CCO CONNECT EXCLUSIVE
There are some outside the insurance industry who believe social inflation is a term pushed by insurers to drive rates, and that, to the extent social inflation exists, it is not as big of a problem as carriers contend. The data says otherwise.
Allen Kirsh, head of claims judicial and legislative affairs, Zurich, reviewed the numbers and discussed social-inflation drivers with claims executives at CLM’s recent Chief Claims Officers Summit (CCO Summit) in Baltimore.
From 2017 through the end of 2021, general liability incurred losses increased almost 57.5%, Kirsh noted. By comparison, the Consumer Price Index over that time was up about 10.5%. While social inflation may not explain the entirety of that 47-point difference, “certainly a chunk of that gap is social inflation,” particularly in certain lines, said Kirsh.
Social inflation is being driven in large part by nuclear verdicts, often defined as cases with jury verdicts of $10 million and above. These verdicts are on the rise; Kirsh said some lines of businesses experiencing the highest number of nuclear verdicts are medical malpractice, product liability, and auto (including trucking). Kirsh explained that trucking cases fit particularly well with plaintiff’s attorneys’ reptile-theory tactics, where anger and fear are used to push jury verdicts higher.
Nuclear Verdict Drivers
What is behind the rise in nuclear verdicts? Kirsh discussed the following key drivers with the claims executives in attendance:
Changing jury demographics and corporate mistrust. The views of younger generations are resulting in changing jury attitudes and motivations. “Younger generations view their role more as a protector of the community,” said Kirsh. He added that younger generations also generally have higher expectations of safety and corporate responsibility. As a result, younger jurors “fall into the sweet spot” for plaintiff’s attorneys’ reptile-theory tactics.
Outlining the evolving views of juries today, Kirsh said jury consultant firm Magna Legal Services conducted a recent survey of prospective jurors. Some of the concerning results:
Plaintiff tactics. As mentioned, the emergence of the reptile theory has been a game changer for plaintiff’s attorneys. Previously, plaintiff’s attorneys attempted to use empathy to win over jurors, but that has given way to using fear and anger to motivate juries to award larger amounts. The book, “Reptile: The 2009 Manual of the Plaintiff’s Revolution,” has become an established guide for the well-organized and well-funded plaintiff’s bar; Kirsh noted plaintiff’s attorneys have either read the book or taken courses on it to learn how to use reptile theory to drive higher verdicts. The defense bar, meanwhile, has been slow to react to this change in tactics.
Bob Tyson,managing partner at Tyson & Mendes, addressed the claims executives at the CCO Summit after Kirsh, and he expanded on the emergence of reptile theory and the defense’s slow response. He noted that, while plaintiff’s attorneys studied psychology after the Great Recession, culminating in their use of reptile theory to generate larger jury awards, insurers—and, by extension, defense counsel—were focused elsewhere, and their strategies, at least as far as convincing juries, have not evolved. “This is what plaintiff’s bar hopes you do—the same thing you always do,” said Tyson. “And the good news for them is, for the last 15 years, we have.”
Anchoring is another tactic used by plaintiff’s attorneys to drive higher verdicts. Early and often—even in voir dire—plaintiff’s attorneys will assign a high dollar value to the case and vocalize it to jurors. Said Kirsh, “They’re already putting in jurors’ minds what the case is worth.” This conditions jurors to be comfortable awarding an amount they perhaps would not have considered.
Finally, plaintiff’s attorney advertising, said Kirsh, acts almost as a form of “national anchoring.” Through their frequent ads, plaintiff’s attorneys speak to potential jury pools around the country and promote testimonials of large-dollar verdicts in cases. For example, a commercial might advertise a testimonial stating, “I was in a car accident, and I got $15 million.” This conditions people to accept $15 million as a normal, acceptable award for a car accident, and makes it harder to find an unbiased jury, said Kirsh.
Litigation funding. Even cases involving low-dollar amounts can be difficult to resolve when litigation funding is involved. Defense and plaintiff’s attorneys may agree on a number to settle a case, but once that number is crunched to determine how much goes to the litigation funder, with interest, there is no “new money” for the plaintiff, and the plaintiff turns down settlement offers to take a chance on a bigger number at trial.
A challenge with determining the true impact litigation funding has had on nuclear verdicts is the lack of disclosure rules. Kirsh said only a few jurisdictions require plaintiffs to turn over information relating to who the interested parties are in a given case. Outside of those jurisdictions, litigation funders do not have to be disclosed. “Until we get better disclosure, the data on this tends to be anecdotal,” Kirsh explained.
Legal landscape. It is a simple reality that certain jurisdictions are more plaintiff-friendly than others. Kirsh said tort-reform efforts have eroded over the years, making the issue even worse. An exception to this trend is Florida, where major tort reform was passed in March 2023. Kirsh said that effort involved rare coordination between the business and insurance communities in response to a crisis.
