The Liability Insurance Crisis
There was absolutely an increase in liability insurance premiums in the 1980s, although the cause of the liability insurance crisis in the 1980s remains disputed.
During the period from 1984 to 1987, premiums for general liability
increased from about $6.5 billion to approximately $19.5 billion.2
In addition to increases in premium, many insurers took the following
measures to limit the number and cost of claims: 1) changed policy
coverage from an occurrence to a claims-made basis; 2) expanded
exclusions; 3) raised deductibles; and 4) lowered policy limits on a
per-claim basis, and 5) introduced the notion of aggregate total
exposure.
The resulting crisis adversely affected a diverse range of
organizations, including municipalities, social service providers and
pharmaceutical, aircraft, sports equipment, and medical device
companies. Many organizations in the nonprofit and government sector
could no longer offer social, medical or recreational services due to
the prohibitive cost or unavailability of liability coverage.
Causes
According to the same Wikipedia source linked above, some of the leading explanations for the liability insurance crisis include:
Collusion: the argument that the crisis was engineered by insurance
companies themselves, through price-fixing and/or manipulation of
insurance reserve accounts.
Losses: Decrease in interest rates and investment returns forced
insurance companies to raise premiums in order to make up for the loss
of profitability.
Litigation: Proliferation of tort litigation and large settlements
drove the cost of liability insurance premiums to excessive levels.
Reinsurance: Disruption of supply in reinsurance markets cited as a
contributing factor.
There are also a couple of distinct questions of causation. One is why liability insurance premiums needed to rise, and another is why this happened all at once. In all likelihood, the pressures on the industry accumulated over many years, and merely exploded all at once due to a crack in competitive pressure to keep rates low, and quite possibly due to major tax law changes around that time that may have disrupted the status quo.
Much of the better databases of historical data concerning tort liability were established in the 1990s, in the wake of the liability insurance crisis of the 1980s, so there isn't great retrospective data.
Developments In Civil Procedure And Tort Law
The major contemporaneous revolution in civil procedure was largely a pro-defendant, rather than a pro-plaintiff one. In a series of U.S. Supreme Court decisions including Celotex Corp. v. Catrett, 477 U.S. 317 (1986), the U.S. Supreme Court made it much easier for defendants in civil cases to avoid trials by jury by having cases dismissed by judges prior to trial pursuant to a Motion for Summary Judgment, which had previously been granted much more sparingly.
Likewise, there was not really any revolution in class action procedure which had existed with only modest amendments since the 1920s. These was a major amendment of the class action rules in 1966, but it didn't really dramatically change the scope of the rule.
There was a significant expansion of tort liability for defective products that began in 1963 in California and gradually spread across the nation.
During the 1970s there were a variety of laws passed on subjects such as consumer protection, tenant rights, environmental protection, workplace safety regulation, and intellectual property that generally speaking expanded the scope of civil liability.
Underlying Changes In Scientific Knowledge And The Economy
Another important factor was a rise in scientific knowledge and contemporaneous changes in the economy.
Private sector economic production came to a near standstill from the stock market crash of 1929 that began the Great Depression until the end of World War II in 1945, it took time for the economy to return to normal after World War II, and the Korean War again put the economy on something of a wartime footing in the 1950s.
While automobiles had been around since before World War I, public transit was much more robust until the post-World War II economic recovery and interstate highway system made automobile ownership (which was one of the areas where product liability laws were first expanded) much more common. Another industry which rapidly surged in this time period was general aviation.
The economic prosperity of the 1960 to 1980s (driven in significant part by rampant labor unrest and perennial strikes from the end of World War II into the 1960s, assisted by labor shortages and pent up demand for consumer goods at home and abroad where industry had been wiped out by World War II), and the growing scope of manufacturing enterprises, meant that in general, people were buying more durable goods made by fewer companies. People who don't buy much and buy very simple, locally produced goods are rarely injured by the products they buy.
Many new pharmaceuticals and chemical products (think "The Graduate" and "Plastics") were being invented, but without the careful regulatory trials before they were introduced. This caused a great deal of harm when the new chemical products had unintended toxic side effects.
New technologies often have unintended side effects and insufficient attention to safety (dams that would fail, industrial revolution factories, myriad litigation in the wake of the introduction of the railroad), but a lot of that had been forgotten after decades of technological and economic stagnation in the private sector.
In the 1920s, a particular product might be made by hundreds of manufacturers, mostly fairly local, each with their own particular defects.
By the 1970s, just a handful of companies in the nation would make a particular product, so if it was defective, one particular defect would harm far more people.
New government agencies like the National Transportation Safety Board (1967), the Environmental Protection Agency (1970), the Occupational Health and Safety Administration (1971), the Consumer Products Safety Commission (1972), the Nuclear Regulatory Commission (1975), the Mining Health and Safety Administration (1977) and so on, began compiling that kind of data that made it possible to identify safety risks with common causes on a national scale that made it possible to prove that individual injuries were caused common defects traceable to large national companies or industries. Municipalities started to take building code enforcement more seriously and scientifically after decades in which this was irrelevant because nobody was building anything.
These agencies and judicially created tort doctrines expanding liability were driven by increasing faith in science and technology. Also, an increasingly prosperous and better educated population was more able to worry about health and safety now that its more urgent priorities like securing food and shelter had been addressed satisfactorily, and it understood how the modern economy worked better than it had in the past.
For example, at Love Canal, in Western New York, toxic pollution had been accumulating for decades (since well before the 1940s), but average citizens only started to understand that it was putting them at risk in the 1960s, and the true extent of the environmental disaster was not recognized until a New York State agency organized a large scale scientific investigation in 1977 using newly developed forensic chemistry techniques to quantify the extent to which people were exposed to toxic chemicals. Until then, many people suspected that pollution wasn't good, but nobody had the capacity to link pollution to negative health outcomes in individuals and communities.
Litigation and one of the nation's first Superfund sites followed in the early 1980s. The incredibly complex litigation that followed was still going strong at my first job after I graduated from law school in 1995 when I worked on the Love Canal case as a lawyer, representing some of the insurance companies on that risk.
The Rise of Big Law
Another innovation that changed how the legal system worked was the rise of the large law firm. When Abraham Lincoln was practicing law, the biggest law firm in the United States probably had no more than twenty lawyers. Law firms with as many as 50 lawyers were extremely rare into the 1950s. Large law firms bloomed everywhere as economies of scale caused their clients to consolidate into large national and multinational companies in need of lawyers with a wide variety of regulatory and technical legal specialties.
These law firms were a reaction to the rise in Plaintiff's law firms retooled to gather the technical information and expertise (often gathered by government agencies and burgeoning universities fueled by GI Bill enrollment) that was needed to prosecute product liability cases and mass torts and to manage massive amounts of discovery and class action lawsuit in this complex litigation.
Conclusion
I don't think that there is one neat consensus answer that even a very informed analysis can provide for the liability insurance crisis. And, like most great moments in economic and social history, there were almost certainly multiple significant causes that all converged at once. But, this answer, at least, touches on some of the relevant considerations.
