USA

Key developments in 2024

Civil lawsuits and claims in the US continue to be fueled by social inflation and 2024 saw a record number of nuclear and thermonuclear awards and large settlements. Considerable attention continues to be devoted to cyber coverage and the systemic challenges associated with artificial intelligence (AI) and cyberattacks. COVID-19 business interruption, cyber and privacy, PFAS, traditional environmental and asbestos, opioids, lead paint, construction defect, weather-related claims, sexual molestation, and D&O/securities claims continued to dominate claims activities and court decisions.  An unusually high number of US Supreme Court cases impacting insurers have been rendered the past couple of terms.   

Social Inflation

Although economic inflation has dropped from a 40-year-high of 9.1% in 2022 to approximately 2.6 % in 2024, it remains more than double the rate of 2020. Social inflation continues to run ramped in the US, where a world leading 40 million lawsuits a year are filed. The tort system costs per household range from in excess of US$2,000 to $5,500 depending upon the state.  According to one report, nuclear verdicts have increased 27 percent, and thermonuclear verdicts have reached record numbers. 

Combating social inflation remains challenging in a legal landscape fraught with improvident legal and evidentiary rulings by judges coupled.  Traditional rules of evidence and jury instructions have been ineffective in tapering the anti-corporate proclivities of younger jurors and in addressing the challenges presented in this instant information age.  Third party litigation funding continues to be a scourge on defendants.  The defense bar has pushed for courts to require disclosure of litigation funding.  This a partial fix that has met with mixed success.  A 2024 Louisiana law generally precludes litigation funders from controlling litigation or settlement and makes litigation financing contracts  discoverable in civil cases.  The law requires disclosure of litigation funding entities from “countries of concern” (including Russia, China, and Iran).

Defense lawyers have done a better job in countering plaintiff’s reptilian tactics and anchoring damages, but defendants have not been effective in countering the US $1.5 billion annual spend by the plaintiff’s bar in advertising to recruit plaintiffs and pre-condition future jurors to render large verdicts.  Little meaningful tort reform has been enacted across the US in recent years, except for Florida where the early results have been somewhat positive. 

ESG/Sustainability

The Biden administration and many states continued to advance environmental, social, and governance (ESG) criteria on a “whole of government” basis. The US Securities and Exchange Commission (SEC) issued its final climate-related disclosure rule in March, which is somewhat less onerous than the proposed rule as a result of receiving thousands of comments.  The effective date has been deferred while litigation challenging the rule remains pending.  SEC investment rules, which now allow for (but do not require) fiduciaries to consider ESG factors, are in effect.  In September, the SEC announced it was disbandoning its Climate and ESG Task force, but it has continued to investigate and penalize parties, such as Invesco Advisers for a $17.5 million civil penalty for misleading statements about integrated ESG factors in investment decisions.

Prior decisions by the US Supreme Court in West Virginia v EPA (striking down a rule promulgated by the EPA to address carbon dioxide emissions), Sackett v. EPA (narrowing the federal government’s authority to regulate bodies of water and upending a Biden administration rule), and Students for Fair Admissions, Inc. v. President and Fellows of Harvard College (striking down affirmative action admissions policies used by both Harvard and UNC, effectively barring the consideration of race as an independent factor in university admissions) have imposed some speed bumps on the ESG and DEI (diversity, equity, and inclusion) superhighways.  The anti-ESG movement continues to have traction particularly in states with Republican governors.

The first Trump administration rolled back regulations substantially, but the Biden Administrated responded by increasing the regulatory burden to a record level.  In 2021, for example, the Biden Administration promulgated over 3,250 regulations in contrast to 81 laws passed by Congress, meaning agencies accounted for over 97 percent of new laws adopted in the United States. The economic impact of regulation exceeds $1.9 trillion annually.

A trilogy of cases decided by the US Supreme Court in 2024 limited the power of administrative agencies in ESG, DEI, and extends across all subject areas of agency action.  In Loper Bright v. Raimondo, the Court eliminated Chevron deference that sometimes-required courts to defer to agency interpretations of the statutes those agencies administer even when a reviewing court reads the statute differently. In SEC v. Jarkesy, the Court required administrative agencies to adjudicate matters involving the imposition of civil fines in federal court as opposed to "in-house." In Corner Post v. Board of Governors of the Federal Reserve System, the Court held that the default six-year statute of limitations for challenging federal agency actions begins to run when the plaintiff is injured by a final agency action (not when the final agency action is published), allowing decades-old regulations to be challenged. Notwithstanding these decisions, government agencies remain immensely powerful and enjoy significant advantages over regulated entities.  However, companies challenging regulatory action may prevail in a higher percentage of cases than the 30 percent historical track record. 

