Americans’ insurance rates have been rising for years. While inflation, natural disasters, and higher repair and construction costs are often blamed, one important factor is often overlooked: the growing number of lawsuits and the high costs they bring to insurance companies.

David Sampson, President and CEO of the American Property Casualty Insurance Association (APCIA), told FOX Business that despite the pressures from hurricanes, wildfires, and rising tariffs, “the number one priority remains addressing the abuse of the legal system,” which has a huge impact on the availability and affordability of insurance.

The APCIA reports that U.S. households are paying over $4,200 in what’s known as a “tort tax,” which comes from excessive and unnecessary lawsuits that drive up the costs of everyday goods and services, like groceries and gas.

Rising Car Insurance Costs in 2024
Data from the insurance industry shows that personal injury verdicts have increased dramatically. The average personal injury verdict went from about $39,300 in 2010 to more than $125,300 in 2020—a staggering 319% increase.

Sampson highlighted the rise in “nuclear verdicts”—jury awards of $10 million or more. These verdicts have grown by 350% in just six years, with the top 100 increasing from an average of $64 million to $225 million. Sampson believes these numbers are far beyond what’s justified by the damages.

Examples of Legal Abuses
Sampson pointed to several legal abuses that are inflating insurance costs. One example is “jury anchoring,” where lawyers use large, publicized numbers in advertising to influence juries. For instance, when lawyers promote winning a $20 million settlement for an auto accident, they are trying to sway jurors by putting these inflated figures in their minds, regardless of whether such amounts are appropriate for the case at hand.

Another abuse is the practice of “phantom damages,” where attorneys show juries the inflated amount victims were billed for medical services, rather than the much lower amount paid by health insurance companies.

Property and Premises Liability Lawsuits
Premises liability lawsuits, where property owners and businesses are held responsible for accidents on their premises, have also been a significant source of legal abuse. As a result, some states have enacted reforms to limit liability to what property owners can control.

The Impact of Third-Party Lawsuits
The rise of third-party litigation funding (TPLF), where outside investors help fund lawsuits, has further increased litigation costs. This trend has raised concerns, especially regarding foreign entities, such as foreign governments, potentially using these lawsuits to target U.S. companies, especially in the technology sector.

Sampson explained that in these cases, the victim may not be able to settle their case without approval from the investors who are funding it. He likened this to turning the legal system into a “casino,” where major investors bet on the outcome of lawsuits and take a large portion of the payout if they win.