage of early reporting and the expertise of an experienced insurance carrier, including finding the right fit for defense counsel.
- Fight for funding transparency in the discovery phase of litigation.
- Understand the liability market trends and potential impact on your mission.
- Consider engaging legislators on the topics of litigation financing transparency and tort reform.
