Navigating the Roadblocks: Tort Reform and the Future of Trucking

May 14, 2024

The American trucking industry is the backbone of our nation’s economy, delivering over 72% of all freight by weight according to the American Trucking Associations (ATA). However, this vital sector faces an uphill battle due to a complex legal landscape that is impacting insurance costs and putting additional stress on the supply chain. Tort reform has emerged as a solution and many associations and individuals, both at the state and national level, have joined the fight. Tort reform is a legislative effort to modify the civil justice system, and moderate excessive costs and awards that can come from litigation. Let’s explore what types of tort reform are being introduced/ passed and what the potential impact can be to trucking companies.

The Burden of Lawsuits

Trucking companies are frequently named as defendants in lawsuits arising from accidents, and in certain circumstances, this is regardless of fault. While legitimate claims deserve fair compensation, a trend of excessive litigation has emerged across the country. The ATA reports that jury awards in truck accident cases have skyrocketed by over 250% in the past two decades. The number of auto liability claims that exceed over $15 million has increased by 87% since 2016, and the average motor vehicle accident verdict has increased from $3.6 million in 2010 to over $17 million today.

While these statistics have a large impact on fleets and the umbrella marketplace, it is the exaggeration of damages and the subsequent demands on the less severe “frequency” claims that is hitting the primary auto insurance industry hard. One might refer to it as a “death by papercut” situation that we find ourselves in. Even in low impact accidents with little damage done to a vehicle, attorneys are sending excessive demands and citing bodily injury, pain and suffering, PTSD, and more to justify the ask.

If taken to court, plaintiff attorneys use reptile theory— a tactic used to evoke fear and play to our innate nature as humans to attack when scared— which can lead to large jury verdicts. This leaves insurance companies and trucking companies with a difficult decision- do we settle for higher than we should, or roll the dice in trial?

Impact on Trucking Premiums

In a survey recently shared by the CIAB, future premium increases and high current premiums were identified as the top 2 answers on a list of top client concerns. High current premiums increased from 44% two years ago to 80% in this most recent survey, and 89% of respondents identified future premium increases as their top concern. The commercial auto insurance marketplace has taken over 50 consecutive quarters of rate increases, and despite that, it remains unprofitable. If you were to factor in the average annual auto liability increase for a trucking company over the past 50 quarters, it would result in an over 82% cumulative rate increase during that period.

The expected combined ratio for the industry is expected to land above 105% for 2023, which in simple terms means the commercial auto marketplace is losing 5 cents on every dollar of premium that they bring in. A surge in claim costs, as well as the associated expenses to handle and defend those claims, signifies higher risk for insurers and that will continue leading to increased premiums for trucking companies unless a solution is found.

Tort Reform: A Path Forward

As stated above, tort reform refers to legislative efforts aimed at modifying the civil justice system. Many state and national trucking associations have taken on this fight and championed legislation that focuses on tort reform in, but not limited to, the following areas:

Non-Economic Damage Caps: Setting a limit on non-economic damages (such as pain and suffering) awarded in lawsuits. This aims to prevent excessive payouts that are disproportionate to the actual damages incurred in the claim.
Joint and Several Liability Reform: Tort reform can advocate for a fairer system where liability is shared proportionally based on the degree of fault.
Third-Party Litigation Funding Reform: Requires the disclosure of any 3^rd party financiers that are financially involved in a claim (such as hedge funds or venture capital groups) to the defendant, judge, and/or jury.
Seat Belt Gag Rule Reform: Repealing a law that currently prevents the use of evidence that a person was not using their seatbelt at the time of an accident in court.
Paid vs. Incurred Damages: Changes how medical bills are presented at trial by only admitting the amount paid versus the amount initially billed.
Alternative Dispute Resolution (ADR): Encouraging the use of mediation or arbitration as alternatives to lengthy and expensive courtroom trials.

The Potential Benefits

Supporters of tort reform argue that these measures can create a more balanced legal system and by doing so, help to curve insurance increases. Proponents also state that if insurance (a top 5, if not top 3, operating cost for trucking companies) is either stabilized or lowered, it can free up greater resources to be directed toward additional safety initiatives and technology. This could lead to fewer accidents on our roadways, which is the best result for all parties.

States such as Iowa, Florida, Texas, Montana, West Virginia, Louisiana and Missouri have passed new tort reform laws, and many other states are currently pursuing reform. Each and every bill that is passed helps to set a precedent that can then be used in other states, and many states are working together to learn from each other’s experiences, draft bill language, and share data that can help legislators understand how important this is for their state.

“Tort reform is not about shifting liability or forgoing responsibility for at-fault damages. I have yet to meet a trucking company who is at-fault in an accident and doesn’t expect to indemnify the claimant. It’s about making sure that there is a fair and ethical process for assigning liability to the at-fault party, and that awards are proportionate to the actual damages suffered,” said Lexi Myers, a Vice President within Cottingham & Butler’s Transportation practice. “Trucking companies deserve an even playing field, and right now the scales are tipped against them.”

At Cottingham & Butler, we understand the unique challenges faced by trucking companies. We are committed to providing comprehensive insurance solutions that address the industry’s unique needs. Our team of 300+ trucking insurance experts remain informed about the ongoing debate surrounding tort reform and its potential impact on the trucking industry. As your trusted insurance partner, we are here to navigate these complexities with you and advocate for a safe and prosperous future for the trucking industry.