A new report from the Alabama Department of Insurance suggests that claims litigation and big verdicts are on the
rise in the state, inflating loss costs for insurers and putting upward pressure on auto and commercial liability premiums.
“…The average paid loss per claim has risen significantly ove
r the past five years, suggesting that increasing claim severity is likely influenced by legal involvement,” the report noted.
The report, based on an August data call and information from 167 insurers, shows that for all liability lines, except homeowners, the number of claims dropped from 2020 to
2024. But the share of those claims that were litigated rose by almost a third—from 10% to 13%. The total payout amounts rose b
y 38% and the average payout jumped by 45% in that period—far outpacing the U.S. inflation rate.
“The fact that claims severity has increased three times the rate of inflation
shows that something else is going on besides typical cost increases,” said Harrison Proctor, director of Alabamians for Legal Reform.
The report indicated that medical malpractice saw the biggest increase in costs. From 2020 to 2024, the number of claims dropped slightly. But the total payout for those 167 carriers s
oared by 140%—from $9.6 million to $23.5 million, the report noted. The average medical liability payment more than doubled, to $58,974.
The data was compiled and analyzed by Risk & Regulatory Consulting, an actuarial and research firm for regulators, based in
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Connecticut. The 167 insurers accounted for 97% of the total paid losses in the data call time frame.
An increase in litigated claims spotlights the cold calculus that property-casualty insurers have faced for eons: when it’s prudent to fight some lawsuits in court versus when it is les
s costly to settle and move on. In comments submitted by insurance carriers in the report, one company’s representative summed it up:
“We have a decreasing willingness to take litigation to trial as, it is our perspective, any claim that goes to trial has a much greater potential for significant damages to be awarded (wheth
er in the spirit of true indemnification or not),” the unnamed carrier noted in the report. “All this goes to say that, given these significant increases in claims dollars being paid, the pre
mium must rise in conjunction with the increases in both frequency and severity of litigated claims as well as to accommodate the unknown variance of potential ‘nuclear verdicts.'”
An escalation in litigation may not be surprising to anyone in the insurance industry. But the report suggests that even in states that are not ranked as “judicial hellholes” by litigation-tracking groups, lawsuits are having an impact.
While lawmakers in the neighboring states of Florida and Georgia in recent years have enacted changes designed to stem lawsuits and jury verdicts, the Alabama Legislature
has not taken the tort-reform path. A 2024 bill, Senate Bill 293, died in committee. It would have regulated litigation financing, limited vicarious liability for employers, and would have attempted to curb attorney advertising.