Emerging risks of personal injury claims - what next for businesses?

The business models of law firms handling personal injury claims is changing, leaving businesses more exposed. Alan Jacobs of Mills & Reeve LLP says companies need to be even more alert to emerging risks in this environment.

Since the introduction of the Jackson reforms and the tightened legal costs rules in 2013, the business models of law firms handling personal injury claims on behalf of claimants has been radically changing. 

Against this background, the thirst and appetite of these firms to open up new routes to exploit the pursuit of liability claims is greatly increased.  

Some potential future risks could come from emerging technologies and employers utilising them will be most at risk. Below we highlight a few examples of common exposures:  

Hydrofracking

What is it: A process, in which fractures in rocks below the ground are opened and widened by injecting chemicals and liquids at high pressure. It is used to extract natural gas or oil.

The risk: There is concern over the use of acids to dissolve minerals and create cracks, and the use of surfactants to make fluids more slippery. It has been said that 75% of the chemicals could affect the skin, eyes, and other sensory organs, and the respiratory and gastrointestinal systems. Approximately 40–50% could affect the brain/nervous system, immune and cardiovascular systems, and the kidneys; 37% could affect the endocrine system; and 25% could cause cancer and mutations.  

Nanotechnology

What is it: The design, characterisation, production and application of structures, devices and systems by controlling shape and size at the nanometre scale. A nanomaterial is defined by the Royal Society as having one dimension less than 100 nanometres (between 1 – 100nm). A nanometre is one-billionth of a metre or around 80,000 times smaller than the diameter of a human hair.

The risk: Nanomaterials include very thin coatings, nanowires, nanotubes and very fine powder preparations. Because of the relative large surface area of a collection of nanoparticles they can create very volatile and powerful materials. There are many unknowns about the interaction of nanoparticles with biological systems. It is generally thought that more information on the response of living organisms to the presence of nanoparticles of varying size, shape, chemical composition and surface characteristics is needed to understand and categorize the toxicity of nanoparticles. It has been mooted that the “next asbestos” could come from nanotechnology.  

Mobile phones

The risk: There are fears that brain tumours may be caused by radio frequency electromagnetic fields emitted by mobile phones. There is uncertainty over long-term health effects and the Health Protection Agency has said that the excessive use of mobile phones by children should be discouraged, while adults should make their own choices as to whether they wish to reduce their exposures.  

Food and drink packaging

The risks: There are several emerging risks in the food and drink sector, including:

• The use of nanomaterials in the packaging and preparation of food
• Concern about contamination from the migration of substances from packaging materials in to the food and drink.
• The risk related to the phosphates added to food and drink as a preservative and the unknown health effects.
• Obesity and the potential liability of food and drink manufacturers and retailers is a very live issue in the US and there is fear that it will migrate across the Atlantic. 

The above demonstrates only a few examples where companies may be exposed. Underwriters and insurers are constantly being asked to innovate and provide new solutions for emerging risks. Equally it is said that brokers do not sufficiently engage with their clients to identify the emerging risk requiring an insurance solution.

That the insurance market is flourishing is perhaps demonstrative of a healthy curiosity in developing new products for new risks.  Why should a business be concerned when the insurers are there as a line of defence? I would argue that these emerging risks are as much a concern for businesses as for their insurers, given the potential effect on reputational risk, on insurance premium, and the possibility of uninsured claims.

Every business should, as a minimum, have a three-stage process in place in relation to emerging risks.

1. Identify. Internally: look out for unexpected events/outcomes within the business that may impact on risk. Externally: monitor the media, trade bodies etc for events and developments.
2. Assess. Estimate the likelihood of repeat occurrence, the magnitude of loss/damage and the direction/speed of change of these factors.
3. Action. For those risks assessed as having the highest impact potential, carry out more detailed and timely evaluation, and put risk mitigation in place. Those assessed as having lesser impact potential should be subject to ongoing monitoring.

Alan Jacobs is partner at Mills & Reeve LLP

Nanotechnology: the next asbestos?