The impact of nuclear verdicts and social inflation on U.S. claims

In this article, we examine the current landscape for liability claims in the United States, including the increase in “nuclear verdicts” and the effects of social inflation on claims. We also look at methods for limiting these effects and predicting when a claim has the potential to result in an excessive verdict.

Recent statistics on jury verdicts 

  • Between 2010 and 2018, the average size of verdicts over $1 million rose from $2.3 million to $22.3 million. (Rice, S., Nuclear Verdicts Drive the Need for Insurers’ Litigation Change, Law360 Insurance Authority, Sept. 8, 2021)  
  • In a study of 1,376 verdicts of over $10 million in state and federal courts, the median verdict grew from $19.3 million in 2010 to $24.6 million in 2019, a 27.5% increase (outpacing the inflation rate of 17.2% over the same period). (Cary Silverman & Christopher E. Appel, Nuclear Verdicts: Trends, Causes, and Solutions, U.S. Chamber of Commerce Institute for Legal Reform, September 2022)  
  • The average verdict in the National Law Journal’s Top 100 Verdicts more than tripled from $64 million to $214 million between 2015 and 2019. (National Law Journal’s 2015 and 2019 editions of the Top 100 Verdicts) 
  • Trucking verdicts, which averaged $2.3 million in 2010, surged to $22.2 million in 2018. (“Trucking Targets ‘Nuclear’ Verdicts,” Sept. 16, 2020) 

For companies, the effect of a nuclear verdict can be significant. Verdics, meaning a jury's award to the plaintiff at the end of trial in the millions, and even billions, of US dollars, can surpass the defendant’s insurance limits for the claim, thus making the defendant company responsible for paying the difference. In some cases, these huge sums can lead to bankruptcy. When insurance is used to cover large claims, it will also lead to increased premiums in the future.

What makes this more difficult is that these nuclear verdicts are hard to predict, making it challenging for companies and insurers to plan for them. Small and medium-sized businesses in all industries are just as vulnerable and can also face these massive verdicts. Plus, the risk of a nuclear verdict increases the amount a company may be willing to pay to resolve the claim through settlement before trial, resulting in increasing settlement amounts too. 

The importance of mitigating risks and preventing accidents from happening in the first place is extremely important.

With the rise in nuclear verdicts, the importance of trying to mitigate risks and prevent accidents and incidents from happening in the first place is extremely important. Clients need to understand where (for example, in which state) they should have their U.S. domicile to better avoid “judicial hellholes” where the risk of a nuclear verdict is more likely to occur.

By having very competent U.S. legal counsel involved early on, customers will benefit from their thorough analytical expertise with regard to all business agreements before signing, as well as an understanding of the risks a company must take on, or planning for how to transfer risks to others (such as through hold harmless clauses, for example) before they enter the U.S. market, begin to sell products, build a factory, and/or enter into agreements with clients, partners and suppliers. 

U.S. liability landscape

According to Elaine Pohl, a partner with the Insurance Law Practice Group at the Plunkett Cooney law firm, several factors have contributed to the increase in nuclear verdicts. For example, plaintiffs’ counsel may rely upon the reptile theory legal strategy by creating fear and anger in the jury, to make jurors believe that the defendant's actions endangered the community by violating safety standards and turning minor safety violations into major concerns. This strategy can influence the outcome of the trial by capitalising on the emotions of the jury.  

Elaine Pohl photo.
Elaine Pohl, Plunkett Cooney

Another issue is the location, and understanding the impact of both where the trial takes place and which U.S. state’s law will apply to the dispute is critical. To that end, different states can lead to very different outcomes. Some states, like Florida, California, New York, Texas, and Pennsylvania, are known for being challenging when it comes to nuclear verdicts. However, nuclear verdicts can happen anywhere under the right circumstances.  

The characteristics of jury members also play an important role. Differences in how different generations see their role as jurors can influence verdicts. For example, younger jurors often report that they feel responsible for safeguarding society when they serve on a jury, rather than focusing on the facts of that particular case, which can in turn boost the reptile theory's effectiveness. 

Pohl explains that “E-Discovery is a huge part of litigation in the U.S., and we know this is different in the U.S. compared to other locations.

There are specific procedural rules governing the disclosure of electronically stored information, and emails alone make this a very thorny issue. Sometimes employees forget that emails are recorded and stored with the company and if the emails are not privileged or otherwise confidential, relevant emails must be disclosed.” 

Other things to consider include: 

  • Corporate greed perception: Some people believe that companies prioritise profits over their employees and reward top executives with big bonuses, at the expense of the public or their own employees. 
  • Money's value: The prevalence of huge dollar amounts publicised in the media, for example lottery winnings or multi-million-dollar athlete salaries has raised expectations for compensation in legal cases. 
  • Litigation funding: The emergence of litigation funders provides plaintiffs with loans to pursue their cases. This adds another party to the mix and can discourage settlements, reducing risks for plaintiff lawyers. 
  • Tort reform changes: Efforts to increase the amount of money that can be awarded in lawsuits, broaden wrongful death claims, and the changing dynamics in a post-COVID world have weakened the legal reforms of the past. 

How to mitigate the risks 

To handle the challenges of nuclear verdicts and social inflation, you need a comprehensive approach. Says Pohl, “Valuable work is done by our partners at If and Liberty Mutual in underwriting risks, handling claims and providing resources for us to be able to consider and plan for these issues.” 

“To prepare for a trial, utilise strategies like researching the jury, conducting mock trials, exploring alternative ways to resolve disputes such as through mediation or high-low agreements, and engage appellate counsel before trial so that all post-trial options will be available in an effort to lower nuclear verdicts,” Pohl states. 

decorative image. Two persons talking in corridoor.

Hiring experienced lawyers who put in the effort to defend claims aggressively can make a big difference. If clients have access to legal support and approved lawyers throughout the U.S. 

In contrast with the past, today plaintiffs’ lawyers are talking about settlement sums and numbers early on and often, as early as voir dire (the process where attorneys select, or more commonly reject, certain jurors from hearing a case). This is called anchoring, and it makes sense for the defense counsel to address the plaintiffs’ requested damages directly and even offer an alternate theory for damages during the trial. 

It is a team effort 

In the end, collaboration between insurers, brokers, and the parties involved is crucial for handling the risks associated with U.S. liability claims, including nuclear verdicts and social inflation. 

By being proactive and by providing employee training, implementing safety programs, and practicing risk management to reduce the chances of claims, companies can prevent claims from happening in the first place. With robust procedures and transparent guidelines, all employees should be well trained and aware of potential risks. 

The increase in nuclear verdicts and social inflation creates a tough situation for liability claims in the United States. To handle this, it is important for businesses, insurers, and legal experts to work as a team and understand what is causing these problems and how to deal with them. By joining forces and taking a comprehensive approach, we can better deal with and reduce the risks linked to these challenges. 

In conclusion, Elaine Pohl counsels: “The increase in nuclear verdicts throughout the United States is caused by many factors, which means there is no easy solution. In my opinion, this trend is not going to change any time soon. However, it is important to recognise the trend and address it directly with the help of insurer partners like If and Liberty Mutual, as well as knowledgeable legal counsel in an effort to minimise the risks as much as possible.”  

Written by

Vilma Torkko, If