Facts + Statistics: Product liability

Product liability insurance

Product liability insurance protects the manufacturer, distributor or seller of a product from legal liability resulting from a defective condition that caused personal injury or damage associated with the use of the product. Product recall insurance, a specialty product designed to cover the costs associated with recalls, is also available from some insurers.

According to a March 2020 report from the advocacy group Kids in Danger, recalls of children’s products rose slightly to 58 compared with 52 in 2018, but well below the 93 recalls in 2017. In 2019 there were 776 incidents reported prior to recall of the 58 children’s products, for an average of 13.4 incidents per recalled product. Both incidents reported prior to recall and average incidents per recalled product were both down from 2018 when 1,275 incidents were reported and the average number of incidents reported was 24.5.

Product Liability Insurance, 2012-2021

($000)

Year Net premiums
written (1)
Annual percent
change
Combined
ratio (2)
Annual point
change (3)
2012 $2,575,225 11.0% 102.7 -57.3 pts.
2013 2,718,879 5.6 155.3 52.6
2014 2,674,183 -1.6 134.4 -20.9
2015 2,796,761 4.6 130.6 -3.7
2016 2,422,721 -13.4 124.1 -6.5
2017 2,689,115 11.0 102.1 -22.0
2018 2,794,716 3.9 122.3 20.2
2019 3,017,099 8.0 108.5 -13.8
2020 3,239,063 7.3 88.2 -20.3
2021 3,353,494 3.5 101.1 12.8

(1) After reinsurance transactions, excludes state funds.
(2) After dividends to policyholders. A drop in the combined ratio represents an improvement; an increase represents a deterioration.
(3) Calculated from unrounded data.

Source: NAIC data, sourced from S&P Global Market Intelligence, Insurance Information Institute.

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Insurers' legal defense costs

Most lawsuits are settled out of court. Of those that are tried and proceed to verdict, Jury Verdict Research data from Thomson Reuters show that in 2019 (latest data available) the median award in personal injury cases was $95,000, down from $100,913 in 2018. However, the average award rose to $1,775,759 in 2019 from 1,682,476 in 2018. Thomson Reuters notes that average awards can be skewed by a few very high awards and that medians are more representative.

In cases of product liability, the highest median award from 2013 to 2019 was in medical products cases ($4,030,868). In disputes concerning medical malpractice the highest median award was in childbirth cases ($2,725,000). In lawsuits involving business negligence the highest median award was against transportation industries ($670,000).

In the period from 2018 to 2019, 21 percent of all liability personal injury jury awards were for $1 million or more. Awards of $1 million or more accounted for 75 percent of all product liability injury awards during the two years, the highest proportion by type of case. Sixty percent of medical malpractice awards amounted to $1 million or more, followed by government negligence (53 percent), business negligence (27 percent) and premises liability (17 percent). Personal negligence and vehicular liability cases had the lowest proportion of $1 million or more awards, at 14 percent and 11 percent, respectively.

 

 

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Trends In Personal Injury Lawsuits, 2014-2020 (1)

 

Year  Award median  Probability range (2) Award range  Award mean 
2014 75,000  $16,000 - $400,000 $1 - $172,061,728 $1,031,742
2015 88,689 20,000  - 493,094 1  -  88,246,000 1,134,864
2016 100,000 23,000 - 529,485 1 - 115,000,000 1,354,355
2017 125,000 21,390 - 648,469 1 - 160,500,000 1,812,681
2018 100,474 22,052 - 550,125  1 - 247,000,000  1,675,013
2019 95,677 20,450 - 517,060 1 - 740,000,000 1,758,308
2020 125,366 25,072 - 613,130 840 - 373,763,109 2,448,978
Overall $100,000 $20,000 - $505,000  $1 - $740,000,000  $1,479,368

(1) Excludes punitive damages.
(2) The middle 50 percent of all awards arranged in ascending order, 25 percent above and below the median award. The median represents the midpoint jury award. Half of the awards are above the median and half are below. This helps establish where awards tend to cluster.

Source: Reprinted with permission of Thomson Reuters, Current Award Trends in Personal Injury, 61st edition.

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Insurers are required to defend their policyholders against lawsuits. The costs of settling a claim are reported on insurers’ financial statements as defense and cost containment expenses incurred. These expenses include defense, litigation and medical cost containment. Expenditures for surveillance, litigation management and fees for appraisers, private investigators, hearing representatives and fraud investigators are included. In addition, attorney legal fees may be incurred owing to a duty to defend, even when coverage does not exist, because attorneys must be hired to issue opinions about coverage. Insurers’ defense costs as a percentage of incurred losses are relatively high in lines such as product liability and medical malpractice, reflecting the high cost of defending certain types of lawsuits, such as medical injury cases and class actions against pharmaceutical companies. For example, in 2020, in addition to $1.1 billion in product liability incurred losses, insurers spent $667 million on settlement expenses, which was equivalent to 60.9 percent of the losses.

Defense Costs And Cost Containment Expenses As A Percent of Incurred Losses, 2018-2020 (1)

($000)

  2018 2019 2020
  Amount As a percent
of incurred losses
Amount As a percent
of incurred losses
Amount As a percent
of incurred losses
Product liability $879,786 68.0% $660,292 49.4% $667,390 60.9%
Medical professional liability 1,698,577 41.9 1,910,421 40.7 2,100,614 42.4
Commercial multiple peril (2) 2,276,691 31.2 2,527,296 32.8 2,205,799 28.4
Other liability 4,552,421 14.8 6,580,700 19.2 7,140,717 17.8
Workers compensation 3,056,129 14.2 2,773,183 13.1 2,346,484 11.5
Commercial auto liability 1,823,122 10.2 2,140,124 10.5 2,028,971 10.5
Private passenger auto liability 6,007,501 6.5 6,575,194 6.8 5,425,870 6.6
All liability lines $20,294,227 11.6% $23,167,210 12.5% $21,915,845 12.5%

(1) Net of reinsurance, excluding state funds.
(2) Liability portion only.

Source: NAIC data, sourced from S&P Global Market Intelligence, Insurance Information Institute.

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