A Boom from Busts?: Why claims against businesses are set to surge

June 8, 2021

3 min read

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What's going on here?

Gallagher, a global risk management and insurance brokerage, is forecasting a surge in the number of disputes against businesses once the government’s furlough scheme ends on 30 September 2021.

What does this mean?

Typically, disputes against businesses can involve those brought by employees regarding things such as wrongful dismissal and discrimination, as well as disputes brought by consumers or other businesses over alleged contractual, data breach and IP (intellectual property) infringements.

As a result of COVID-19’s economic impact and restrictions, some businesses have struggled to meet their contractual obligations or maintain their existing supply chains and workforce more than usual. In fact, nearly 60% of businesses took or threatened legal action against another business either due to money owed or an alleged infringement during 2020.

Gallagher’s Business Litigation Index attempts to quantify this litigation further. According to this recently published research, almost two-thirds of the 3000 businesses in the index expect business litigation to either remain the same or increase during 2021. This could mean 40% more litigation compared to previous years. While the English courts themselves have not yet received an influx of lawsuits relating to COVID-19, Gallagher’s Index highlights a consensus among businesses that they will need to prepare themselves for when that inevitable influx arrives.

What's the big picture effect?

This expectation from businesses is partly driven by short-term factors. Most notably, Gallagher references a wave of employment-related and redundancy claims timed with the end of furlough because government schemes have so far enabled businesses to defer staffing cuts or prevent their own insolvency. However, we should appreciate how any surge later this year would sit within the long-term trend of claims against businesses. Since 2016, there has been a consistent increase in the overall number of business claims each year, with over 56% of all businesses having faced at least one accusation, claim or allegation of unlawful behaviour. This includes a three-fold increase in cases as a result of data breaches by companies. Therefore, a spike in claims this year encapsulates a continued growth of business malpractice in general over the last five years.

Conversely, it is not uncommon for disputes to proliferate following a recession as companies litigate over what’s left. However, 2021 could be more noteworthy than usual. When considering the current economic downturn, the rising trend of claims since 2016, plus the transitions required by Brexit, all on top of COVID-19, together they produce a perfect storm for business disruption.

From the perspective of corporate law firms, those with large dispute resolution teams can expect to do well if this expected surge in business claims does materialise. However, while Gallagher’s research indicates that businesses are preparing for a surge in claims, the extent to which these will be contentious is another matter. For example, the Supreme Court has already decided that business interruption insurance pay-outs would have to be obliged. Though this particular ruling only applied to certain insurance policies, the result itself did mark judicial direction towards clean and simple resolutions for issues caused by COVID-19, in this instance saving the Courts from handling claims from potentially 370,000 individual policyholders.

Although Gallagher’s index shows businesses are preparing for the worst, it is perhaps too early for now to say how much business litigation will increase overall.

Report written by Seb Stacey

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