Social Inflation and Nuclear Verdicts: Could Your Business Be Next?

How much should a company pay in a wrongful death suit?

In August of 2019, a Georgia jury decided the correct award was $280 million, according to FreightWaves. At the time, it was considered the largest verdict ever awarded against a trucking company. The case involved a truck driver who veered across the center line, hitting an oncoming vehicle and killing its five occupants. The driver claimed that he swerved to avoid hitting a dog, while the plaintiff’s attorney argued that the driver fell asleep at the wheel.

While $280 million is a jaw-dropping amount, it is indicative of a larger trend. According to Truckload Indexes, data compiled by CaseMetrix shows that jury verdicts against trucking companies have been increasing in recent years. The average verdict in trucking cases was $7.5 million in 2015. By 2019, it had gone up to $17.5 million.

This trend is called social inflation, and it’s not limited to the trucking industry. As juries reach larger and larger verdicts, the liability landscape is changing. Primary liability limits are being exhausted, and overarching umbrella coverage is being accessed at unprecedented rates.

As a result, the availability and affordability of umbrella coverage is in jeopardy for businesses in many industries. The market has hardened, and underwriters have very little capacity or appetite. Companies must act now to shore up risk management practices and take control of their liability exposures.

Why Is Social Inflation Happening?

Under regular inflation, prices go up gradually over time. In social inflation, lawsuit verdicts increase rapidly as juries reach larger and larger verdicts – sometimes called nuclear verdicts – with the goal of punishing companies.

Although many factors are likely contributing to the current social inflation trend, generational shifts seem to be playing a major role. As Millennials and Generation Z members take over juries, their attitudes are influencing verdicts.

According to Business Insider, a Morning Consult survey found that younger people are much less trusting of brands than older people. Generation Z shoppers had an average brand trust rating of 10. For comparison, Baby Boomers had an average brand trust rating of 21, more than double that of the younger generation. At the same time, Millennials and Generation Z members are very interested in social justice issues.

Yet another driving force is the deployment of “The Reptile Theory,” a tactic in which plaintiff’s attorneys use worst-case scenarios to personalize cases, exploit jurors’ reptile brains and garner primal, emotional reactions. For example, in a trucking case, the plaintiff’s attorney might ask the jury members to imagine what it would be like if their children were killed in a similar accident. This can result in jury decisions based on emotion rather than logic.

Combine a passion for social justice and distrust in corporations with some calculated provocation from the plaintiff’s attorney, and the result is social inflation.

The Industries Being Most Impacted

The current social inflation trend goes far beyond the trucking industry. We’re also seeing rising jury verdicts in the following areas:

• Construction, especially civil contractors with heavy rigs, street and road contractors and dirt and aggregate contractors
• Transportation companies
• Drug companies
• Senior care providers
• Oil and gas
• Product liability

For juries, the industry isn’t nearly as important as the social issue. Younger jury members tend to be concerned with privacy, climate change, and pay disparity, as well as other social and environmental issues. Any lawsuits that touch on these issues could trigger nuclear verdicts.

What We Can Learn from the Past

Social inflation is not a new phenomenon.

In the 1970s, skyrocketing medical malpractice jury awards caused medical professional liability rates to soar. As a result, doctors couldn’t get the insurance coverage they needed to practice.

This problem was addressed with the implementation of caps on medical malpractice claims. According to Miller & Zois, 30 states currently have a cap on malpractice damages.

The Way Forward

The current situation is not temporary. The social and economic issues fueling nuclear verdicts are likely to persist.

This is a difficult environment for businesses, and those that exercise reasonable care to keep the public safe may not be immune to large jury awards. Although it may seem like an uphill battle, companies must act now to minimize their risks. Below are some recommended measures:

• Keep claims down. The best way to keep your rates down and avoid nuclear verdicts is to push for a zero-accident culture. Claim frequency inevitably leads to claim severity. Double down on safety, loss prevention, employee selection and training with the goal of eliminating accidents. Develop policies and procedures that focus on safety. All these safety measures will make your company a more attractive underwriting risk and may enhance your ability to secure higher primary limits as well as umbrella coverage.
• Consider telematics. If your company operates a fleet, consider using telematics to track, document and correct driver behavior. Having accurate data can make a huge difference in the length of time needed to reach a verdict. The longer a trial goes, the higher the settlement will be, in many cases. Use telematics data both as a loss prevention training tool and as evidence to delineate the facts of the case.
• Document everything. In litigation, attorneys will search for inconsistencies between your company’s stated policies and actual practices. Be ready to prove that you “walk your talk” by documenting all quality assurance and safety endeavors. Your actions should reflect and affirm your company policies. This will improve the defensibility of any claims filed against you.
• Embrace corporate citizenship. When it comes to jury verdicts, the way a company is perceived can make a difference. Build a reputation as a socially responsible brand. Give back to your community, be kind to the environment and treat people fairly and equitably.
• Assess your liability limits. With social inflation, primary liability limits of $1M are often not enough. Ask your agent if it’s possible to increase your primary liability limit from $1M to $2M. Many insurers don’t offer limits of $2M yet, but it’s worth exploring. In addition to providing greater protection, higher liability limits can make you a more attractive risk for umbrella underwriters.
• Prepare early for umbrella underwriting. With exploding rates, shrinking capacity and heightened underwriting scrutiny, it’s important to start shopping for your umbrella early. Work with your broker to develop a strong narrative about your safety and risk management efforts, including clear and accurate data about your liability claim trends. Increase your umbrella limits if possible. It may cost-prohibitive and underwriting will be very selective.

The Ultimate Solution: Lobby for Change

Reasonable caps on jury verdicts, like those seen in medical malpractice, could improve the situation while still allowing businesses to be held accountable for wrongdoing.

If you are concerned about the current legal environment, work with your state and federal associations and political action committees to push for tort reform.

In addition, lobby insurance companies to develop a $2M primary liability product offering.

Micheal Ferreira

A 24-year veteran, Mike knows the value of working for an independent firm. He can spend all his energy providing trusted advice, insurance program design and strategic expertise to his clients without the distraction of investor oversight and earnings reports. He serves one master, his policyholder.
More about Mike...

This author does not have any more posts.