Why liability claims are on the rise?

Why liability claims are on the rise?

There has been a marked rise in rate – and size – of liability claims in recent years. This social inflation is characterised by the increasing cost of insurance claims beyond what would typically be expected, and driven by various external factors. The impact that these societal factors can have on insurance claims is widely considered to be a primary cause for driving the loss costs in the liability market.

There are two main drivers that have influenced this trend, especially in South Africa. The first is the Consumer Protection Act, No. 68 of 2008 (CPA). The CPA is critical to ensuring that consumer rights are established and effectively enforced. Among its many benefits to customers and consumers, it also allows for litigation of so-called slip & trip claims. Under certain parts of the Act, a claimant can challenge waiver and indemnity clauses they had signed in court. But, as you can read about here, these type of claims are not always successful.

Another important influence on the rise in liability claims include changes in the legal system and the implementation of the Contingency Fees Act 66 of 1997. Any person who wishes to engage the services of an attorney must be able to pay for these services. A contingency fee arrangement means that an attorney may represent a plaintiff and conduct litigation on their behalf. The attorney carries all costs involved on the condition that, if the litigation is successful, they can charge the plaintiff double their original fee or up to 25% of the compensation awarded to the plaintiff. These contingency fee arrangements have influenced the number of and the size of personal liability claims that end up in mediation or court simply because individuals who could not previously afford to retain an attorney, can now do so.

As they have a vested interest, it is fair to say that attorneys may be tempted to influence the size of the claim. Keep in mind that, if successful, the attorney may charge up to 25% of the total compensation amount paid to the plaintiff.

These, and other factors, are facilitating the number of liability claims on the march and a persuasive rationale for ensuring that your clients have adequate cover in place.