In this continuous blog series, PLUS teams up with experienced industry professionals to explore the most recent market trends. In this edition, we highlight Craig Kavanagh, partner at Manire Galla Curley LLP. Throughout our conversation with Craig, he shared valuable perspectives on trends and risks in the professional liability market, sharing a distinctive viewpoint shaped by his professional expertise with a focus on Artificial Intelligence (AI).

To start, please tell us a little about your role and experience in the professional liability insurance (PLI) industry.

My name is Craig Kavanagh and I’m a partner at Manire Galla Curley LLP. 

Were a boutique firm with decades of experience acting as coverage, monitoring and litigation counsel to insurers in connection with professional liability, securities and consumer class actions, shareholder derivative actions, regulatory and criminal investigations, adversary and trustee’s claims in bankruptcy, and major professional contract disputes. We also offer advisory services to insurer clients and others. 

My day-to-day involves a range of advocacy for professional liability and D&O insurers everything from review and analysis of coverage issues or research about them, along with drafting of coverage letters, and representing carriers in litigation. Our litigation practice has expanded in recent years, and I’ve taken a particular interest in e-discovery and leveraging technology to perform more effective document review, witness preparation and motion drafting.

Are there any current trends in the industry that you are keeping an eye on?

The increasing prevalence of artificial intelligence (AI) is probably the most interesting to me. In an unbelievably short time, we’ve seen AI go from virtually non-existent at the office to something that almost every profession is both learning about and coping with. As I wrap up preparing this blog, just today I have been sent two different surveys about AI’s potential impacts on our practice, and Law360 is again headlined by an article discussing a 2nd Circuit rebuke of the latest attorney to mistakenly cite to a case invented by ChatGPT.[1]  This isn’t going away and I think were only beginning to understand the effects of such a paradigm shift. 

What makes these trends worth keeping an eye on?

I think the most interesting thing about AI is that today almost certainly marks the nadir of its influence in business. This is as limited, narrow, and unsophisticated as the technology is likely to be; I think it’s challenging to imagine how much more expansive, pervasive and influential it will be a year or five or ten from now. And we’re already seeing a tremendous number of issues arise. 

These tools are remarkable there’s no question they can be useful for basics like document comparison or preliminary research but they’re highly imperfect, they’re dependent on gleaning information from ultimately human sources, and for reasons they’re still figuring out prone to creating content out of thin air. They’ve already proven to be a recipe for disaster in certain legal briefs. Beyond the one I mentioned earlier, there are several situations nationally where an attorneys work was reliant on AI tools for case cites or precedent in filings, and some of those references were shown to be inaccurate or entirely non-existent. These are professional liability risks that did not really even exist just a year ago. 

The concerns are in no way limited to just legal practice either. It’s easy to envision risks for architects and engineers utilizing AI for builds and measurements, for healthcare professionals using it for patient data or treatment plans. Fears of inherent algorithmic biases in AI software implicate liability arising from human resource departments reliant on the tools. A Johns Hopkins study[2] found hesitation by doctors to utilize AI technology except in treatments where they were most certain, owing to concerns about legal liability following negative outcomes where the doctor either followed or departed from the AI suggested plan. The relevance of each of these to the insurance industry is clear. Underwriters will have to consider AIs role at nearly every company they write; claims handlers will need to be prepared for submissions arising from the use of new tools that are suddenly inescapable and prevalent and which by their nature are evolving in unexpected and potentially troubling ways. 

What are the top emerging risks for the PLI industry?

Beyond the AI issues we’ve already discussed, social inflation has been a focus for the last couple of years and justifiably so. The increasing cost of litigation, and the settlements and judgments that follow it, has outpaced inflation here, and a SwissRe study found that liability claims costs rose 16% on average for the last five years.[3] Analysts seem to expect this to continue in the near term. 

Industry research attributes social inflation from a confluence of factors including increased disdain for large companies by jurors, their desensitization to significant monetary figures, and a changing litigation environment where a number of jurisdictions have raised or eliminated caps on plaintiff awards. As this appears unlikely to abate anytime soon, claims handlers obviously need to be aware of the potential higher cost of plaintiff verdicts and approach defense and possible resolution with it in mind. 

Understanding that social inflation has been an issue for at least a couple years, perhaps it doesn’t qualify as an emerging risk. What does, however, is something that has more recently accompanied it, which is efforts by plaintiffs firms to include management companies, brokers, or other professional services entities and their insurers in what were historically the kind of claims addressed by general liability policies. There’s a terrific piece written by Amanda Castro in Insurance Journal detailing the issue and some recent examples.[4] These include a property management company that was successfully sued for negligent property maintenance following an injury at an apartment complex they managed. This action triggered the management company’s professional liability policy and resulted in a significant payout. In the era of social inflation, plaintiffs firms are comfortable pursuing claims against professional service providers for what was traditionally a straightforward personal injury claim against those providers clients. 

If someone is interested in learning more about these topics are there other resources you would recommend for more information?

Broadly speaking, PLUSs blog[5] and the rest of PLUSs offerings are a terrific resource for industry trends and insights. The American College of Coverage Counsel two of our senior partners are Fellows often offers terrific conversations as part of their continuing education program covering a whole range of topics with a focus on liability insurance developments and issues.[6] As far as the AI aspect, Gary Marcus[7] and Holden Karnofsky[8] are two people writing thoughtfully about where they see the technology headed, and the inherent risks and opportunities it may offer.


References:

[1] https://www.law360.com/articles/1791788/2nd-circ-rebukes-atty-for-fake-citation-in-latest-ai-blunder

[2] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3987454

[3] https://www.swissre.com/institute/research/sigma-research/Economic-Insights/us-liability-claims.html#:~:text=US%20liability%20claims%20costs%20have,inflation%20remains%20alive%20and%20kicking.

[4] https://www.insurancejournal.com/magazines/mag-features/2023/09/04/738908.htm

[5] https://plusblog.org/

[6] https://www.americancollegecoverage.org/

[7] http://garymarcus.com/index.html

[8] https://oecd.ai/en/community/holden-karnofsky

Craig Kavanagh, Partner
Manire Galla Curley LLP
 
 
News Type

Member Spotlight, PLUS Blog

Business Line

Directors and Officers (D&O)

Topic

Professional Liability (PL) Insurance

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