Claims, coverage and case law

Insights / Emerging risks

Emerging US Casualty Risks: Funding, AI and Social Inflation

Emerging risks 3 min read

Five developments are shaping US casualty claims over the next 12 to 18 months. Each adds to severity, and together they reinforce the social inflation trend already affecting casualty reinsurance layers.

1. Third-party litigation funding

Litigation funding is where a non-party finances a claimant or their lawyers in return for a share of any recovery. Industry estimates put the US market at around $15 to 16bn. Funders typically target a return of two to three times their investment, which can lead claimants to reject reasonable offers because the settlement must also satisfy the funder.

  • Commercial funding backs high-value disputes. Consumer funding, more common in the US, provides small non-recourse advances to injury claimants, and mass tort firms may carry substantial portfolio funding.
  • Regulation is moving. There is no federal disclosure rule, but a number of states and federal courts now require some disclosure. In June 2026, North Carolina became the first state to ban third-party litigation funding outright.
  • Fraud. Funding is not fraud in itself, but some structures, such as upfront payments to medical providers that inflate treatment, can feed it. Defendants are responding with RICO actions: in Pennsylvania, a motion to dismiss Uber and FedEx's RICO claim against a personal injury firm was denied.

Points for claims handlers: ask early in discovery whether a case is funded; establish whether the funder has consent rights over settlement; and find out who is paid first, since a funder's priority return raises the figure a case will settle for. Value and reserve accordingly.

2. Artificial intelligence

  • Experts. AI lets lawyers review an expert's entire testimony history, reducing the pool of willing experts and pushing up fees.
  • Settlement. Carriers use AI to analyse records for earlier offers; claimant firms use it to build demand packages, and claimants may use it to inflate their own valuation.
  • Privilege. In United States v Heppner (SDNY, 2026), materials a defendant generated using a public AI tool were held not to be privileged.
  • Fabricated citations. Courts have moved from warnings to sanctions and, in some cases, judgments against the parties concerned.
  • Data centres. Large AI infrastructure projects create concentration risk: a failure in a dominant model or provider could affect many businesses at once.

3. Social media addiction litigation

In the US the issue is litigation-led, through class actions, state attorney general actions and school district claims; in the UK and EU it is regulation-led. In August 2026, Meta agreed a settlement with US states of up to $17.1bn, including age verification and usage limits for minors. Depending on wording, these claims may engage D&O, media liability and general casualty programmes. Claims teams should separate content allegations from platform design allegations, identify every entity involved and watch for parallel regulatory investigations.

4. Hotel trafficking claims

Under the US Trafficking Victims Protection Reauthorization Act, a business may be liable if it knowingly benefits from a venture it knew or should have known involved trafficking. Knowledge is where these cases are decided. In July 2025 a Georgia jury returned a $40m verdict against a hotel operator, $30m of it punitive, where staff had seen repeated warning signs involving a 16-year-old and failed to act. Documented staff training and simple reporting procedures are the strongest defence; on notification, preserve CCTV, key card data, reservation records and training records.

5. Construction claims

  • Leased labour. Wider use of staffing agencies complicates coverage positions. In New York Labor Law cases, establishing special employer status early can assist risk transfer.
  • Fraud indicators. Unwitnessed incidents with no incident report or ambulance attendance, claimants with no history with the employer, repeat claimant firms, litigation funding and the same treating doctors.
  • Nuclear verdicts of $10m and above are spreading to new venues. The strength of the local appellate court increasingly determines what is ultimately paid.

Implications for casualty reinsurance

  • Funding, punitive awards and venue selection all increase severity, which flows through to excess and reinsurance layers.
  • Mass torts and AI concentration risk can produce correlated losses across many cedants and treaty years.
  • On large files, ask cedants about litigation funding, punitive exposure and the reserving assumptions behind them.
  • Where punitive damages form a large part of an award, insurability and reinsurance recoverability need early review.

Sources: Insurance Journal, North Carolina litigation funding ban (June 2026) · New York Attorney General, Meta settlement · Atlanta Journal-Constitution, $40m hotel trafficking verdict · Orrick, United States v Heppner · Mealey's, Uber and FedEx RICO suit