Lawsuits waged by customers, regulators, and disgruntled investors are a rising threat in both the United States and the countries of the European Union, according to a study released by Lloyd’s of London. Labeling the rise a “liability crisis,” the study warns that litigation costs are hurting companies’ bottom line, and that excessive liability concerns could lead to a breakdown of the decision-making process among companies worldwide.
The study, “Directors in the Dock: Is Business Facing a Liability Crisis?” details the increasing risk of exposure to lawsuits from all sides. A survey included in the study demonstrates that 38 percent of respondent companies had faced lawsuits brought about by customers in the last three years, with 15 percent and 8 percent having faced suits brought about by regulators and investors respectively.
“The fact that 15% of companies have seen lawsuits brought by regulatory authorities is perhaps indicative of change, both in the law in countries such as the United States and the United Kingdom, and in the strategies of various enforcement authorities who are increasingly willing to initiate criminal actions against companies and their directors,” according to the study.
More unsettling for directors is that in the past three years, 38 percent of directors have noted a rise in the number of lawsuits brought about against the company, with 34 percent noting an increase in the size of the claims. By comparison, only 7 percent saw a decrease in cases, with 8 percent seeing a decrease in claim size.
The study concludes that with a rise in litigation, companies must use their resources effectively in order to fend off attackers, while still attending to their business. “Legal teams – whether in-house, external, off shore or a combination of all three – will be an increasingly valuable but expensive resource,” says the study, “and the most forward-looking companies will regularly review their legal strategy and supplier relationships.”