According to research carried out by global risk management and insurance brokerage Gallagher, the number of legal threats and complaints made against UK businesses has more than doubled over the past two years and increased four-fold since 2016, with businesses more likely than ever to face the risk of legal action.
Gallagher’s Business Litigation Index, a multi-sector study amongst over 3000 respondents, found that in the past five years, more than half (56%) of all businesses have faced an accusation, claim or allegation of unlawful behaviour – with consistent year-on-year increases since 2016. Sectors facing the most litigation include IT (72%) and construction (60%), and amongst these the proportion is even higher.
Employees make up the bulk of the accusations (44%), followed by customers (23%), clients (22%) and suppliers (8%), while public sector bodies make up the remaining 3 per cent.
Most common employee disputes
Wrongful dismissal (17%), discrimination (17%), harassment in the workplace (13%) and constructive dismissal (10%) are the most common disputes, with injury, illness or stress as a result of work also on the rise since 2016.
While the economic environment means that disputes of all kinds are being generated, employment litigation is expected to surge later this year after the furlough scheme ends. Many organisations are likely to face a high volume of redundancy-related claims – as employers make decisions that the furloughing scheme enabled them to defer.
Holding businesses to account
In the past five years, customers were most likely to make a claim as a result of buying faulty products and services (24%), injuring themselves or damaging their property on business premises (23%), having their data breached (18%), alleged professional negligence (18%) and services not provided on time (18%).
Rise in claims due to data leaks and issues
Claims relating to data issues have risen the most over the last five years, and Gallagher is warning organisations to prepare for an increase in claims this year. This is due to heightened cyber risks because of increased levels of remote working, reliance on technology and automation, plus a surge in group claims such as high profile cases involving BA and Virgin Media– where customers with a similar complaint group together.
Companies in conflict
COVID-19 has had a significant impact on companies’ abilities to meet their contractual obligations with many supply chains issues. Six in 10 (59%) businesses took legal action or threatened to take legal action against another business last year as a result of an alleged contractual breach (29%) or because money was owed (23%). Meanwhile, intellectual property infringement (22%) was another factor driving disputes.
Out of court disputes and insurance settlements most likely resolution
The majority of claims are settled by businesses directly (17%), settled by insurance prior to going to court (15%), or via mediation or alternative dispute resolution (8%). For close to one in 20 (4%) businesses all it took was an apology – and around one in every 10 (10%) claims are withdrawn. Four in 10 claims (45%) make it to the courts of which 69% rule in favour of the complainant.
Commenting on the findings, Gary Fletcher, South Managing Director, Gallagher’s Retail Division, said: “Litigation is being fuelled, in part, by supply chains, COVID-19 and Brexit but in addition to this, economic downturns also usually produce a boom in disputes. The situation has created a perfect storm with 64% of organisations expecting business litigation to either remain at the same volume or increase this year.
“The risk of business litigation is both financial and reputational plus is highly time consuming for management. Organisations should speak to their insurance broker to check they have insurance cover in place and seek risk management advice to help prevent and defend any potential claims.”