LEGAL ENVIRONMENT describes insured claims costs rising above general economic inflation – has contributed to an increasing number of mammoth verdicts . The median verdict has gone up by more than 27 % between 2010 and 2019 , higher than the inflation rate during that period . And a recent paper estimates that social inflation increased commercial auto liability claims by more than $ 30 billion between 2012 and 2021 .
There are three main factors contributing to social inflation and resulting nuclear verdicts :
1 . Change in societal attitudes There is increased public mistrust of corporations , and a perception that decisions are made with only profit in mind . It is also believed that many corporations , and their insurers , have deep pockets that allow them to pay the disproportionate figures that are often intended to bridge the wealth gap with individual plaintiffs . The internet and social media have made it easier to access information , such as CEO salaries , bonuses , celebrity earnings , and endorsement values , further desensitizing jurors to the dollar values awarded and allowing emotions to play a prominent part in nuclear verdicts .
2 . Litigation tactics Litigation tactics have evolved , with many plaintiffs ’ lawyers no longer trying to present a sympathetic client in the hope of getting reasonable compensation . Instead , some may build their case to appeal to the jury ’ s basic sense of health and safety . They often portray the defendant as a serial offender that poses a direct threat not just to the plaintiff , but to the wider community . This is intended to shift the jury ’ s focus on penalizing the corporate defendant rather than simply compensating the plaintiff .
3 . Litigation funding Litigation is often funded by experienced investors who do not fear the economic hardship that many plaintiffs face during a prolonged trial . They may use data and algorithms to select favorable cases , jurisdictions , judges , and jury pools to improve their odds for a nuclear verdict . Litigation funding allows plaintiffs and their lawyers to resist potential financial pressure to agree to an early settlement , thereby increasing the odds of a trial that could lead to a nuclear verdict .
HOW SOCIAL INFLATION IMPACTS INSURANCE COVERAGE
The effect of social inflation goes beyond the defendants who are on the receiving end of nuclear verdicts , and can have insurance implications on other buyers .
As these verdicts become more frequent , and jury awards significantly higher , some insurers are exerting more caution and increasing premiums for certain lines of coverage , including commercial auto , medical malpractice , directors and officers liability , umbrella , and excess layers . Insurers may also consider narrowing of cover , especially in jurisdictions where such nuclear verdicts appear to be on the rise
Nuclear verdicts also can impact the availability of higher limits or coverage in general , either because insurers will be reluctant to offer these limits or because they become financially prohibitive . This typically has a greater impact on industries susceptible to such verdicts , such as trucking , healthcare , and senior care .
WHAT CAN COMPANIES DO TO MITIGATE SOCIAL INFLATION RISK ?
Employing good risk management practices can help organizations reduce the risk and potential impact of social inflation and nuclear verdicts on their business . This can entail :
• Regularly reviewing your open claim inventory with an eye towards outliers to help you identify potentially volatile claims .
• Engaging in regular communications with your insurer and broker to discuss your claims ,
NOVEMBER / DECEMBER 2023
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