Climate Change and Weather Related Claims

The greatest impact that climate change has had on insurance claims has been as a phenomenon impacting the frequency and severity of weather events.  California, Florida, and Louisiana have experienced the greatest impact on insurance availability and pricing. In the wake of several insurer insolvencies, Florida enacted two statutes interposing litigation reform impacting first-party claims, particularly with respect to claims involving roof damage and creating a US $2 billion reinsurance program. California regulators are working to afford insurers greater latitude in setting premiums after at least three major insurers announced last year that they would stop or limit writing homeowner’s policies in California. The hurricane activity in 2024 is expected to yield a large number of claims.    

The Hawaii Supreme Court determined that insurers had no duty to defend Aloha Petroleum in two climate-change related cases.  The court ruled in favor of the policyholder on the occurrence issue, determining that an “accident” includes a policyholder’s reckless conduct.  It ruled in favor on the insurers on the pollution exclusion issue, determining greenhouse gases are “pollutants” as defined in the policies’ pollution exclusions even adopting pro-policyholders positions such as holding pollution exclusions only apply to “traditional” environmental pollution.  Despite all the climate change activities and underlying litigation, this represents only the second substantive US decision on coverage for climate-change. 

Bankruptcy Decisions Involving Mass Tort Liabilities

The US Supreme Court ruled in Truck Exchange v. Kaiser Gypsum Co., that an insurer paying asbestos claims against the debtor is a party in interest that must be afforded an opportunity to raise issues and participate in proceedings that may impact their interests.  Previously, many courts denied insurers standing where a Chapter 11 plan of reorganization contained an
“insurance neutrality” provision.  As the Court properly recognized, such provisions are not a substitute for an insurer’s right to be heard. 

In Harrington v. Purdue Pharma, the Court ruled that the US bankruptcy code does not authorize a release and injunction as part of a plan of reorganization under Chapter 11 that effectively would have discharged claims against a non-debtor (members of the Sackler family) without the consent of affected claimants.  As a result, the $6 billion settlement of OxyContin opioid claims was invalid notwithstanding that more than 95% of voting opioid claimants voted to support the plan.  The decision has parties scrambling to find work-a-rounds in non-asbestos mass tort bankruptcies and has some questioning the validity of consensual releases. 

The Third Circuit affirmed the dismissal of the second Chapter 11 case involving Johnson & Johnson's talc liabilities early in the year. A couple of months later, J&J (through its Red River Talc unit) filed a third bankruptcy, this time it filed in the Southern District of Texas and avoided efforts to force the action to proceed in New Jersey.  The matter is ongoing.

Artificial Intelligence

The New York State Department of Financial Services adopted a finalcircular about the "Use of Artificial Intelligence Systems and External Consumer Data and Information Sources in Insurance Underwriting and Pricing," signaling the department’s enforcement priorities. The circular follows the Colorado Division of Insurance release of its Algorithm and Predictive Model Governance Regulation governing life insurance, the California Insurance Commissioner’s Bulletin 2022-5 on Allegations of Racial and Unfair Discrimination in Marketing, Rating, Underwriting and Claims Practice by the Insurance Industry, and the Texas Department of Insurance Commissioner’s Bulletin #B-0036-20 entitled "Insurer’s use of third-party data." Fifteen states have adopted the NAIC Model Bulletin entitled "Use of Artificial Intelligence Systems by Insurers," issued in December 2023.  In November 2024, the California Privacy Protection Agency issued a notice of the public comment period for its latest rulemaking package proposing expansive draft rules regulating technologies fueled by AI.  The proposed rulemaking package includes updates to existing regulations and proposed regulations for cybersecurity audits, risk assessments, automated decision-making technology, and insurance companies.

COVID-19 Business Interruption Litigation 

Approximately 2,400 COVID-19 business interruption coverage cases have been filed in the US since the pandemic.  Many cases remain pending, but most have been resolved. No new actions are being filed as the suit limitations period in most first-party all-risk and BOP policies is one or two years. 

Insurers have achieved overwhelming success in the litigation, prevailing in 69 percent of the 236 rulings on motions to dismiss in state courts across the country and in more than 86 percent of the 740 rulings in federal courts.  These victories have been obtained on the grounds that the claims do not involve “direct physical loss or damage” to property as required by the language contained in most US first-party policies or based upon the application of virus or other exclusions. Insurers have prevailed in most summary judgment rulings and in most of the few trials.     

