Trends, challenges and practical takeaways of insurance disputes

Insurance disputes are a timeless topic. However, in difficult economic times, the number of insurance disputes tend to increase. Our Dispute Resolution practice hosted a webinar on 17 September 2024 on the current trends in insurance disputes and shared their views on the challenges different parties may face in such disputes. The webinar also addressed practical strategies for managing disputes effectively. We have summarised the key topics of the webinar in the article below.

The webinar was hosted by our dispute resolution experts Partner Kirsi Kannaste and Counsel Jon Stenlund Lindgren.

Insurance dispute trends – where are we heading?

Our experts highlighted trends and phenomena that are likely to emerge or to have an impact on insurance disputes now and in the future. Some of the most impactful trends are related to technological advancements, increased regulation and ESG requirements, as well as climate change. These trends are already increasing the scope and complexity of insurance disputes.

Trends in insurance disputes:

1. AI and similar digital solutions are likely to have a profound impact on the way claims and disputes are handled, since a significant amount of preparatory work in claims handling and disputes is likely to be automated. This may allow insureds, insurers and their counsel to focus on strategic issues, while simultaneously making dispute resolution faster and cheaper. However, new technologies also bring new risks and exposures. Increased reliance on digital systems makes companies' operations more vulnerable to disruptions and cyber-crimes. External attacks and failures in business-critical systems can have enormous consequences and cause major losses, leading to claims which will need to be handled under existing or new policies and insurance products. In the future, business interruptions caused by, for example, cyber-crimes will most likely become an even more important issue in insurance disputes.

2. The increasing regulatory burden has forced companies to adapt their operations in many ways. The pace of legislation is particularly rapid in the EU. Non-compliance with regulatory requirements does not only expose companies to the risk of administrative fines and other interventions by the authorities but also increases the risk of claims against the board of directors and the management of the company. The board and management are often covered by the D&O insurance. It is likely that we will see an increase in cases and disputes related to D&O insurance in the future.

3. ESG, sustainability and climate change: This area was previously dominated by international instruments and voluntary commitments, but it has now become a rapidly evolving legislative area. This is putting pressure on companies to adapt their operations and working practices, particularly in relation to human rights, environmental considerations and supply chain due diligence. ESG and sustainability related claims, such as claims relating to emissions and greenwashing, can be expected to increase in the future. Climate change will also lead to more severe damages and losses which is a great concern for both insurers and insureds.

4. PFAS ("forever chemicals") and their impact have received an increased focus. PFAS were created to repel grease, dirt and water. There are thousands of different PFAS substances on the market and they can be found in a wide range of products, such as frying pans, shoes, food packaging and beauty products. Given the widespread use of PFAS, it is likely that more claims will be made, which will raise questions about insurance coverage. Major chemical companies in the US, for example, have already faced thousands of lawsuits over alleged PFAS contamination in recent years.

5. Class actions are no longer seen as just a US phenomenon, as they are becoming more common in other countries as well. Defending against a class action can be very costly, as can paying damages to a large number of claimants. It is not uncommon for these types of disputes to also be a source of disputes between the insured and the insurer. As it becomes easier to connect with others and form groups, it is likely that the number of class actions will increase.

Main challenges in insurance disputes

The main challenges in insurance disputes are related to increased complexity, costs and scope as well as lack of publicly available case law. Increased complexity can be evidenced by all the trends mentioned above, but also in the complexity of proving causation and the increasingly international nature of insurance disputes. Multi-party disputes are also becoming more common, with one example being disputes related to cyber-crimes and the suspension of banking services as a result of AML regulations.

Insurance disputes have become increasingly fact-specific and complex, and disputes involving large sums are often very evidence-intensive, usually requiring proof of everything from the cause of events to causation, valuation and prior knowledge. As a result, insurance disputes tend to require more comprehensive evidence, which can lead to longer proceedings and the need for expert evidence. This in turn leads to higher costs for legal proceedings. It remains to be seen whether the use and development of AI tools will reverse this trend by speeding up the resolution of insurance disputes, thus reducing their costs.

Advice on how to manage an insurance dispute efficiently:

• Act swiftly and handle the most acute phase as soon as possible. If you represent the insured, notify the insurer.
• Set up an internal team right away and dedicate sufficient resources. Consider whether external experts, such as accounting experts, valuation experts or legal experts, should be engaged.
• Conduct your own internal investigations and secure as much evidence as possible at an early stage. Ensure that relevant people with expertise are available.
• Conduct a thorough case/risk assessment at an early stage.
• Decide internally who will communicate with the other party and how.
• Consider alternative solutions, including a settlement, seek the other party's agreement to a more appropriate form of dispute resolution, try to agree with the other party on how to limit the scope of the dispute, etc.
• Once the dispute has been resolved, evaluate the outcome: Does the insurance cover need to be updated or amended? Do internal procedures or terms and conditions need to be updated?

Additional information

Please contact our Dispute Resolution practice, should you have any questions regarding the topics of the webinar. You can also subscribe to our mailing list to stay up to date on news and receive invites to our events and webinars.