How to Mitigate the Impact of Rising Nuclear Verdict Claims

By Lisa A. LaVoie

The term "nuclear verdict" is creating ripples in the corporate litigation arena. This term, denoting jury awards often surpassing $10 million, has been escalating rapidly.

In just four years, the average jury award among the top 100 U.S. verdicts skyrocketed from $64 million in 2015 to $214 million in 2019. Why the surge? It's a mix of shifting public views toward big businesses and the general sentiment that these corporations can handle (and perhaps deserve) these hefty financial penalties.

Take, for instance, AJD Business Services, which in August 2021 found themselves staring down a whopping $1 billion verdict, far surpassing their insurance limits. With the stakes so high, it's clear businesses need to get a grip on this nuclear verdict trend — and fast.

What Causes Nuclear Verdicts?

At the heart of these soaring verdicts lies "social inflation." This concept, differing from everyday price hikes at the store, focuses on societal changes pushing insurance claim costs, and overtaking regular economic inflation. Here's a closer look:

Societal Shifts and the Corporate Trust Deficit

Gone are the days when large corporations held the public's unwavering trust. A 2022 Pew Research survey revealed that 71% of respondents feel corporations are veering the nation off track. This declining trust can tip the scales in court, making nuclear verdicts more likely.

Third-Party Litigation Fundings Double-Edged Sword

The U.S. stands at the forefront of third-party litigation funding. While offering plaintiffs crucial financial support, these funders introduce sky-high interest rates. Their involvement complicates settlements as plaintiffs, eyeing a larger piece of the settlement pie, become more resistant to compromise.

Manipulative Psychological Tactics

"Reptile theory" and "anchoring" aren't just buzzwords. They are deliberate strategies employed by plaintiffs' attorneys to stir jurors' emotions. The intent? Bypass logic triggers the primal part of a juror's brain and elicits decisions rooted in emotion, highlighting potential community-wide harm, rather than just focusing on the individual plaintiff.

What Can a Company Do to Mitigate Social Inflation Risk?

Given the magnitude and potential impact of nuclear verdicts, businesses can't simply hope for the best. Proactive measures are imperative. Here are some strategies organizations can adopt to curb their vulnerability:

• Review Claims Regularly: Regularly reviewing your open claim inventory for outliers can help you identify potentially volatile claims early on. Recognizing these potential red flags means you're always a step ahead, ready to take the necessary actions to mitigate risks.
• Open Communication: Keeping an open dialogue with your insurer and broker, especially concerning problematic claims, allows for a more cohesive and informed strategy. Pooling insights can lead to more effective resolution tactics.
• Ensure Compliance: Adherence to local, state, and federal regulations isn't optional; it's essential. Regular audits and checks can ensure that businesses remain on the right side of the law, reducing the risk of legal repercussions.
• Establish Safety Protocols: Safety isn't a one-time task; it’s an ongoing commitment. Companies should prioritize establishing and regularly updating safety protocols. This not only protects employees and customers but also helps in warding off potential lawsuits.
• Avoid Negligent Hiring: The quality of an organization is often reflected in its employees. Proper background checks, training, and ongoing evaluation can ensure that the team is skilled, ethical, and aligned with the company's values.
• Deploy Early Intervention: Not all claims are best left for a later resolution. Aggressive action plans can expedite resolutions and potentially curb costs. For claims that cannot be settled promptly, rigorous preparation and defense become paramount.
• Boost Corporate Image: Investing in the community, demonstrating good corporate citizenship, and fostering local relationships — in a way that’s genuine, not performative — can make a tangible difference. When juries view a company as an integral, positive force in their community, the odds of them rendering an excessively punitive verdict diminish.
• Secure Proper Coverages: Insurance isn't just about mitigating financial losses; it's about peace of mind. Ensuring that a company has the right insurance coverage in place, tailored to its unique risks, can be invaluable when faced with unforeseen challenges.

Impacts on Insurance Markets

The ripple effects of nuclear verdicts and social inflation are felt across various insurance markets, with some sectors more susceptible than others:

• Commercial Trucking: This industry faces heightened scrutiny due to the potential for significant damages in accidents. With rising claims and verdict amounts, insurance rates have also seen a surge.
• Manufacturing & Retail: Companies that produce goods, especially those with potential health and safety implications, are increasingly at risk. A single claim can have significant financial implications.
• Healthcare: With patients becoming more informed and open to medical malpractice litigation, healthcare providers face heightened risks. Even perceived negligence can lead to substantial claims.
• Professional Services: Firms offering specialized services, such as consulting and accounting, face unique risks. Decision-makers within these organizations can be held accountable for wrongful acts or oversight, making specialized insurance coverage critical.

Stay Ahead of Nuclear Verdict Risks with MMA

The rising tide of nuclear verdicts highlights the pressing importance for businesses to stay ahead with proactive, informed risk management strategies. The consequences of remaining passive or uninformed in this evolving environment are simply too dire to contemplate.

To better navigate this landscape and reduce your risk, contact your MMA representative or send us an inquiry.