Peter Thomas is one of those people that have the unique ability to think deeply about a wide variety of subjects, figure out how they interplay and then how that information impacts various people and entities in the future so he can make money in his business. It is no wonder he has been long successful in reinsurance and is a Managing Director of Willis Re. He was our moderator for the panel discussion, "The Legal Threats," I mentioned in my post yesterday, Insurance Insolvency & Reinsurance Roundtable Annual Seminar.

After we finished the panel presentation, Thomas mentioned that he was studying recent terrorism events and their impact on society, terrorism coverage and reinsurance claims. He must have seen that puzzled look on my face when it is obvious I don’t know what somebody is talking about.

He then politely explained his study by first asking whether I had ever considered how terrorists could be more effective by waging an attack through computer virus infections. Obviously, when you are at my computer level and wondering why a laptop modem will not work, you are not analyzing the impact of any computer virus, much less the ramifications of terrorists acting through computer software rather than the more commonly feared planes, shoe bombs, or nuclear explosions.

He reminded me that just a couple of weeks ago the government, phone companies and internet network providers were unable to contain a virus spreading through cell phones for a period of time. He asked me to imagine what would happen if such a virus were to be transmitted into the computer infrastructure of our utilities and power grid. Suppose that as a result of such an attack that a tenth of the nation’s power grid shut down for just several days—what would be the financial loss? I didn’t know the answer, but it is one of those scenarios that you hope "them," "they" and "the men in black" are watching out for and doing something to prevent.

I took a few jabs as the token plaintiff’s lawyer on the panel. Peter Thomas said that most insurers and reinsurers should congratulate me for generating business because I symbolize "the legal threat" requiring insurance company entities to obtain insurance and reinsure. Duke law professor Francis McGovern said that ‘the hedge fund mentality is very similar to a plaintiff attorney’s mentality, like Chip.’ He was trying to explain that plaintiff attorneys are very entrepreneurial in the representation of their clients.

McGovern suggested three trends in litigation are becoming more apparent:

1. The Credit Default Swap Model.

These cases are characterized by the remote chance that a big return will take place for a relatively small investment into the case. He suggested that the climate change cases discussed by panelist Neel Lane were in that category.

For example, McGovern opines as a "remote chance" that a plaintiff’s class of owners and residents of land along the Mississippi Gulf coast will ever win a lawsuit, Comer vs. Murphy Oil, against the energy industry claiming that the energy companies caused global warming which in turn made sea levels higher and Hurricane Katrina more ferocious, combining to destroy their homes and businesses. Yet, if they do prevail, the payoff could be huge.

McGovern analogized this to speculators that gambled against credit default swaps through leveraged positions. In the remote chance of a total bank failure, those speculators would receive significant sums in return for relatively small investments.

2. The Wholesale Business Model

Many mature mass tort cases still exist. He is finding that lawyers still engaged in those practices advertise and hold those cases for settlement. He indicated that many of these cases have long claims deadlines and significant monies still available. He provided the asbestos cases as an example because there is still $20 billion set aside in trust funds for victims of asbestos.

3. The Global Investment Model

Many entities outside the United States can legally purchase causes of action. In most states, notions of "Shammah" prevent these transactions. So, cases are being either purchased or brought overseas as pools of consumers bring various legal actions. These actions include many business related matters against global companies that may otherwise not have such actions brought in the United States.

My co-panelist, Barry Weissman had a very interesting observation about sanctions and the impact those may have on these novel causes of action discussed by McGovern and Lane. He indicated a clear trend of Federal judges giving harsh monetary sanctions against lawyers who lose cases when there is no cause of action found. He correctly suggested that such sanctions may prevent development of common law and such novel legal theories because attorneys would be hesitant to bring such arguable, but difficult, legal cases out of fear of stiff professional sanctions which then smear the attorney’s reputation and pocketbook.

Following up on that idea and the suggestion that I am the "legal threat" catalyst to help insurers make money, I suggested that insurance companies start selling "sanctions insurance" to lawyers and "loser-pays insurance" in the United States.

I was very impressed with the panelists and attendees at this conference. The quality and number of the sponsors often demonstrates whether a seminar is worthwhile to attend. There were at least ten large insurance industry law firms sponsoring this Roundtable Conference. I suggest that if you have any involvement with matters or cases involving insolvency or reinsurance that you mark this conference on your calendar for next year.