Insurers have prevailed before in every United States Circuit Courts of Appeals.  In 2024, the States Supreme Courts of Alaska, California, New Jersey, and New York joined the State Supreme Courts in Connecticut, Delaware, Iowa, Louisiana, Massachusetts, Nevada, New Hampshire, Ohio, Oklahoma, South Carolina, Washington, and Wisconsin in ruling in favor of insurers.  Policyholders’ sole state high court victory was before the Vermont Supreme Court. Insurers have prevailed in most state intermediate appellate court decisions as well.  Although policyholders may prevail in a small number of cases and states, it is fair to declare that insurers have won the COVID-19 business interruption coverage war.

Cyber

For the past 14 years, the U.S. has had the highest average costs in the world for data breaches.  Most reported coverage decisions involving cyber issues have been so-called silent cyber decisions – decisions under traditional general liability, first-party, and crime/fraud policies. 

The intermediate New Jersey appeals court affirmed the trial court decision in Merck & Co. v. Ace Am. Ins. Co., holding the 2017 cyberattack from malware known as NotPetya carried out by hackers acting on Russia’s behalf was not barred by the hostile/warlike action exclusion. The New Jersey Supreme Court agreed to review the decision, but the case was settled before the court had an opportunity to issue a decision.  Most insurers are adding updated War exclusions, many modeled on London forms.

In mid-2023, the US Securities and Exchange Commission adopted rules requiring registrants to disclose material cybersecurity incidents they experience.  Additionally, they must disclose annually material information regarding their cybersecurity risk management, strategy, and governance.

Privacy

The US lacks an encompassing federal law comparable to the European Union’s General Data Protection Regulations.  Data breach notification laws, however, are in place in all 50 states.  There are now several different comprehensive state privacy laws along with at least 25 different state data security laws.  

Numeous rulings have been rendered under the Illinois Biometric Privacy Act demonstrating the broad scope of the act.  Amendments to the Illinois Biometric Privacy Action in 2024 benefit businesses by allowing them to obtain written releases by electronic signature and limiting damages by restricting a single claim per section of the statute.  The statutory damages remain harsh and still pose significant challenges for companies handling unauthorized biometric data. Although earlier coverage decisions were favorable to policyholders, insurers have prevailed in some recent Illinois Appellate Court decisions based on the “violation of law” and other exclusion and under cyber policies. 

PFAS/Forever Chemicals

Per- and polyfluoroalkyl substances (PFAS), often referred to as “forever chemicals,” have been around since at least the 1940s and have been used in so many products they are said to be ubiquitous.  Thousands of PFAS cases are pending across the US, with numerous eye-opening settlements reached. Governmental regulators arrived late to the scene but are now locked and loaded on regulating PFAS chemicals. Numerous states are suing manufacturers and others for contaminating drinking water and damaging natural resources and are seeking to bar the use of these chemicals.

PFAS claims present numerous coverage issues. Several decisions have ruled on the applicability of various forms of pollution exclusions with mixed results.  Various specific PFAS exclusions are included in policies of more recent vintage.  Many claims potentially implicate legacy policies.  Some forecasters believe PFAS losses may rival asbestos losses. 

Traditional Environmental & Asbestos Claims

Notwithstanding the various emerging claim types, traditional asbestos and environmental claims continue to dominate with over 1300 Superfund cleanup sites and 22% of U.S. population residing within 3 miles of them.  Approximately US $1 billion from the Infrastructure Investment and Jobs Act was allocated to the cleanup of 49 Superfund sites. Claims-made policies and issues are more dominant in environmental claims today than decades ago. There have been several coverage decisions rendered, but none have changed the course of coverage litigation. 

Opioids 

Opioid epidemic costs the U.S. approximately US $1 trillion annually. Approximately, 3,000 state and local governmental entities have been seeking to recover the costs of public services associated with opioids from drug manufacturers and distributors.  Overall, policyholders have not fared well seeking coverage under general liability policies over the past couple of years.  In 2024, a Florida federal court held that insurers of Publix Super Markets were not required to defend the grocery chain in 60 lawsuits brought by public entities because the underlying suits seek economic loss not for damages  because of bodily injury.  A Delaware trial court ruled that insures were not required to defend CVS against 218 opioid-related suits brought by municipalities, third-party payors, and medical providers on the same grounds, relying on the 2022 ruling of the Delaware Supreme Court in Rite Aid. 

Lead Paint 

Coverage issues relating to the US $400 million plus lead paint abatement fund ordered in California against three lead paint manufacturers has given rise to three separate coverage actions.  Insurers previously prevailed in California, the policyholder prevailed in New York, and late this year the Ohio Supreme Court ruled in favor insurers on the basis that paying into an abatement fund for prospective harm does not constitute “damages.”

