​​MOST OF US may be familiar with how inflation impacts the costs of products and services over time, including insurance coverage, based on economic activity. What you may not realize is that societal attitudes can influence the rate of inflation—especially due to certain trends that developed during 2020.

Social inflation is drastically leading to higher insurance claim costs and affecting the umbrella liability capacity, resulting in reduced policy limits and premium increases. This phenomenon is being driven by broader trends such as increased litigation related to COVID-19; holding defendants to a broader duty of care; supporting legal decisions in favor of the plaintiff whether or not this is within the law (since jurors could be biased toward social justice and want to hold entities responsible); and much larger nuclear awards to plaintiffs.

Here are a few instances of social inflation at work over the past year.

Increased COVID-19 litigation. During the pandemic, there were fewer vehicles on the roads and fewer business operations, which should have resulted in fewer lawsuits. However, the 1,500 COVID-19-related claims filed from March to December 2020 represented nearly eight times the number of claims that follow a natural disaster.

Broader duty of care. Negligence cases are on the rise. In the past, a property owner did not have a duty to protect a person against a crime committed by another person based on common law, but standards of care are changing.

This was evident in the fall 2020 case of a professionally managed Florida town home community where a 30-year-old man was fatally shot on the common parking lot allegedly by a stray bullet. Three young boys dressed in black had been roaming the property, and when asked what they were doing, one of them pulled a gun and fired three shots.

An investigation launched after the incident revealed the community's security was ineffective; there was no security guard, the video camera at the gate and a parking lot light were inoperable, and the perimeter chainlink fences were notorious sources of entry for suspected trespassers. Following the investigation's findings, the townhome community and the management company's insurers each paid the policy limits.

In New Mexico, a jury was swayed in its $12 million verdict due to a community's lack of protection for a 31-year-old man after he was killed inside a condominium unit by a stray bullet that pierced his heart right in front of his two children. The perpetrator was never found, but a drug deal gone wrong was suspected. The man's family sued and pled to the jury that the condominium association and community manager had to keep the property safe, while their attorneys stated that they should have conducted a screening to prevent a tenant with fake identification to be on the property.

Biased jurors and nuclear awards. One Sunday morning in March 2020, three boys between the ages of 10 and 11—Christopher and brothers Andrew and James—threw rocks at a frozen lake in a northwestern Indiana property owners association to make sure the ice was solid. They ventured onto the lake only for Christopher to fall through the ice as he headed back to shore. Andrew and James rushed to save him but also fell through. Christopher survived, Andrew drowned, and James was left with a traumatic brain injury.

The attorneys in the case had to overcome the bias of what the boys were doing on the dangerous ice while unsupervised. This proved easy when Andrew and James' father testified that he went to work at 7 a.m. while his wife and the boys were still asleep.

In addition, the lake contained an overflow crib that circulates water beneath the surface. The plaintiffs' attorney argued there were no warning signs, no fence to restrict access to the lake, and no safety equipment. The jury did not approve when the association's director of operations was questioned about the cost to add signage and a pulley line that the boys could have used, and his answer was $70. The verdict resulted in a $30.7 million award to the plaintiffs.

There also was a case involving a former official with the U.S. Securities and Exchange Commission who was riding his bicycle on a path managed by his homeowners association in Jupiter, Fla. The man claimed two stanchions were erected on the path, constituting physical obstructions to cyclists, but there were no pavement markings, signage, or other warnings. As a result, the man struck a stanchion that ejected him from the bicycle; he hit the ground and was paralyzed.

The stanchions were painted to blend in with the environment, and the board did not consult a transportation engineer when it erected them. Experts said the barriers should have been constructed of flexible materials and painted bright yellow. Although the jury found the bicyclist partially at fault, the $41 million verdict was decided based on $16.8 million for his medical expenses, $4.25 million for loss of past and future wages, a $5 million award to his wife for loss of companionship, and $15 million in noneconomic damages.

These are just some examples of social inflation at work within the past year, and we can continue to expect more of the same from cases with yet-to-be-seen jury awards. We live in a litigious society, and bias against businesses and community associations will continue, thus continuing to fuel social inflation.

Karen O'Connor Corrigan is president of O'Connor Insurance in St. Louis and a Community Insurance and Risk Management Specialist. karen@oconnor-ins.com.​

»Your Turn: Has your community seen an increase in the cost of insurance?