The Case for Pausing Any Immediate Embrace of the Social Inflation Argument for Legal System Reforms

This paper analyzes those arguments by first providing an overview of the recent literature and then describing any potential concerns in the overarching analytical approach of the literature. Finally, the paper discusses any potential concerns with the particular arguments made for reform and concludes that the literature does not yet provide sufficient data for regulators and legislators to act. The assertion that social inflation merits legal system reform is not a new hypothesis but is, once again, in vogue.

In recent years, “social inflation is among the most talked-about phenomena in property and casualty insurance and civil justice circles. There is hardly an insurer earnings call or industry conference where social inflation is not addressed.” (Theodorou, 2021). “The proportion of conference calls among the largest insurers that contain the phrase ‘social inflation’ has stayed essentially at zero until 2017 while rising to over 50% in 2020.” (Oh, 2022). In the January 5, 2023 “social inflation” email newsletter of the Insurance Information Institute (III), the III CEO stated:

“… we’ve leveraged our immense digital capabilities and driven thousands of people per day to our website and some 8,000 key decision makers to our research through social media campaigns. As we kick off 2023, our team knows there’s still much to be done to draw attention to this important issue. The year ahead will be pivotal for addressing legal system abuse.”

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Advertising. The prescriptive social inflation literature frequently identifies increasing attorney advertising as one of the drivers of social inflation (e.g., APCIA et al., 2022; Theodorou, 2021; Pain, 2020; IRC, 2020). There is data showing an increasing prevalence of attorney advertising (ATRA, 2022; Fan et al., 2021), and there is theoretical work suggesting attorney advertising could change verdict outcomes (Hawkins & Knake, 2019; ATRA, 2022).12 But there is no data that the resultant changes in outcomes are making matters worse rather than better

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Reptile Theory and Other Plaintiff Lawyer Trial Strategies. The prescriptive social inflation literature also identifies the trial tactics of plaintiff’s attorneys as a factor contributing to frivolous outcomes, with disproportionate focus to the tactic colorfully labelled as “Reptile Theory” (e.g., APCIA, 2022; Sedgwick, 2022; Pain, 2020; Fan et al., 2021; III, 2022a; Cianflone, 2022; Theodorou, 2021; Campbell et al., 2016; Mackeprang & Karol, 2021).

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TPLFs. Another focus of the prescriptive social inflation literature is on litigation financers (sometimes called either “TPLFs” or “TPLF”) (e.g., APCIA et al., 2022; Pain, 2020; Fan et al., 2021; III, 2022b; Cianflone, 2022; Theodorou, 2021; IRC, 2020; Murray et al., 2020). As Fan et al. (2021) assert: “We are concerned that TPLF is an expensive and blunt tool to enable legal disputes, with potentially harmful economic and ethical consequences. …We see TPLF as a contributing factor to the trend of social inflation in the U.S. …We find TPLF contributes to social inflation by incentivizing litigants to initiate and prolong lawsuits.” As with plaintiff’s attorneys, the intuitive appeal of this argument may seem strong, but the data supporting the conclusion is less clear.