Construction Defect

The Washington Supreme Court ruled that coverage for repairs to condominium’s roof components was available under the resulting loss exception to the policy’s faulty workmanship exclusion. The Seventh Circuit ruled faulty workmanship qualifies as an occurrence under Illinois law.

Sexual Misconduct Claims

A decision by an intermediate New York appellate court reversed dismissal of a declaratory judgment action brought by an insurer against the Archdiocese of New York finding the complaint sufficiently alleges that recovery would fall outside the scope of its duties to defend and indemnify if the archdiocese had knowledge of its employees’ conduct or propensities. Another decision by the intermediate New York appellate court affirmed the trial court’s ruling that the policyholder stated a cause of action for breach of the implied covenant of good faith and fair dealing. The Eighth Circuit affirmed a ruling that there was no coverage under an automobile policy for a claim that the plaintiff contracted a sexual transmittable disease from having sex in a car as it did not involve bodily injury arising out of the ownership, maintenance, or use” of the automobile.

Exhaustion, Recoupment, and Independent Counsel

The deterioration of California law on exhaustion continued with the California Supreme Court’s decision in Truck Ins. Exch. v. Kaiser Cement & Gypsum Corp.  Meanwhile, the Northern District of California upheld an anti-stacking provision.

The Sixth Circuit affirmed that an insurer may recoup amounts paid in defense after the underlying complaint was amended to remove the only potentially covered claims. The Ninth Circuit ruled that actress Amber Heard was not entitled to independent counsel for the defamation case brought by her ex-husband Johnny Depp. 

Transactions Insurance

Transactions insurance, including representation and warranties, tax, and litigation insurance (judgment preservation insurance for plaintiffs and adverse judgment insurance for defendants) are being used in a larger percentage of M&A transactions, but M&A activity has been down the past couple of years. The claims volume has been manageable and only a few coverage decisions have been reported.  

D&O & Securities Law 

D&O and securities litigation raged forward in 2024.  SPAC-related litigation continues with respect to both traditional securities and breach of fiduciary class action lawsuits.  Greenwashing claims continue to be asserted, and artificial Intelligence or AI-washing claims have been added to the mix of D&O activity.  Plaintiffs have filed dozens of pandemic-related securities actions, which have produced mixed results.  

The Tenth Circuit held a fully disclosed corporate transaction cannot be “manipulative” under the Exchange Act as the conduct must be aimed at deceiving investors as to how other market participants have valued a security. Numerous decisions addressed policy exclusions such as the insured vs. insured and bump-up exclusions.  

What to Look Out for in 2025

All the claim types discussed above are expected to be subject to additional decisions in 2024 with more decisions on cyber specific policies expected. 

The election of President Trump coupled with a Republican majority in the U.S. Senate and the U.S. House of Representatives figures to have a significant impact on policyholder exposures and insurer claim experience, investment activities, and underwriting activities. The second Trump Administration is expected to usher in a more business-friendly business environment with the preservation of the 2017 tax cuts as well as additional tax cuts and credits.  Although a substantial decrease in the overall regulatory burden is expected, there may areas such as cyber and AI where additional regulations are likely to be promulgated. 

ESG is expected to be a targeted for a substantial regulatory rollback and budget cuts.  There likely will be revisions to and elimination of a variety of ESG-focused rules promulgated by various agencies, including the climate disclosure rule. Green investment strategies may be impacted if the incoming administration reverses the 2022 rule allowing employee retirement plan advisers to consider ESG factors in their investment choices.  Companies have to comply with international and state regulations.  For example, the European Union’s ESG disclosure requirements mandate U.S. based company compliance beginning in 2026. California also has a climate risk disclosure rule, and other states have ESG laws. In late September, the California climate bill became law and mandates large companies doing business in the state disclose their value chain emissions (something deleted in the final SEC rules) and report on climate-related financial risks. 

D&O exposures related to compliance and enforcement risks spurred by government agency action are expected to decrease. Additional scrutiny and action from states and private actors could form the basis of D&O claims.  President Trump is likely to pick up where he left off in his first term by Regulation of banks and other financial institutions likely will be eased with greater support of bitcoin and cyber currencies.  The “war on the gas and oil industry” will be replaced with greater fracking freedom and “drill baby drill” in an environmentally responsible manner. 

Written by Scott M. Seaman & Pedro E. Hernandez - Co-Chairs of Hinshaw’s Global Insurance Service Practice Group.

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