Plaintiff’s attorneys, meanwhile, are far more likely to be highly coordinated in their efforts to share tactics and shape the landscape in their favor. They become legislators and judges, and therefore they are able to change laws and interpretations in various jurisdictions. “They’re really making a difference out there,” said Kirsh.
Combating Nuclear Verdicts
Kirsh suggested a range of strategies to combat the disturbing nuclear verdict trend. When defending cases:
As far as longer-term strategies, Kirsh called for more coordination and education among all parties that are negatively impacted by nuclear verdicts to truly understand plaintiff’s-attorney tactics and how to counter them. Some of the claims executives in attendance noted that there is very little organization and collaboration within the insurance industry. Carriers do not talk and do not want to give away trade secrets.
Kirsh acknowledged that challenge and said steps need to be taken to break down barriers. Zurich, he said, has sponsored a defense-attorney summit where issues can be addressed one-by-one. He also said defense attorneys must understand the importance of sharing tactics, and carriers should incentivize and reward that behavior.
Kirsh said the existence of his position at Zurich is a step in the right direction. It is a relatively new position, and the idea behind it is to examine the issue of social inflation, understand the drivers, and educate claims professionals, defense attorneys, and others.
Advocacy is another important area of focus, Kirsh said. “How do we create an industry culture?” he asked. “Social inflation is not just a Zurich issue; it’s not just a specific customer issue. It’s an industry issue and it’s a business issue, at the end of the day. Carriers will not agree on everything, but there are certain things we can agree on in terms of how to really combat sociation inflation. How do we get everyone together to really focus on their advocacy efforts and lobbying efforts, to really move the needle?”
A Different Approach
Tyson has become well known for his efforts to change the thinking among defense attorneys and their clients when it comes to nuclear verdicts. He wrote a book, published in 2020, titled, “Nuclear Verdicts: Defending Justice for All,” that examined how to avoid nuclear verdicts and limit exposure at trial.
Tyson told the claims executives at the CCO Summit that the ability to defeat nuclear verdicts is in their hands, and the changes necessary to do so can be done today. He said the advocacy and education efforts Kirsh spoke of can also be done as longer-term strategies, but he stressed that, with a change in thinking, avoiding the next nuclear verdict can begin today.
Accept responsibility. The tactics plaintiff’s attorneys use to achieve nuclear verdicts are not a secret. In fact, they’ve been plainly stated. Tyson said the theme plaintiff’s attorneys use to paint defendant corporations in a negative light and get juries angry is to argue that corporations never take responsibility for their actions. If the defense takes responsibility, it disrupts the plaintiff’s attorney’s strategy. “Take responsibility, and you take away their theme,” Tyson contended. “I’m not saying give up liability; just take away their theme.”
Taking responsibility, said Tyson, allows the defense to turn the tables on the plaintiff and ultimately shift that responsibility back to them, because when the focus is put back on them, “Plaintiff’s attorneys aren’t taking responsibility.”
Give a number. Anchoring, as discussed above, involves plaintiff’s attorneys assigning a large dollar value to a case and mentioning that number to the jury early and often. The same tactic can work for the defense. “Give a number you can stand by that’s reasonable,” Tyson suggested.
The concern for carriers is that giving a number might send a signal that the defense does not believe in its case, and Tyson noted the idea is not always popular when he talks to adjusters and claims managers. But he pointed to a 2006 study showing that the defense giving a number made a plaintiff’s verdict no more likely, and a more detailed 2017 University of Iowa Law Review study that found defense verdicts were actually more likely when defense gives a number.
“It’s credibility,” said Tyson. “If your defense lawyers can get a number that they can explain to the jury and justify, it makes them seem reasonable, and then it makes their liability argument seem more reasonable.”
A change in pay structure. Tyson noted that, for defense counsel, volume matters. The current compensation structure dictates that. The current structure also assigns no greater value to one case over another, regardless of the dollars at stake. He floated the idea of a contingency fee structure for the handful of claims files that carriers are most worried about. Payment under that structure would involve defense counsel receiving a percentage of the money saved relative to the plaintiff’s demands.
Tyson made clear this structure would not be relevant to every claims file. “Don’t change the whole industry,” he said. “But if you have files that you’re really worried about, and that keep you up at night, shouldn’t you have defense counsel worried about those same files?”
He added, “It seems to work for the plaintiff’s attorneys. They get very creative when it impacts their income.”
Ultimately, Tyson’s message was that a lot of power remains in insurers’ hands when it comes to avoiding nuclear verdicts, but the tendency is to look outward rather than inward. “We can debate if juror attitudes have changed in the last few years and how they hate corporations,” he said. “But let me ask you this: When did we Americans love corporations?”
He added, “I don’t know if that’s what happened. What’s happened is [plaintiff’s attorneys have] focused their cases on corporations, and we’re doing what we always do. We don’t even talk about our clients in trial.”
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Phil Gusman is CLM's director of content. phil.gusman@theclm.org
