Face up to litigation

A Lloyd's of London survey found that all businesses are facing increasing liability risk as a result of a more complex operating environment.

Lloyd’s chairman Lord Levene commented: ‘Litigation is a leveller of modern businesses. No matter what their size, location or industry, all businesses are facing increasing liability risks. Product recalls are now a daily occurrence, rising 50% in Europe alone in the last year. Shareholder activism is on the rise, and a complex operating environment and new legislation serves to increase risks further.’

Shareholder activism and the likelihood of sub-prime related claims are also on the rise, according to the research though Levene said they were yet to exceed expectations. ‘We don’t currently expect the number of claims to cause any undue concern this year,’ he said.

The report claimed the fear of litigation has impacts on both price and innovation. ‘A third of companies report having become more bureaucratic and more risk averse, as a direct result of liability issues,’ said Levene. ‘In particular, many businesses may be avoiding opportunities in new products and markets which they would have otherwise embraced.

“Put simply, fear of future litigation appears to put constraints on the ambitions and growth prospects of many businesses around the world something that, in aggregate, could have a devastating economic impact.

Lloyd's chairman Lord Levene

‘Put simply, fear of future litigation appears to put constraints on the ambitions and growth prospects of many businesses around the world – something that, in aggregate, could have a devastating economic impact,’ he added.

The research also found a growing concern among business leaders about the rise of a US style compensation culture in Europe. In a Lloyd’s annual survey of underwriters at the start of the year, the majority agreed that compensation culture is now a serious issue.

The London market report – Directors in the Dock – is business facing a liability crisis? – was published in association with the Economist Intelligence Unit.