January 14, 2022
Verdicts Go Nuclear
In June, plaintiffs were awarded a $222 million verdict against a power company in Kansas for a plant operator killed in a steam accident.
In the same month, a jury awarded a bar patron in Illinois $22 million when an employee forcibly removed him from the bar and dropped him on his head, fracturing his vertebrae.
In September, a jury in Florida handed down a verdict of almost $1 billion when a distracted semi-truck driver slammed into a line of cars killing an 18-year-old college student.
These are recent examples of nuclear verdicts, where the awards are vastly out of proportion to what most people would consider reasonable. The median of the top 50 U.S. verdicts has increased from $28 million in 2014 to $58 million in 2018, according to Insurance Marketplace Realities 2020, a report by Willis Towers Watson. And that figure is expected to double soon.
Part of the answer to why many verdicts have gone nuclear is social inflation. When lottery winners can take home over $100 million and CEOs earn more than $10 million a year, trial lawyers find it easier to convince jurors that defendants wronged by big companies should pay out big amounts, enough to punish and hurt them financially.
With verdicts like that, plaintiff attorneys are incentivized to drum up business. They are spending big dollars on billboards, television, radio and print advertising to solicit opportunities for clients, especially class action suits on everything from auto accidents and medical malpractice to opioids and pesticides.
What is making matters worse, though, is the recent phenomenon of litigation funding, where third-party investors agree to assume some or all the costs of a lawsuit in order to get a percentage of the settlement.
According to Bloomberg, hedge funds, private-equity, and sovereign wealth funds “are piling billions into the outcome of high stakes court cases at a faster rate than ever before,” turning litigation funding into a $39 billion global industry in 2019.
So far, says the Insurance Information Institute, the defense bar and insurance companies have been slow to react to this “runaway litigation, and its impact on claims and losses.”
Learning from the Plaintiff’s Bar
The good news, however, says Paul Horgan, a writer for Best’s Monthly Insurance Magazine, “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.”
“Just as the plaintiff bar has deployed creative new courtroom strategies to push awards ever higher, the defense bar should respond with strategies of its own to arrest the continued inflation of awards,” said Jerry Theodorou, Director of Finance, Insurance and Trade at R Street Institute, an insurance industry consultant. “Failure to do so will result in impaired insurer balance sheets and higher insurance premiums for all, amounting to a ‘hidden tax’ burdening individuals and making businesses less competitive.”
If left unchecked, Theodorou warns, “social inflation will become self-perpetuating and send improper signals regarding the value of damages to jurors, judges and defendants. This, in turn, will lead to higher insurance premiums, increased financial stress on insurers and disincentives for businesses to take risks as they become unable to fully calculate the risks in the market.”