Nuclear Verdicts and Social Inflation

June 4, 2020
By Michael Copp, Executive Vice President

Last July I wrote about the dangers and risk to a contractor’s business related to cellphone use and distracted driving. And now the litigious environment is getting more frightening as a trend toward nuclear verdicts–a verdict in excess of $10 million (or is considerably high as compared to the injuries and damages) continues to grow. We were told that there are investment firms who will pay an accident victim directly and subsequently hire a legal team to litigate that case to retrieve a much higher sum to increase the return of their shareholder’s original investment. This is especially true with accidents involving vehicles and distracted driving, which contribute not only to higher insurance premiums but also these mega verdicts. I have since attended a meeting in February with Federated Insurance, which included several PHCC state Executives, Brenda Dant from Indiana and Debbie Maus from California, amongst other association leaders. The purpose was to provide additional context for why these verdicts are growing and what we can potentially do together to mitigate their impact on our members.

There are several factors that are driving up settlements of which lawyers get 40% of award: [(2020), PowerPoint presentation, Inequity In The Courts and how we can change it together, Federated Insurance, February 5, 2020.]

1) Inequity in the Courts:

  • Umbrella policies- doubling or tripling of costs at higher levels (property will stay about the same)
  • Juries distrust businesses- focus on punishment, not compensate—all to send a big message.
  • Millennial jurors (represent 1/2 of juror pool) lack financial context and have different valuations
  • Juries short attention spans spurn complicated explanations
  • Social media changes how jurors view the system

2) Reptile Tactics:

  • Reptiles go into attack mode when threatened or frightened
  • Plaintiff attorneys focus on the “callousness of big business” to scare the jury into large verdicts, suggesting it could just as easily have happened to them.
  • “Anchoring” is creating cognitive bias among jurors so they later rely on a specific reference point. ($20M award obtained by anchoring the jury to $80M in opening statements)
  • Pure Comparative Liability: 12 states allow a plaintiff who is >50% at fault for his/her own injuries to still recover damages
  • No Limits on non-economic losses: Plaintiff’s lawyers can ask jurors for almost anything they want for general past and future “pain and suffering” damages.
  • Collateral Source Rule: In most states injured plaintiffs can recover the amount billed by healthcare providers, even when the providers accept a lower amount as payment in full.
  • Excessive Punitive Damages
  • High limits encourage investor to buy a stake in the outcome
  • Lien-based medical treatment allows plaintiffs to pursue inflated “billed” amounts
  • Liens are usually not discoverable. Investors are the true part-in-interest and approve medical procedure. ($1B business)
  • Disclosure of policy limits help litigation funding companies “underwrite” their investment

3) 3rd Party Bad Faith:

  • Plaintiff’s demand policy limits
  • Insurance company reasonably rejects demand- continues defending client
  • Verdict in Excess of Limits- Insurance Co. may be liable

I was shocked to learn that the current Tort system costs every household approximately $3,300, which make this a consumer protection issue as well. Contractors can protect themselves by limiting the number of claims they experience. Hosting regular safety meetings, undergoing regular Risk Control Reviews of their companies, and limiting the use of mobile devices and other causes of distracted driving are a few things that can help dramatically reduce claims. As I noted back in July 2019, there are multiple resources from Federated Insurance, our Corporate Partner, that PHCC contractors can use to spread the message about avoiding technology use while driving and can be found here as well as developing a cellphone policy using free materials from the NSC.

Sources:

https://www.cbsnews.com/news/washington-state-driving-under-influence-of-electronics/?ftag=MSF0951a18

https://www.nsc.org/road-safety/safety-topics/distracted-driving


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