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Australia comes second in being litigious

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Australia is probably the second-most litigious country in the world after the US, according to US management liability specialist Kevin LaCroix.

He says class action filings have surged in the US and are on track this year to reach the highest number since 2004.

Mr LaCroix, Executive Vice President at liability group RT Pro Exec – a division of Chicago-based wholesale brokerage RT Specialty – was a keynote speaker a the Australian Professional Indemnity Group’s conference in Sydney last week.

He says a number of differences exist between the US and Australian class action environments.

Litigation funders have a greater role in Australia and procedural issues are more straightforward, but the “loser pays” principle acts as a deterrent.

“The US is still more litigious, but I think in the rest of the world Australia is probably second – Australia and Canada.”

Class actions have played a role in improving corporate disclosure and provide an effective mechanism for handling large cases such as the Volkswagen emissions issue, he says.

“If you didn’t have a way to handle that collectively, it would be a mess for everyone. Everyone bemoans class action litigation, but it can be very efficient.”

In the US, securities lawsuit filings numbered 119 at the end of June, pointing to a full-year total of 238, which would top the level in 2008 during the global financial crisis, according to Mr LaCroix’s figures.

The previous spike was in 2004, driven by an era of corporate scandals including the failure of Enron.

Mr LaCroix says the latest increase comes amid more actions against foreign companies with US listings, lawsuits related to initial public offerings and case law developments in Delaware.

“All these factors together are contributing,” he told insuranceNEWS.com.au. “Unlike the earlier years, it is not one single thing.”

This year high-profile cases have been filed against companies such as Volkswagen and Brazilian oil company Petrobras. Australian miner BHP Billiton faces legal action following the collapse of a dam at its joint-venture project in Brazil.

Mr LaCroix says there is also a trend among some plaintiff law firms to pursue smaller companies, rather than take on the bigger burdens of pursuing large corporates.

“To use a US baseball analogy, they are trying to be singles hitters, rather than home-run hitters.”

He says weakness in premiums is a global issue amid heightened capacity and competition in the sector, and which is unlikely to disappear quickly because insurers remain reluctant to lift rates.

“There is a restraining effect on the desire of insurers to raise their rates. In the end, the ability to be the one disciplined player in an undisciplined market is very difficult.”