New times pose new legal risks for companies

Third party liability insurance for companies protect organizations when these cases are filed with professionals in this area witnessing how the scenario involving this type of risk is being redrawn due to the evolution of the economy, the social climate or the concerns of citizens.

In 2021, one of the most widely reported international trials came to an end, providing an example of this trend. A court in the Netherlands issued a ruling forcing one of the world’s largest oil companies to reduce its greenhouse gas emissions. It was not required to pay a fine or compensation, but it required that the company prepare a much more demanding decarbonization plan than the one prepared in advance by the company. While the multinational had promised to reduce its CO2 emissions by 20% by 2030, the judges increased that figure to 45% and established that the oil firm was responsible not only for its own emissions, but also for those of its suppliers and customers.

The ruling, which came after a lawsuit filed by environmental organizations, was based on the fact that, by continuing to contribute to climate change, the multinational would endanger the right to life or the right to a quiet family life, as well as other principles. It is highly unlikely that we would have seen such a ruling a few decades ago, which demonstrates how companies are greatly influenced by socioeconomic priorities and the opinion of society; in this case, the concern for global warming.

This issue is one of the issues that is seeing leading companies rethink their strategies and commitments when it comes to ESG (environmental, social and good governance criteria), although there are many more examples. For example, data protection and privacy in a context of digitalization, the use of industrial materials that subsequent scientific studies show to be polluting or harmful, or a company’s diversity and inclusion policy.

“Companies are committed to adopting this type of policy and their stakeholders are increasingly aware of their duty to comply with them, meaning that there is greater supervision of non-compliance that is giving rise to an increase in claims,” reports Susana Pérez Carbajo, Head of Liability at MAPFRE RE, MAPFRE’s reinsurance unit.

To better understand this new scenario, the Geneva Association (GA, the international group of insurers) has interviewed dozens of managers in this field at the main companies worldwide. The factors that define the risk landscape in terms of liability, and in relation to which the GA survey was oriented, are the socioeconomic and political context, technology, environmental hazards, legal practices and legislation itself.

The results have been reflected in a report entitled “Forewarned is forearmed.”  The study identifies three major trends:

• Lawsuits are increasingly resolved in the claimant’s favor

The reasons for this are: in the interpretation of the courts, the scope of corporate responsibility tends to be greater more aggressive tactics on the part of claimants, and; the development of what are referred to as third-party financing models. These, the weight of which in litigation is increasing, consist of an investor assuming the costs of going to trial in exchange for keeping a percentage of the future compensation. They are typical in the United States, although they are becoming more and more common elsewhere. Class action lawsuits, which involve law firms actively looking for people who have been affected are also on the rise, including in television ads or on billboards. To this end, “we’re headed towards the US model,” asserts Susana Pérez Carbajo.

• Digitalization is redefining risks

The transfer of a growing part of companies’ activities to online environments makes them more vulnerable to cybersecurity incidents and breaches of privacy and intellectual property. “The constant exchange of data and its processing increases the exposure to being lost, corrupted or improperly used, resulting in regulatory non-compliance against a backdrop of tightening regulations in this area,” explains the Head of MAPFRE RE. At the moment, progress with factors such as cloud services or artificial intelligence are already a cause for concern, but in the future, technologies like the metaverse will be as well.

• Lawsuits against companies in relation to climate change are on the rise

This phenomenon, which mainly began in the United States and was aimed at oil companies, is spreading to other sectors and countries. At present, the most common lawsuits are those that claim there is a lack of climate change information for consumers, shareholders and investors, although the implications of this path are uncertain and could be much more serious. “The climate change debate is increasingly present, and any action suspected of contributing to it will be examined, meaning that companies should be extremely cautious when making decisions about their business that could affect the environment,” explains Pérez Carbajo.

• Industrial pollutants increase risks

These substances, including microplastics or PFAs, are found in many everyday objects and foods, and can become a headache for some companies. There is growing toxicological evidence of adverse health effects, leading to more lawsuits and tougher laws.

• Greater focus on social responsibility and corporate governance

The expectations of customers, employees and investors regarding the responsibilities of companies and their managers are also on the rise. This is not only the case when it comes to environmental issues, factors like a company’s diversity and non-discrimination policy can also be the focus of these expectations. “Any actions that are considered as going against social welfare or business decisions considered as irresponsible, are increasingly susceptible to being made public, criticized or denounced, because society is more attentive to these issues. Furthermore, their rapid dissemination through social networks is a constant threat to companies’ reputation,” warns Susana Pérez Carbajo, the Head of Liability at MAPFRE RE.

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