As courts begin to try jury cases backlogged by the disruptions of COVID-19, we are seeing an aberration in the results awarded by juries, as well as an increase in the potential for nuclear verdicts—any jury award that surpasses $10 million—across numerous industries.
Recurring, unprecedented requests by the plaintiffs’ bar are designed to provoke juries to reach excessive verdicts, oftentimes including astronomical non-economic damages, to “send a message” to businesses. Until recently, the plaintiffs’ bar had not been regularly able to sway juries to award such damages, but several factors are working together to increase the likelihood of businesses facing such a scenario. Accordingly, the number of nuclear verdicts is likely to increase, forcing up the total cost of risk for businesses unless decisive action is taken to change the narrative that juries are receiving.
The Rise of Nuclear Verdicts
According to a study from the American Transportation Research Institute (ATRI), when looking at verdicts of more than $1 million between the years of 2010 and 2018, the average jury award from a trucking-related crash increased nearly 1,000% from $2.3 million to $22.3 million.
Last year, the family of a 73-year-old East Texas woman killed in a 2016 crash involving an oversized load truck was awarded $730 million by a jury in a wrongful-death lawsuit. The lawsuit was against the trucking company and the companies employing the front and rear escort vehicles, according to the Longview News-Journal.
More recently, an Iowa City couple was awarded $98 million in a medical-malpractice lawsuit after their newborn suffered permanent brain damage from alleged hospital negligence. The jury found the hospital and clinic responsible for damages, including “future medical and custodial care, loss of future earning capacity, past and future pain and suffering, and past loss and future loss of function of the mind and body,” reported The Gazette of Cedar Rapids, Iowa.
These examples illustrate how the plaintiffs’ bar has skewed societal perception about what amount of damages plaintiffs should recover, which subsequently increases litigation costs and insurance premiums. This trend is causing an overwhelmingly negative impact on the insurance industry as a whole, with costs outpacing inflation, making it difficult for companies to secure adequate coverage.
The Role of Social Inflation
For years, social inflation has played a large role in swaying jury sentiments when it comes to awarding large damage amounts against companies and corporations. Factors such as corporate mistrust, consumer and health care price inflation, generational activism, and social media, among others, have allowed the plaintiffs’ bar to impact juries in ways not historically seen.
The value placed on a dollar has been thrown off balance by everyday news events and popular culture. For example, Los Angeles Angels outfielder and celebrity, Mike Trout, signed a 12-year contract in 2019 worth $426.5 million, which averages out to more than $35 million per year, reported The Analyst, a data-focused sports website.
Although it may be hard to comprehend, at the time, members of the sports media argued that Trout was actually being underpaid for his value. How is this connected with the topic of social inflation? The public has become anesthetized to the idea of extraordinary compensation as it has become more conventional, and the plaintiffs’ bar has been highly effective at desensitizing juries from the outset on large numbers.
Further, the ever-expanding use of reptile theory by the plaintiffs’ bar—a trial strategy designed to create a sense of fear and anger within a jury and to align it with the plaintiff—has had a major impact on jury awards. Jurors who are already suspicious of corporations, health care systems, and the like are now left to feel unsafe by the actions of the defendants. This fear for their own safety triggers a response in which the awards are also increased.
While nuclear verdicts will earn the most media coverage and cause the most alarm for businesses looking to secure adequate insurance coverage, a more disconcerting trend is gaining prevalence outside of the courtrooms: the nuclear settlement.
The compounding impact on the severity of settling claims due to the overwhelming downside risk of a very public nuclear verdict allows the plaintiffs’ bar to seize on the threat of a trial as leverage to consistently, and indiscriminately, demand large settlement amounts. This ever-increasing severity issue is a primary factor in the rising cost of insurance and, in some instances, the reason why insurers elect to no longer write certain classes of business.
How Can We Change the Narrative?
In this complex and high-stakes environment, the quality and consistency of claims handling has never been more critical. Being proactive and aggressively evaluating claims early is essential. Businesses must be provided with the opportunity to make informed, fact-driven decisions about the best course of action from a legal and financial standpoint.
For the defense, it is now critical for counsel to attack damages in discovery and at trial, irrespective of the strength of the liability defenses. A failure to vigorously defend damages leaves a defendant at the mercy of what the plaintiff requests of the jury. The days of a defense attorney failing to suggest an alternative number to the jury, even when vigorously defending liability, are over—and the failure to do so by a defense lawyer without client approval is borderline legal malpractice.
In short, it is time to reeducate and resensitize juries to the fact that the legal system is designed to award damages to compensate a person or persons for what is lost, not to make them rich. There are a number of key strategies counsel can employ to reduce the possibility of a nuclear verdict and protect the interests of clients.
Be proactive, not reactive. Mark Twain once said that if you have to eat a live frog, do it first thing in the morning and nothing worse can happen to you the rest of the day. There is power in being proactive and intellectually honest at the outset of a claim, allowing for frank discussion on the best course of action to be undertaken. It is important to remember that defendants control the money and with that control comes a certain amount of leverage. With precise liability and damage evaluations, strong claims teams and defense counsel will be in a position to tell clients what they need to know, even if the news is not good, allowing for earlier and less costly resolution when the threat of trial is not on the immediate horizon.
Be creative. No two cases are the same. Each new case requires a unique strategy in order to arrive at an optimal solution. Repurposing what has worked in the past is not a sure-fire way to handle a case or gain trust with a client.
In today’s legal environment, it is critical that claims personnel and defense counsel use every arrow in their quiver to attack the evaluation of claims and to better educate their clients on exposure. The use of predictive analytics and historical benchmarking to assess exposure should be routine, as should the expanded use of focus groups and mock juries to better orient clients to the range of socioeconomic reactions to certain facts or trial strategies.
In terms of attacking damages, the use of social media screens should be axiomatic and defense counsel should be routinely challenging the plaintiff’s damage experts and their models with Daubert or Frye motions and pushing for the admissibility of collateral source benefits or alternative means of establishing present value, even if, historically, those efforts have been unsuccessful.
Do not be afraid to negotiate. What ultimately settles cases is risk. The day a claim is made or a lawsuit filed, the plaintiff is effectively making an offer to resolve the case. The defense bar needs to do a better job at placing plaintiffs at risk early through reasonably grounded settlement offers when liability is a concern or the exposure is severe. As stated previously, money is leverage and the key for defendants is to not negotiate solely in response to a plaintiff attorney’s demand, but instead to negotiate consistently with your internal evaluation.
Make the other side earn it. Every negotiation must have an end point. When confronted with an unreasonable demand, there is power in walking away and telling the other side that they will have to earn that number from a jury. We cannot continue to simply escalate the amounts of settlement to avoid the risk of trial, even in an environment of increased severity. The key is having conviction in the defense evaluation and allowing it to drive the negotiations.
Have the right support. It has never been more important to have the right support from experts who know the market inside and out, as well as defense counsel that is not afraid to try cases.
The success or failure of a claims organization is largely dependent on how high-severity claims are managed. Partnering with litigation and risk management experts who are familiar with specific industries will most likely produce significant savings and reduction in a business’ total cost of risk.
The stakes are high today for businesses and insurers with liability risks. Social inflation coupled with increasing health care costs for future medical needs has allowed an increasingly sophisticated plaintiffs’ bar to convince juries to award astronomical amounts.
To counter this trend, defendants must be better at attacking damages, evaluating exposure early and with intellectual honesty, and aggressively pursuing resolution early. Through the use of these tactics, we, as an industry, can begin the process of changing the narrative.