Risk Adviser
The Fallout of High-Value Verdicts

• Paul Horgan
• November 2021
• 

In June 2021, jurors handed down a $222 million verdict against a power company in Kansas, where a plant operator was killed in a steam accident.

The same month, a plaintiff in Illinois who suffered paralyzing injuries when a bar employee forcibly removed him and dropped him on his head, fracturing his vertebrae, won a $51 million verdict against the bar owner.

These are just two recent examples of what is known as a “nuclear verdict,” an exceptionally high jury award that exceeds what most would consider reasonable. These types of verdicts are becoming more common and are being driven, in part, by aggressive and effective plaintiff's attorneys and jurors' beliefs that big corporations must be punished for their misdeeds.

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These factors, coupled with other societal trends, make up what is commonly called “social inflation.” Some of these societal trends hinge on the value of money. When a single lottery winner can take home more than $100 million and CEOs can earn more than $10 million a year, it's not hard to convince a jury that someone who was wronged by a big corporation is due a hefty payout.

Making matters worse is the advent of a litigation finance business model in which third-party investor groups provide capital to law firms involved in personal injury and liability litigation in return for some financial recovery once the lawsuits are resolved.

Plaintiff's attorneys are putting their money behind advertising, appearing on television, in print publications, online and on giant billboards seeking opportunities for actions on everything from auto accidents and medical malpractice to opioid and pesticide use.

Those highway billboards aren't cheap, but they're proving to be worth the investment for plaintiff's attorneys.

The insurance industry has taken notice. It is, after all, the insurance providers that help provide defense counsel for many of these cases. And the rising price of losing big is putting a strain on corporations and their insurers.

So, what can be done to counter this trend?

The good news is that defense counsel have learned from the highly successful tactics of plaintiff's attorneys and, as such, are employing some of the same techniques to win arguments inside the courtroom.

To effect change at the state and federal levels, the insurance industry has aligned itself with other groups, including the U.S. Chamber Institute for Legal Reform and the American Tort Reform Association.

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But the insurance industry and a handful of like-minded organizations can't do it alone. Corporations that are most impacted by social inflation and subject to nuclear verdicts will need to be the face of tort reform. The rising cost of liability lawsuits is costing companies billions of dollars, and the issue won't go away until it becomes a priority for the business community. That's why it is critical for corporations to exert pressure on their state and federal legislators to put an end to this.

Just a few years ago, the top verdicts in the United States were measured in the millions of dollars, according to data compiled by TopVerdict.com. Today, it's in the billions. And the median settlement of the top 50 U.S. verdicts rose from $28 million in 2014 to $58 million in 2018, according to a report, Insurance Marketplace Realities 2020, from Willis Towers Watson.

This represents an unsustainable trend for corporations and their insurance providers. It's a trend that will cause insurance rates to rise and capacity to shrink. Without a strong defense, nuclear verdicts will become the norm, and the fallout will be devastating.

Best’s Review contributor Paul Horgan is head of U.S. National Accounts, Zurich North America. He can be reached at paul.horgan@zurichna.com.