The legal and insurance landscapes are currently facing one of their most significant challenges: the rise of nuclear verdicts. These extreme jury awards, exceeding $10 million, are reshaping the dynamics of civil litigation and insurance underwriting, posing a critical concern for businesses across various sectors.
This article will explore what a nuclear verdict is, and what you can do as a business leader to minimize your risks.
Understanding Nuclear Verdicts
Insurance Journal defines a nuclear verdict as a court award or settlement exceeding $10 million. This term, as described by Harold Kim, President of the Institute for Legal Reform, captures the apocalyptic impact of such verdicts on businesses and insurers. Travelers Insurance reported that the National Law Journal documented a dramatic increase in the average verdict size, from $64 million in 2015 to $214 million in 2019. This trend is not just shocking in its scale but also in its breadth, affecting industries like trucking, shipping, pharmaceuticals, and more.
The Concentration of Nuclear Verdicts in Key States
It’s noteworthy for business leaders to be aware of the fact that astonishingly, 63% of nuclear verdicts in the past decade were reported in just six states:
- Pennsylvania
- California
- Florida
- New York
- Texas, and
- Illinois.
This concentration underscores the need for businesses in these states to be particularly vigilant and proactive.
The Driving Forces Behind the Trend
Travelers also noted that several factors contribute to the rise in nuclear verdicts:
- Trial Advertising: This has been a significant driver, with extensive online, TV, and billboard advertising influencing jury pools.
- Unregulated Third-Party Funding: With minimal regulation, this $39 billion industry involves capital backing from entities like hedge funds, injecting external financial interests into legal cases.
- Social Inflation: The public’s growing desensitization to large settlements, coupled with anti-corporate sentiment and perceived unequal wealth distribution, especially highlighted during the COVID-19 pandemic, has influenced jury decisions.
The Impact on Insurance and Businesses
Businesses must grapple with rising insurance costs, pushing liability insurance out of reach for some business leaders. The trucking industry, in particular, has been one of the hardest hit, with several companies facing bankruptcy post-nuclear verdicts.
Effective Management Strategies
In response to these challenges, experts like Travelers’ Claim General Counsel Alexia Cruz emphasize the importance of strategic litigation decisions in combination with the right insurance and risk management partners. To mitigate the risks associated with nuclear verdicts, businesses should adopt a “predict and prevent” risk management approach. Some steps to minimize your exposure to a nuclear verdict include, but are not limited to:
- Assess Vulnerabilities: Regularly assess areas of your business that are most susceptible to lawsuits, such as product liability, employee safety, or customer interactions.
- Stay Informed: Keep abreast of legal developments, focusing on verdicts within your state or industry.
- Consult Legal Experts: Regularly discuss current challenges with your legal advisor to understand emerging legal trends and how they might affect your business.
- Enhance Safety Measures: Continuously update and enforce safety protocols to prevent incidents that could lead to litigation.
- Employee Training: Regularly train employees on compliance, safety, and risk management best practices.
- Maintain Thorough Records: Keep detailed records of safety measures, employee training, and compliance efforts to use in your defense if litigation arises.
- Promote Transparency: Foster an organizational culture that values honesty and transparency in all dealings.
- Ethical Decision Making: Encourage ethical decision-making at all levels, reducing the risk of actions that could result in litigation.
- Adequate Insurance Protection: Ensure your business has appropriate liability insurance coverage.
- Insurance Partner Collaboration: Work closely with a risk advisor to understand alternative strategies beyond insurance placement that could minimize your risks.
The Path Forward
As you navigate the evolving landscape of nuclear verdicts, staying informed and proactive about what is happening in your industry is key. You should understand past precedents while assessing current industry trends. Businesses and their insurance partners must work together to navigate these challenging waters effectively. By adopting thorough risk management practices and aligning with a knowledgeable and proactive independent agent, businesses can better protect themselves in this unpredictable legal environment.
